Sunday, September 30, 2007

BigBand announces big revenue miss

Since BigBand Networks (BBND) is part of our model portfolio, I feel compelled to comment on the devastating news released after the close last Thursday.

The company announced that it would encounter a revenue shortfall and be unprofitable in the third quarter. BigBand now expects to report revenue for the third quarter in the range of $35 to $39 million, which is below the company's previous guidance of $54 to $58 million. The lower revenue outlook is due to several factors. BigBand has been deploying switched digital video across an expanding number of customers and configurations. Some of these ongoing deployments have required more software customization and integration than originally expected. In other words, the company underestimated the effort and the timeline. This has impacted their ability to book revenue for some of these deployments in the third quarter. The company also said it experienced a slowdown in Telco-TV revenue, as its "major customer" worked through some previously purchased inventory. The major customer is said to be Verizon.

A flurry of analyst downgrades immediately followed the announcement and the stock lost 25% in Friday's trade. Investors like me were blindsided and had no chance to get out.

This just confirms that selling to the telcos is a bad business to be in lately. We have seen Nortel (NT), Tellabs (TLAB) and Alcatel-Lucent (ALU) making the same kind of announcement. Alcatel-Lucent has offered three profit warnings in a row. Being a smaller player, like BigBand, just makes it that much harder.

Our expectation was that BigBand would not be a rocket stock but over the long term would prove itself and perhaps be bought out by a company like Cisco Systems (CSCO). It is clear that the long term just got longer.

Disclosure: author owns shares in BBND and CSCO



Introducing the TradeRadar Users Group

This has been a weekend of web site development. First, we updated TradeRadarWeb by rolling out the online version of TradeRadar 2.0 to the site. Now I'd like to announce the inauguration of the TradeRadar Users Group.

We have signed up with Ning.com to create a social network dedicated to the TradeRadar software. Included is a discussion forum and the ability to upload photos or screenshots of stock charts, from TradeRadar or elsewhere. You can even create your own blog entries to describe your progress with your portfolio or your use of the TradeRadar software.

Since we have over 300 people who have downloaded the software, my hope is that we can now begin to collaborate to identify ways to improve the software or to improve our techniques for using it. I am looking forward to users sharing stock picks, tips on using the software, asking and answering questions and reporting problems or anomalies.

See you soon at the TradeRadar Users Group!



Saturday, September 29, 2007

Online version of TradeRadar upgraded to Version 2.0

This post is to announce that TradeRadarWeb, the online version of the TradeRadar software, has been upgraded to version 2.0

The primary enhancement is that trend lines are now generated to help confirm BUY and SELL signals. If you're running Microsoft Internet Explorer, click here to run TradeRadarWeb now!

The software attempts to identify reversals in price movement. In the case of a BUY signal, TradeRadarWeb will now indicate whether an initial downward trend exists and whether a subsequent upward trend is in the process of being formed. The trend lines are displayed on the chart screen overlaying the price graph and moving averages.

For more detail, read the post that originally announced the version 2.0 roll-out of the TradeRadar desktop application.



Thursday, September 27, 2007

Sallie Mae - JC Flowers deserves a better deal

The student loan industry is resigned to disappointment. President Bush signed a bill today that cuts subsidies and increases grants. The bill will reduce profitability at all student loan lenders. It is a prime reason why the buy-out of Sallie Mae (SLM) by a group led by JC Flowers is facing rocky times. The terms of the deal were set at a time when funding for buy-outs was easily obtained and investors were more willing to accept riskier deals. The increased risk due to this bill and today’s credit market situation where investors are demanding higher risk premiums has put this deal in jeopardy. I agree with JC Flowers -- they deserve a better deal.

How the bill affects student lending

One of the ways lenders make money is through the subsidies paid by the U.S. Education Department on subsidized loans in the Federal Family Educational Loan (FFEL) program. The FFEL program consists of Stafford and PLUS loans. Stafford loans are the first ones financial aid administrators advise students to obtain; therefore, they are probably the most popular type of student loan at schools not in the direct lending program. Stafford and PLUS loans are a huge portion of every lenders portfolio so reducing the amount the government will pay essentially reduces the lender’s margin on each subsidized loan. The subsidies are based on aggregate amount of borrower interest accrued during certain periods in the life of the loans in the loan portfolio. It is expected that subsidies will be reduced by about $20 billion per year. By way of comparison, in 2006 there were about $23.3 billion in subsidized Stafford loans issued, $23.8 billion in unsubsidized Stafford loans and $8.3 billion in PLUS loans. There is close to $600 billion dollars in FFELP loans that have been issued since 1966.

Equally if not more troublesome is the fact that this bill also puts in motion a process whereby the interest rates on student loans would be halved over a four year period. If cost of capital rises while federally mandated interest rates decline, lender profits will be significantly squeezed. It is unlikely that lenders can make up for this kind of margin compression via origination fees, late fees, handling fees, etc. though they will certainly try.

In terms of grants, Congress is increasing Pell grants for low-income students. Students with grants will obviously need less in the way of loan money so this will impact loan volume. The Democrats claim they are replacing the funding, around $12 billion, that was reduced by Republicans in previous years so this may end up being a wash.

