Big Ben's Investing Blog

Last Post

2008-05-15T21:20:00.000-07:00

Due to a future commitment, I will no longer be able to post articles on this blog. I would like to thank everybody for their support.

Best of luck,

Ben

Adding Nucor (NUE) & Selling Agriculture Strength

2008-04-16T14:26:00.000-07:00

I made a few moves today. Towards the close I sold calls against some agricultural positions. Shorter term (next couple of trading sessions) I expect the agricultural stocks to come in a bit. I have been bullish on Mosaic for a 170% gain since October 3rd and have liked Terra (TRA) & Terra Nitrogen LP (TNH) for almost a year.

The infrastructure boom cannot be ignored. I am currently holding McDermott (MDR) and Vale (RIO). Today I added Nucor Steel (NUE) to the portfolio. I also considered US Steel (X), but felt that Nucor is better managed (higher operating margins and return on equity) and is also less expensive based on forward earnings estimates. US Steel is also a bit more volatile with a Beta over 2.50. Nucor reports earnings before the open tomorrow.

Energy, Ags, & Infrastucture

2008-04-14T16:20:00.000-07:00

The only three areas that continue to work are energy, ags, and infrastructure. I see no compelling reason to own a financial. My current exposure to the financial sector is through Banco Bradesco (BBD). Wachovia's earnings miss today confirms that no bank is safe. Thornburg Mortgage (TMA) is virtually operating in bankruptcy. TMA's convertible debt offering had an exercise price of $0.01 per share.

The bottom line...

Stay long McDermott (MDR), Diamond Offshore (DO), Petrobras (PBR), Chesapeake Energy (CHK), Terra Industries (TRA) Monsanto (MON), & Mosaic (MOS).

Note: I am long MDR, DO, CHK, TRA, & MOS

Stocks Bounce

2008-03-11T17:51:00.000-07:00

Today's decision by the Fed to allow certain types of debt, including mortgages, to be used as collateral in exchange for additional borrowing from the Fed helped stocks rally. The move is seen as stabilizing the mortgage markets. This may be an opportunity to get out of some of the financials on the bounce. It should be interesting to see how the markets trade the rest of the week.

As a side note, you can view CMBX Indices on the web.

Are Commodities Recession Proof?

2008-03-02T21:27:00.000-08:00

Gold, oil, most of the other precious metals, and the agricultural commodities continue to make new highs. Is this a bubble? I wish I knew the answer to that. I continue to remain bullish on commodities. There are two main scenarios for why commodities will trade higher regardless of how the U.S. economy proceeds.

Scenario #1
U.S. Economy enters a recession. The Fed continues to cut rates, further eroding the value of the US dollar. This means it takes fewer Euro's, Yen, and just about every other major currency to purchase more commodities that are denominated in dollars. This will lead to an increase in demand for commodities.

Scenario#2
U.S. Economy has "bottomed," interest rates remain constant or move higher, and the U.S. GDP picks up. An increase in GDP will further increase demand for commodities. The dollar should strengthen, but demand will remain robust due to economic growth.

Stocks to Own

Natural Gas: Chesapeake Energy (CHK)
Contract Drilling: Diamond Offshore Drilling (DO)
Crude Oil: Petrobras (PBR)
Fertilizer: Mosaic (MOS) & Terra Industries (TRA)
Metals: Vale (RIO) & Rio Tinto Alcan (RTP)
Uranium: Cameco (CCJ)
Solar: Sunpower (SPWR) & MEMC (WFR)

Pure Commodity ETF's

Powershares DB Agriculture Fund ETF (DBA)
iShares Silver Trust (SLV)
streetTRACKS Gold (GLD)
US Oil Fund (USO)
US Natural Gas Fund (UNG)

Note: I have positions in CHK, MOS, TRA, & RIO

ICE Attractive On Pullback

2008-02-05T15:53:00.000-08:00

The Intercontinental Exchange (ICE) has now pulled back to a more attractive level. ICE now trades at 19X forward earnings. I continue to like the exchange sector. As more volume moves electronic, volumes and margins increase for ICE. Futures clearing is a great business to be in. With the CME's $11B bid for the NYMEX (NMX), ICE is likely the next exchange to be bought.

Note: I am long ICE & NMX

Wait & See

2008-01-23T20:11:00.000-08:00

The recent market volatility suggests more of a wait and see approach. Timing the market is difficult and near impossible. I would like to see how the market trades the next couple of days before going long or short.

Agriculture Continues to Deliver

2008-01-09T20:07:00.000-08:00

The Mosaic Company (MOS) reported a terrific quarter today. Besides handily beating analyst earnings estimates, Mosaic prepaid $450M of debt with cash flow from operations. Mosaic has seen quarter over quarter price increases in its fertilizer products.