Another change that will reduce lender profitability is related to PLUS loans. These loans are part of the FFEL program and are made to parents to pay for the education of their children. Instead of rates being set in Washington, the government will now auction off the right to make federally-backed educational loans to parents in each state, instead of setting the rate from Washington. The two lowest bidders will win the right to make subsidized college loans to parents. This increases uncertainty about expected loan volumes and will tend to result in lower rates for borrowers (ie, lower margins for lenders).

Lenders will try to offset losses but...

Besides increasing fees, lenders have the option of tailoring their private loan products in ways to increase profitability. Private loans are increasingly important to both borrowers and lenders as the FFEL program has annual loan limits that are far below the cost of education for most schools. Look for lenders to set these loans to higher interest rates.

Impacts on Sallie Mae underestimated

Sallie Mae claims that the impacts of this bill will be limited to merely 2% or so of "core earnings" net income over five years. Given all the implications of the legislation as described above, 2% seems like a huge underestimation of the true negative impact. To reduce the impact to only 2%, I can only think that Sallie Mae intends to securitize large portions of their portfolio. That is like selling the furniture to get through a short-term rough patch. I agree with JC Flowers -- this deal should be renegotiated.

Disclosure: author owns no shares of Sallie Mae



Wednesday, September 26, 2007

Why I'm overweight tech

Today I decided it was time to climb on board the tech stock bandwagon. Accordingly, I bought the ProShares Ultra Technology ETF (ROM).

I have been a schizophrenic investor for a while now. I have recommended a number of tech stocks in the TradeRadar model portfolio: Cisco, Qualcomm, BigBand; recently I sold SanDisk and Millicom Cellular. All the while I have also been maintaining a position in the Proshares UltraShort QQQ ETF (QID), which essentially comprises a bet against the tech-heavy NASDAQ 100. I picked up QID when the TradeRadar software generated a SELL signal on the QQQQ earlier this year and I have a hard time figuring out if I'm keeping it as a hedge or I'm just reluctant to take a loss. Maybe that's a discussion for a post on investor psychology.

In an case, I am tilting much more toward being bullish on tech now due to several developments including the action in the markets as reflected in the TradeRadar software and the fact that underlying fundamentals for tech look pretty good right now.

The TradeRadar Signals are positive

In looking at the charts, it can be seen that tech stocks haven't fallen as far as the broader market during the most recent downturn and they have speedily recovered their losses and moved on to new highs. The QQQQ and the SPDR Technology ETF (XLK) have all shot up out of the TradeRadar SELL zone. With the July/August market swoon, both had generated TradeRadar SELL signals. Those signals have now been reversed. For XLK, the reversal was just a couple of days ago. You can see in the image below how the red line on the lower half of the chart forms a peak, drops back down below the green horizontal line and then moves up above the green horizontal line again. The peak was the SELL signal. Crossing the green line again in the upward direction indicates a reversal of the SELL signal.

TradeRadar SELL signal reversal - XLK

Tech stock fundamentals look good

With the economy shaky and the Fed feeling the need to cut rates, there are a number of sectors in the US stock market that are feeling some pain. Tech stocks seem to have shrugged off the economic worries and marched higher. It's no accident. International growth is the driver that is propping up technology. Just as we have seen energy and materials markets driven higher by demand from China, India and other emerging markets, the potential exists for the same thing to happen to technology. We are already seeing it in the earnings reports of the larger companies who are reporting strong growth overseas and modest growth in the US. In addition, tech is less vulnerable to the sub-prime mess and the credit crunch. Interest rates are less of a concern since tech stocks tend not to carry excessive amounts of debt.

Tech bell-weathers like Cisco, Apple, IBM, Oracle and Research in Motion are putting up good numbers. Not only were trailing earnings good, the companies also provided forward guidance that was positive. As third quarter earnings season approaches, expectations are high for continued profit growth.

Valuations of tech stocks are also reasonable at current levels. Tech stock PEs tend to be high and now is no exception; however, the stocks are nowhere near the nosebleed levels of the late 1990's and 2000. Though there still seems to be plenty of VC money being thrown at wacky tech start-ups (I read TechCrunch and shake my head sometimes), today most of the tech stocks that are gathering attention and making new highs are companies that are actually executing well against solid business plans.

There are other reasons to be bullish on tech stocks: video is eating up bandwidth, the world is going wireless, businesses everywhere want to increase productivity via technology, the web is enjoying a resurgence, there are new gadgets coming to market and generating buzz, the list goes on.

So I am clearly overweight tech at this point and, though I would rather buy on a pullback, I'm reluctantly buying even as we are hitting highs.

Disclosure: author owns shares in ROM, QID, CSCO, QCOM and BBND



Tuesday, September 25, 2007

Motorola - too much doubt to follow the buy signal

Today on 24/7 Wall Street, a post titled "A Motorola (MOT) Rally" cast doubt on the stock's recent advance and questioned positive analyst comments. The post is brief so I will quote it in its entirety:


"Motorola's (MOT) shares are up almost 10% since late last month. RBS recently upgraded the shares due to a strengthening handset market and improved products, according to Barron's. Cowen upgraded the stock last week.

Most of the improvement in the share price is based on two theories.

The first is that the overall demand for handsets is rising. But, Motorola may be getting no benefit from this, Its market share dropped from a high of 22% over a year ago to a current level of under 15%. Samsung and Sony Ericsson have taken a great deal of that business. And, Nokia's (NOK) piece of the market is still growing, approaching 40%.

Even in a rising market, MOT's market share may be continuing to fall.

The second line of thinking is that new models will replace the dying RAZR and help draw new customers. It may be a worthy theory, but that is all it is. Motorola has not proven that it can launch another wildly popular model.

Some analysts may be right. Motorola may have worked its way through an inventory backlog, which would be good news. But, it is not a sign of sustained recovery."

The chart is looking good...

Based solely on the stock chart, Motorola had actually flashed the TradeRadar BUY signal back on September 10. Normally, I would announce it on the blog as the TradeRadar Pick 'o the Month.

Motorola BUY Signal

...but I just can't buy the stock

Unfortunately, I find that I cannot get by the issues raised by the post above. Indeed, at the end of August I wrote a post questioning the upgrade by an analyst at Lehman Bros. At that time Motorola did not expect its mobile operation to be profitable in 2007. Also in that post I described how Motorola had not cracked the low-end handset market, where so much of the action is in emerging markets, and lacked a significant entry in the high-end market.

A couple of weeks ago Motorola reported they were cutting R&D spending in a bid to reduce expenses. It is hard to see how they will roll out new products with the potential impact of the original RAZR under this scenario.

Just today, Morgan Stanley came out with bullish views on the handset market and singled out several component makers as well as Nokia as companies well positioned to benefit. Notable by its absence was Motorola.

So the TradeRadar BUY signal has been flashed and the stock remains in the BUY zone. Still, it is always necessary to apply human oversight to any signal generated by an automated system, including (or especially!) TradeRadar. That is why, at the risk of going against the tape and for all the reasons given above, I can't recommend Motorola at this time.

Disclosure: author owns no shares of MOT



Monday, September 24, 2007

Software-as-a-Service stocks in long-term uptrend

The most famous of the SaaS stocks is Salesforce.com (CRM) and certainly its CEO Marc Benioff has been outspoken and flamboyant in his announcements that SaaS is the next big thing and his company is in the vanguard of the movement.

In many ways, SaaS is the next big thing and the large-cap software companies like SAP and Microsoft are making attempts to play in this sector.

What many investors may not have noticed is that there is a group of smaller companies that, as start-ups, committed to SaaS as a primary vision and have been quietly reaping the rewards ever since.

These firms include: Taleo (TLEO), Concur Technologies (CNQR), Ultimate Software (ULTI) and Omniture (OMTR). These four stocks have more than doubled since September 2005. They are all small caps trading on the NASDAQ. Three have rather similar charts with Omniture setting itself apart from the others by tripling over the time frame. Let's take a closer look at each one.

Four SaaS stocks

Taleo

The focus of Taleo is human relations, specifically screening, selecting, hiring, developing and assessing employees. They have solutions for enterprise customers and small and midsize businesses, for salaried workers and hourly workers. So far in 2007, Taleo has gained four analyst buy recommendations and one neutral rating despite not being profitable. This stock is all about growth and they have been signing up large and small customers at a rapid pace. The company has invested heavily to create an end-to-end solution set and to ensure its infrastructure can support the million or so users that hit its site each day. Profitability is expected to be right around the corner. Current price: $24.73

Concur Technologies

Concur's area of expertise is travel and expense management. Included is the ability to pay vendors, to reimburse employees, to set and enforce expense policies, book travel and organize complex corporate meetings. Concur recently announced that it is selling more shares and that it is raising revenue guidance for the 4th quarter of 2007 and the 1st quarter of 2008. CNQR already sports a billion dollar market cap, it is solidly profitable and has been growing steadily, mostly by double digits. With all the expectations for continued growth, there is no surprise it has a pretty high PE. Current price: $29.54

Ultimate Software

Ultimate Software, sharing some similarities with Taleo, is also focused on human resources and talent management solutions but, in addition, provides payroll functions. In terms of stock performance, ULTI has been the conservative one, having gained just less than 50% so far in 2007. Not as glamorous as the others, the company is nevertheless profitable and growing at double digit rate. Current price: $32.82

Omniture

Omniture, with a particular focus on e-commerce, provides online business optimization services that enable customers to manage and enhance online, offline, and multi-channel business initiatives. Included are such things as web analytics, data warehouse functions, campaign analysis, search engine marketing and customer segmentation and analysis facilities. This stock has been on a tear though it recently received an analyst downgrade. It has the largest market cap of the four and is adding customers rapidly. Its revenue growth rate is in the high double digits but, like Taleo, it is currently unprofitable. Current price: $28.05

A competitor to Omniture is Visual Sciences (VSCN). This company, though smaller than OMTR, is growing revenues at a double digit rate and, though still unprofitable, has at least achieved positive cash flow. Based on its current chart, it might be the better buy. Current price: $14.78

Conclusion

It is clear the SaaS sector has yielded some high performing stocks and growing ranks of customers. It has attracted lots of buzz and the interest of the large-cap tech companies. There is a stock for every style of investing. Solid growth and profitability, acceptance by large corporate customers -- choose Concur. Good revenue growth, growing customer base, acceptance by large and small customers -- choose Taleo. High momentum stock price, high rate of revenue growth, adding customers left and right, higher level of risk -- choose Omniture. Despite the high stock prices and elevated PEs, SaaS is a sector that is just beginning to mature and we will see some companies that will achieve critical mass, some that will be bought out and some that will fall by the wayside. The ones discussed in this post have made a very good start on the road to success.

Disclosure: author currently owns none of the stocks mentioned in this article



Wednesday, September 19, 2007

Interactive Ads - Google one-ups Yahoo again

Google's (GOOG) press release describing the expansion of a beta program for what are being called Gadget Ads has again shown that Google is unparalleled at melding technology and advertising to benefit its bottom line. Gadget Ads are mini-web pages or "widgets" that can be embedded within publisher pages.

I have written in the past on Yahoo's (YHOO) Smart Ads and how, by more precisely targeting site users and adjusting ad content accordingly, they provide a much desired evolution of the banner or display ad format.

Though Smart Ads and Gadget Ads are not really the same, I think it is fair to say that Google has seen the challenge of Smart Ads and has chosen to leapfrog Yahoo by rolling out its own update to the display ad format.

The evolution of the Gadget Ad --

One of the trends on the Internet over the last year or so involves software developers creating "widgets" which can be hosted within web pages and blogs. Widgets can be pretty much anything that can be encapsulated within a modest amount of real estate on the page. They are typically "active" in some way, displaying RSS feeds, countdown clocks, animations, media players, games, social network badges, etc. I myself have experimented with widgets related to the stock market (you can see them at WidgetBox.com or OpenLinkz.com).

Google, not a company to ignore a trend, created their version of the widget, called the Google Gadget. It provides widget developers a platform for creating Gadgets that can be embedded in a user's personalized iGoogle page or on other web pages or blogs. There are tons of Gadgets available at the Google site encompassing a wide spectrum of functionality.

Harnessing the power of Gadgets to create interactive ads and publishing them through Google's huge ad network is a very shrewd move.

Why the potential of the Gadget Ad is so powerful --

If you look at the top three Digital Marketing awards for 2006 from Canada's Marketing Magazine, you will see that all three are interactive: two are games and one allows users to create and save a plant of their own design. Likewise, the 2007 Webby Awards for Business-to-Consumer Promotions and Ads features various interactive ads that allow users to, among other things, play with a car and access different kinds of humorous entertainment (Swedish meatballs singing your name, anyone? Really, it's funnier than you might think). The point I am trying to make is, it is the interactive ads that get the attention of the industry and of consumers. They have ability to engage the user in ways a simple banner or text ad never could. This is what advertisers most desire when trying to enhance brand awareness, make an emotional connection and secure customer loyalty.

Google Gadget Ads make this kind of engaging ad functionality much more easily available to many more advertisers. The Gadget envelope and environment is already created and tested by Google. An ad creative can be developed offline and re-purposed as a Gadget with minimal effort. The ads can be hosted by Google, reducing the advertiser or agency's responsibility for deployment. There are functions within the Gadget API that allow sending an interaction hit to a tracking server to report user interactions inside Gadget Ads. This will give agencies and advertisers the ability to measure the effectiveness of their rich media advertising and assess how consumers are using or navigating through the ad content.

Currently, Gadget Ads can be targeted to certain types of consumers based on site, geography and demographic characteristics. Because AdSense ads are context sensitive and are targeted to users most interested in whatever the publisher or host site is offering, Google will be working on implementing the same model for Gadget Ads. As the Gadget Ads make their way out of the beta stage and into wide distribution on the AdSense network and in search advertising, their reach will increase dramatically.

A different kind of ad --

In a complete departure from what we think of as an online ad, the Google Gadget Ads can be implemented in iGoogle, web pages or blogs by users themselves. If the Gadget Ad provides a fun or useful experience, news on a fan's favorite band or a daily joke or image, for example, the user may choose to keep that Gadget as a permanent part of their personal pages. The ability for users to use and share Gadget Ads increases the potential for the ads to benefit from buzz and go viral while providing an opportunity for creative advertisers to enter into a mutually beneficial relationship with consumers.

The technology behind Gadgets allows them to request fresh content each time a page is loaded or repeatedly after the page has already been loaded. A user can interact with the gadget and, through the use of Flash and/or Web 2.0 technologies, new content can be displayed, video or music can be streamed, etc.

Google sets the standard again --

All in all, Gadget Ads are another solid step forward for Google as they utilize their powehouse technology to provide the strongest and most flexible ad serving platform on the Internet. Is Google a buy at $546 per share? We might look back in twelve months and think that was cheap.

Disclosure: author owns none of the stocks mentioned in this article (yet).



Tuesday, September 18, 2007

Homebuilders jump on rate cut - move is overdone

Today Reuters reported the following:

"Home builder sentiment fell for a seventh straight month in September as tougher mortgage requirements hindered sales from bloated inventories, the National Association of Home Builders said on Tuesday.

The NAHB/Wells Fargo Housing Market index declined 2 points to 20, matching the record low of January 1991 when the economy was in the throes of a recession, the NAHB said in a statement. But an interest rate cut by the Federal Reserve on Tuesday offered the industry hope, the NAHB's chief executive said."

After the Fed cut both the Fed Funds rate and the discount rate by 50 basis points today, the SPDR HOMEBUILDERS ETF (XHB) took off and registered a 5% gain on the day. The 24/7 Wall Street blog reports that the Jim Cramer "Mortgage Madness" portfolio was the best performing group today. Beazer Homes (BZH) was up 18% on the day!

Was that performance warranted or was it "irrational exuberance?" The home builders are down in the dumps but investors are walking on clouds.

Problems in residential construction are well known and are related to the following:

1. Excess inventories of unsold new homes are forcing builders to cut prices and offer incentives to boost sales. This is reducing margins for builders. Unsold inventories are causing builders to carry land and buildings on their books, tying up capital that could be applied elsewhere, to pay down their debt, for example.

2. The reluctance of investors to buy mortgage-backed securities has reduced the flow of funding used to finance many home loans.

3. Stiffening of lending standards and requirements has reduced the pool of eligible home buyers. It has also reduced the size of homes for which buyers can be approved. The McMansion is increasingly out of reach.

4. Over coming months, inventories of unsold homes could potentially increase even further as the number of foreclosures increases for the least credit-worthy borrowers.

Will the rate cut really help?

The rate cuts could increase market confidence which might help investors return to mortgage-backed securities which, in turn, increases the flow of funds to lenders who could make more loans at better rates. The change in Fed Funds rate also directly allows mortgage rates to come down.

So we have two positives that will help the mortgage rate picture. This will help reduce the inventory of unsold homes as loans become more attractive to buyers.

Lower rates will help some but not all of the borrowers whose loans will reset over the coming months. The Fed's cut will only have a marginal effect on those borrowers who are in way over their heads. Thus, in this case, the Fed cut is a neutral factor at best.

Separately, Congress passed legislation today that would allow the FHA to back refinanced loans for borrowers who are delinquent on payments because their mortgages are resetting to sharply higher rates from low initial "teaser" levels. On the surface, this is also a positive but in looking closer, it will only help those borrowers with good enough credit to refinance. And FHA backing only protects the lenders. With a limited budget, the bill will not come close to bailing out all of the estimated 2 million to 2.5 million borrowers with adjustable-rate mortgages who are in danger of default. So this factor also appears to be neutral or insignificant.

In conclusion, the cuts today are a net positive for the housing market but it will still take many months to work off an inventory bulge of this size. We are at the end of the selling season so for many builders, they may have to wait until next spring before they see a real bounce in sales. Builders will continue to carry this inventory going forward, so they will be cautious about building more homes while the current inventory glut remains. Holders of mortgage-backed securities will still need to be wary of the low quality loans that will end up in foreclosure which could again erode market confidence. These foreclosures are a wild card: they will cause the inventory of unsold existing homes to swell which could, in turn, slow the reduction in the inventory of unsold new homes. As mentioned above, there are a good 2 million homes in danger of foreclosure due to resets and some percentage of them will end up standing empty. From my point of view, today's behavior was certainly exuberant and somewhat irrational as investors have gotten a bit ahead of themselves.

Disclosure: author owns no stocks mentioned in this article



Monday, September 17, 2007

Mobile ads are all the rage but where to invest?

It seems that there is a mini-boom going on with mobile marketing companies. There are acquisitions taking place left and right and there are tons of start-ups jumping into the space.

In May of this year, AOL acquired mobile-ad startup Third Screen Media and Microsoft (MSFT) bought French mobile-ad firm ScreenTonic. Last year VeriSign (VRSN) bought m-Qube. This week, Nokia (NOK) bought Enpocket.

As we have written in previous posts, Google is moving rapidly toward mobile search ads while Yahoo is rumored to be eyeing several startups and has already launched mobile display-ads.

It reminds me of the buy-out activity we saw recently where online advertising companies were being purchased by some of the same acquirers listed above. I thought it might be a good idea to look for public companies in the mobile advertising or marketing space that might be good acquisition targets.

Three themes emerge --

Here are the main points of what I found:

1. The pickings are slim in the public stock markets with few companies big enough or mature enough to be publicly traded. Those that are listed tend to be quite small.

2. There are tons of start-ups out there working on delivering ads, creating ads, matching ads to users and content, creating mobile social networks, etc.

3. There is so much activity and excitement around mobile ads some players are starting to experiment with ad-supported content.

Public Companies --

Let's start by looking at the (short) list of public companies in the mobile marketing space:

WireMedia (WRMA) develops location-based Bluetooth advertising solutions. Its Bluetooth applications enable retailers, shopping malls, movie theaters, convention centers, event coordinators, promoters, small businesses, and public space operators to engage in location-based Bluetooth advertising and messaging as cell phones users come within the service's active zone. This is a process that is in its infancy but there seems to be some interest in Europe. WRMA is essentially a penny stock that trades on the pink sheets. It is not profitable and its stock price has been falling steadily over the last year.

NMS Communications (NMSS) is a broader technology company. In the mobile communications space, they offer two main products: MyCaller (a ringback tone solution) and Mobile Place. The Mobile Place Customer Content Relationship Management software (CCRM) suite provides content management, subscriber management, and selling tools. CCRM's opt-in module also allows carriers to offer content bundles and promotions to targeted subscriber segments based on their past preferences and transaction history. It also includes resources needed to launch and manage marketing campaigns. The firm has more than 25 mobile operators as customers. NMSS is also not profitable though the slide in its stock price seems to have slowed lately. For US investors, this is probably the stock to watch.

Velti (LSE: VEL) is a small company that trades on the London Stock Exchange. Interpublic (IPG) announced in July that it has formed Ansible, a dedicated mobile marketing agency, in a joint venture with Velti. Velti is a pure play in mobile marketing, providing services for ad creation and placement, marketing and loyalty initiatives, wireless carrier connectivity and billing, etc. Though small, Velti's stock price has been moving up nicely lately and it is probably the best of the
public companies currently available.

Small Companies and Start-ups --

You may want to keep an eye on the following companies. With all the ferment in the mobile marketing space, there could be a rush to take some of these firms public. Some will fail and some will succeed. Herewith, in no particular order:

Millennial Media, a Baltimore startup, focuses on reaching young wireless users.

AdMob, based in San Mateo, Calif., runs an online mobile ad marketplace.

AirG develops mobile communities for carriers such as Sprint and Canadian operators Robers and TELUS. AirG offers advertisers banner ads, but some of its most successful campaigns involve contests and other loyalty-building initiatives.

Amobee is one of the early companies trying to bring about ad-funded content and services. The company works with cell phone carriers to offer free games that are accompanied by ads.

4INFO distributes ads through text message alerts and search requests. 4INFO has worked with content providers including the NFL, USA Today and Major League Baseball to provide free alerts and updates when a customer signs up for them. 4INFO also works to find relevant ads to place at the end of the text.

Mobile-specific advertising agencies include Kikucall and ipsh.

Aggregators provide mobile SMS delivery, multi-operator connectivity and mobile billing capabilities to businesses and advertisers. Included in this category are mBlox and SinglePoint.

Mobile application service providers (MASP) include iLoop Mobile, Vibes Media, Air2Web and Soapbox Mobile.

And here is a list of still more start-ups: OTAir, Gold Mobile, Telescope, Vidiator Technology, Aegis Mobile, HipCricket, Mobile Marketing, U-Turn Media Group, Zingy, MobileLime, Boost Mobile, Vantrix, PlayPhone Inc., Helio, The HyperFactory, JumpTap, Inc., Connect121 and Greystripe.

Ad-supported content on your phone --

Hands-On Mobile of San Francisco, one of the top mobile gaming companies, is looking to boost market share by releasing seven of its games, including World Poker Tour Seven Card Stud and Top Gun, on GameJump, which inserts ads at the beginning and end of each game.

MobiTV, which has a base of 2 million subscribers for its live television packages, worked with Sony Music earlier this year to create an ad-supported mobile Internet site to promote artist Avril Lavigne's latest album.

Follow this concept to its logical extreme and you come to the conclusion that even cell-phone calls could be ad-supported. Woo-hoo! Free phone service for all!

Disclosure: author owns none of the stocks mentioned in this article



Wednesday, September 12, 2007

Poor Netscape - less Digg, more AOL

In what can only be termed a setback, AOL has announced that it is converting its Netscape Internet property from a social news site to a portal.

Combining Netscape's brand with the social networking flavor-of-the-day was supposed to create a "Digg-killer" and, of course, generate millions of ad impressions for AOL advertisers. In an interesting twist, Netscape used both community ratings and "anchors" who acted like editors to highlight the best stories or moderators to ensure highly ranked news items were clean and spam-free. Apparently, it didn't work out to the satisfaction of AOL management.

The social news site will live on at Propeller.com but it is not clear how much support it will receive from its parent. The three million or so page views per day that the Netscape domain was racking up will now be seeing an AOL-like experience.

A step backwards

AOL indicates that they are reacting to user feedback but, judging by comments on the Netscape blog, a number of users are pretty disgruntled by the change. It is hard to believe that users want yet another site that looks like AOL which, if you haven't noticed, doesn't look all that different from Yahoo (YHOO) (the wide view version). To see the sites for yourself, just click on the following links: AOL (www.aol.com), the old Netscape (www.netscape.com), the new Netscape (http://netscape.aol.com) and Yahoo (www.yahoo.com).

A sign AOL is in trouble?

There are rumors of large layoffs at AOL floating around the blogosphere. Could this be a sign of AOL hunkering down? Pulling in their horns and putting the experiments on the back burner? Now that Jason Calacanis, founder of WebLogs, has left the company, AOL is probably without a visionary left in house. AOL has made an acquisition of Tacoda which is a good move for bolstering their advertising network and ad technology. But what about the kind of content that might draw more visitors and page views? Mgnet is a neat idea (check it out on the lower left section of the AOL homepage) but it is not dramatic enough to make a difference in traffic.

Opportunity for competitors

If Jerry Yang wants to transform Yahoo, he should just buy AOL from Time-Warner (TWX) and shut down everything except MapQuest, Instant Messenger and email. Hopefully, a good portion of AOL's remaining traffic will find its way to Yahoo. And since Google provides search functionality for AOL, killing AOL would allow Yahoo to inflict a little pain on its arch-rival.

Disclosure: author owns none of the stocks mentioned in this article



Tuesday, September 11, 2007

Qualcomm loses again

Today it was announced on the Barron's web site that Qualcomm (QCOM) had lost Motorola (MOT) as a customer. Motorola has long included Qualcomm chips in their handset products. That relationship has ended. Freescale Semiconductor, a current Motorola supplier, will be picking up the slack short-term and Texas Instruments (TXN) will become the eventual long-term replacement.

We have written a number of previous posts on Qualcomm since the company became part of the TradeRadar model portfolio. Selection of QCOM was in large part based on long term expectations that its patent portfolio would allow it to prosper as telecom companies made an expected shift toward Qualcomm's technologies as they migrated to "3G" WCDMA standards. We made the point that to a certain extent we were "buying on bad news" as Qualcomm stock was down mostly due to its legal situation. Since then we have taken Qualcomm management to task for the ineffective handling of the lawsuits in which the company has been involved. Their stubborn and unyielding approach to the Broadcom (BRCM) mess has led to fines, ITC rulings preventing importation of handsets containing Qualcomm chips and various other indignities.

Now we have the news that one of the top five cell phone manufacturers in the world has opted to design Qualcomm chips out of their products. This appears to be based on a business decision, not a technical incompatibility problem.

This latest debacle is in addition to the ongoing dispute Qualcomm is having with Nokia (NOK), the world's largest player in cell phones, who feels Qualcomm's royalty charges are too high. The contract at issue here expired in April of this year and currently languishes in arbitration. Separately, the two companies are now suing each other over patent infringement.

Lately Qualcomm has shown a talent for alienating some of its largest customers and stomping on the toes of its rivals. How long can current Qualcomm management continue to stagger from one problem to another without taking accountability and either changing course or handing in a resignation?

Disclosure: QCOM is in our model portfolio; none of the other stocks mentioned are part of our holdings.



Monday, September 10, 2007

TradeRadar software version 2.0 released

This post is to announce the release of the newest version of the TradeRadar software. The major new feature in version 2.0 is the addition of trend lines. It is available on the TradeRadar Download page in two versions: a full install and a simple upgrade.

The software attempts to identify reversals in price movement. In the case of a BUY signal, TradeRadar will now indicate whether an initial downward trend exists and whether a subsequent upward trend is in the process of being formed. The trend lines are displayed on the chart screen overlaying the price graph and moving averages.

The software has removed two indicators, Variance and Slope, and replaced them with Angle of Attack (AOA) and Trend Diff. These two new indicators display the angles associated with the trend lines. AOA shows the angle the first trend line makes with the horizontal. The Trend Diff indicator shows the angle the second trend line makes versus the first trend line; i.e., it measures how steep the reversal is.

Here is an example:

Screen shot of TradeRadar Chart View

Be sure to download the PC desktop program today from the TradeRadar Download page.

Shortly we will release the new version in the online format. Please be patient while we work to bring the online version of TradeRadar up to the level of 2.0 and also update the training videos.

Be sure to email me or comment on this post if you have questions or wish to share your experiences using TradeRadar. Best of luck in all your investing activities!



Saturday, September 8, 2007

Chart action: Jobs data changes everything

Last week I wrote that the daily charts of the major averages were beginning to show potential inverse head-and-shoulder patterns. That would typically be a strong bullish signal in the world of technical stock analysis. I also wrote that the weekly charts were less conclusive and we would need to see the averages move decisively above the necklines of the patterns to confirm the new bullish trend.

Tuesday the markets did indeed move up but Friday saw a plunge that left all the averages below the previous week's levels.

Now it looks like we will once again test the support of the 200-day moving averages while investors gauge the strength of the Goldilocks economy and wait for the expected rate cut when the Fed meets on September 18.

The word "recession" is starting to show up in blogs and news articles now. It wasn't so long ago we had upward revisions in GDP, mild reads on inflation and a feeling markets were stabilizing. Was the jobs data really so bad? Was it unexpected? Let's look at some charts from the Bureau of Labor Statistics.

The chart below shows unemployment in the Construction Industry. It is a surprise that it shows unemployment falling so much after hitting a peak over the winter. Note, however, that the level of unemployment isn't that much higher that at this time last year. No recession indication here.

Construction Industry UnemploymentThe next chart shows unemployment in the Financial Industry. Perhaps this is why the markets sold off so strongly. Economic weakness is hitting Wall Street where it lives as unemployment spiked to levels not seen since 2004.

Financial Industry UnemploymentThe next chart shows unemployment in Manufacturing. Whenever the US loses manufacturing jobs it is certainly troubling. This chart, however, shows more of a reversion to the trend established over the previous years that is a result of manufacturing moving overseas.

Manufacturing Industry UnemploymentIn conclusion, my take on the jobs picture is that it wasn't pretty but it doesn't indicate the economy is about to collapse. In terms of stock prices, the reaction may have been overdone but now the charts look terrible again and the outlook for the markets is again uncertain.



Wednesday, September 5, 2007

REITs headed for trouble, again

The latest Census Bureau monthly report on construction spending shows two trends moving in opposite directions. It is no surprise to see single-family residential construction spending going down month after month. Yet it is somewhat of a surprise to see spending for office, lodging, shopping centers, shopping malls and multi-family dwellings holding reasonably steady or in some cases even showing modest increases (see chart below).

Construction Spending

The continued strength in the commercial sector despite the general real estate malaise and the recent fall-off in deal-making implies developers are making a huge bet on strength in the economy making all this new commercial property profitable.

In contrast to the positive attitude exhibited by the commercial real estate developers, Bloomberg reported the following items today:

"Prices of U.S. commercial real estate could fall up to 15% in what would be the worst decline since the 2001 recession"

"In July, investors bought the fewest commercial properties in almost a year and apartment building purchases were down 50% from June."

"Last month, the Archstone-Smith Trust postponed its $13.5 billion sale to a group led by Tishman Speyer Properties until October."

"There are so many deals falling apart," said David Lichtenstein, CEO of commercial property owner Lightstone Group. "People who can get out are getting out."

Bloomberg's news shows that the liquidity and credit problems affecting other segments of the market are beginning to take their toll on commercial real estate. The cheap funding that fueled the leveraged buyouts of REITs and allowed the private equity firms the ability to immediately sell off at high prices parts of their holdings is drying up. Blackstone's purchase of Sam Zell's Equity Office Properties last year could probably not be done now. Subsequent to the purchase, Blackstone was able to recoup a large part of their investment by quickly selling various properties. These deals also would have trouble being done in today's environment.

Given the long lead times of major construction projects, it is understandable that developers who committed to projects earlier in the year now find themselves in a tough situation. Once building has started, it is hard to walk away without taking a major loss. If the Bloomberg reports prove accurate, though, some of these properties may be worth less when they are completed than it cost to build them.

Those commercial real estate developers still building aggressively could soon be facing the kind of downturn now being experienced by the homebuilders: declining prices, lack of buyers, stock prices in free-fall.

Those REITs that own commercial real estate developers will undoubtedly feel the pain also. And the ETFs that invest in REITs will, in turn, suffer as well. This analysis confirms our decision to continue to hold the PowerShares UltraShort Real Estate ETF (SRS) in our model portfolio.



Tuesday, September 4, 2007

New release of TradeRadar software on the way

You may have noticed I am not posting as often lately. I am busy on a new release of the TradeRadar software and it's taking some time.

I am adding a trending feature. The software will calculate and display two underlying trends: the initial trend from the start to the maximum or minimum price point on the chart (what I refer to as the inflection point) and then another trend from the inflection point to the end of the chart. Angles will be calculated and used to drive the red/yellow/green indicators on the Dashboard screen.

Stay tuned for the release of the desktop version first; I expect to release it a week or so before the online version. As usual, there will be a full install and a simple update. I also hope to release a new set of training videos soon.

Lots to do...



Saturday, September 1, 2007

ETF charts at crossroads

Looking at some of the ETFs we track, we are seeing some interesting developments starting to play out on the charts. It is looking suspiciously like there are head-and-shoulders patterns forming on a number of charts. The head-and-shoulders is traditionally viewed as a strong indicator of a reversal about to happen with the inverse H&S pointing to a rally and the standard H&S pointing to a downturn.

Here are some comments on the chart patterns we see emerging using traditional technical analysis rather than the TradeRadar software (click the "charts" link to view the three charts for each ETF at stockcharts.com):

Dow Diamonds (DIA, charts) - inverse H&S is forming on daily chart. With Friday's action DIA closed just above its downward trendline but still below its 50-day MA. Looking at the weekly chart, however, things are not quite so hopeful as the pattern is indeterminate. The point-and-figure chart looks like a triangle is being formed. Hard to say what direction DIA will take. Outlook: uncertain.

S&P 500 SPDRs (SPY, charts) - inverse H&S is forming on daily chart. With Friday's action SPY closed a bit above its downward trend line and its 20-day MA is just below its 200-day MA. On the weekly chart, the H&S is not nearly so apparent and it looks more like SPY is carving out a trading range. On the point-and-figure chart it looks like SPY has topped out. Outlook: uncertain to negative.

PowerShares QQQ Trust (QQQQ, charts) - inverse H&S is forming just about confirmed on the daily chart tough the volume on the right shoulder is somewhat weak. Based on the size of the H&S, we could see the QQQQ make a new high in the low 50's. On the weekly chart, the pattern looks less like a H&S and more like a pullback turning into a new uptrend. This is a pretty optimistic chart; however, on the point-and-figure chart it looks like a triangle is being formed. This contributes some uncertainty. Outlook: positive.

Financials Select Sector SPDR (XLF, charts) - here we see a sloppy but potential H&S forming. The right side of the pattern is not yet near what could be the neckline. The weekly chart indicates XLF is still under pressure and trending down. The point-and-figure chart shows a down trend but offers some hope if the pattern develops into a descending triangle from which the next move is often up. Still, that implies more pain for XLF before we see a clear reversal to the upside. Outlook: uncertain to negative.

iShares Real Estate (IYR, charts) - despite strong moves at the end of the week, IYR was unable to close above its downward trend line and the H&S pattern, like that of XLF, is sloppy and exhibiting an unclear neckline. Volume on the right shoulder is not confirming as clearly as one would like. The weekly chart shows a steep downtrend that may be forming a bottom. The point-and-figure chart may be confirming the bottom as it shows a very recent up-trend forming. Outlook: uncertain to negative.

Conclusion: if looks like there is still quite a bit of uncertainty in the charts. Despite talk of rate cuts, benign inflation and the government bailing out borrowers and lenders, the charts are reflective of investors who are reevaluating risk and stock valuations. These daily charts may presage a short-term rally that runs out of steam when third quarter earnings come out after September.




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Disclaimer: This site may include market analysis. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.




 
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