Last week, Monsanto (MON) reported a tripling of net income in its most recent quarter. Again further demonstrating the strength of the Agriculture cycle right now. Clearly a lot of the good news has been priced in to these stocks. Mosaic shares finished up .72% on the day. Taking some profits in the fertilizer and seed stocks would seem prudent.

Note: I am long MOS and have no position in MON

Agriculture & Infrastructure Continue to Work

2007-12-20T22:10:00.000-08:00

Despite the bearish economic sentiment in the overall market, there are several sectors that continue to outperform. Every individual investor should have some exposure to agriculture and infrastructure. Both sectors are in the middle innings of their individual "bull markets" and are under-owned by many investors. I have mentioned several of my favorite names before and will mention them again.

Agriculture
CF Industries (CF)
Monsanto (MON)
Mosaic (MOS)
Potash (POT)
Terra Industries (TRA)
Terra Nitrogen (TNH)

Infrastructure
Fluor (FLR)
Foster Wheeler (FWLT)
Jacobs Engineering (JEC)
KBR (KBR)
McDermott (MDR)

Note: I am long MOS & MDR

Retail Sales

2007-12-06T15:17:00.000-08:00

Today's higher than expected retail sales numbers should be interpreted cautiously. Overall, the numbers were mixed and many companies reporting positive November sales lowered their December forecast.The percent increases in sales were impressive at many department stores driven by successful "Black Friday" promotions. High sales are a good sign. The question is at what price? How compressed did the margins get to generate those sales? The higher end stores will come out ahead of mid-tier retailers like Macy's (M) and J.C. Penny (JCP).

Retail stocks have seen some serious multiple contraction this year. This is in anticipation of higher discounting and a thriftier consumer. I agree with what the market is saying and I would continue to avoid the sector.

Note: I have no position in JCP or M

Engineering & Construction

2007-11-20T21:28:00.000-08:00

One space that has interested me is the engineering and construction (E&C) industry. There are several major players in the E&C industry (KBR, FWLT, SGR, FLR, JEC, NRG, & MDR). On pure valuation basis, McDermott (MDR) looks like the most attractive company to own. McDermott has an $8B backlog of orders for the construction of power plants, deep water drilling rigs, and nuclear projects with the U.S. government.

McDermott is in the sweet spot of the E&C industry. Offshore oil rigs command higher day rates for drillers and are extremely profitable for McDermott to build. McDermott's experience will be crucial in winning future construction contracts.

The growing global demand for electricity has mostly been driven by population growth. Another contributing factor has been technological innovation. There are now more computers, TV's, cell phones, servers, and mp3 players that demand power. The power infrastructure has been one of the most neglected industries in the world due to tight regulation of electricity rates. As rate freezes end and CO2 regulation could begin, McDermott will be busy retrofitting existing coal power plants with scrubbers and upgrades. McDermott has the expertise in nuclear, coal, and oil to handle the infrastructure upgrade cycle. Over the next three years McDermott will be the E&C stock to own.

Note: I am long MDR

Credit Situation Worsening

2007-11-07T19:15:00.000-08:00

I felt that most of the credit crisis was behind us after the first interest rate cut in September. Today's market reaction paints a darker picture about the credit crisis. It's important to remember that residential mortgage rates are tied to the 10-year yield, not the Fed Funds rate. Cutting interest rates further would help the mortgage crisis, but won't solve it.

Technology, agriculture, and energy look attractive at current levels. Some long term value could be found in retail. Coach (COH) is starting to look attractive. The problem is that the institutions are avoiding retail like the plague. Calling a bottom in retail is tough with higher gas prices looming. Mosaic (MOS) is still my favorite agriculture stock to own.

Note: I have no position in COH. I am long MOS

Use Weakness to Buy Quality

2007-10-20T21:36:00.000-07:00

The recent market weakness has provided a great opportunity to initiate positions in high quality companies. Global agricultural demand will not be affected by problems in the credit markets. Demand for wheat, soybeans, corn, and rice will continue to remain strong. The best stock to own is Mosaic (MOS). Owning shares of Mosaic will give you exposure to crop nutrients and fertilizers. Earnings should grow 15% annually for the next three years. Mosaic has already prepaid $700M in debt since 2005 and has signaled to the markets that cash flows will remain strong. Compared to its peers, Mosaic is undervalued and should be accumulated on any weakness.

Note: I am long MOS

Invest Globally

2007-10-01T22:46:00.000-07:00

The Fed's policy of fighting the subprime crisis with lower interest rates means higher returns for international stocks held by US investors. Lower interest rates in the US is keeping the US dollar index at historic lows. Therefore it will take more dollars to buy foreign stocks.

The conservative approach would be to invest in developed international stocks. The best way to do this would be to purchase shares in the iShares MSCI EAFE ETF (EFA) or the Vanguard Europe Pacific ETF (VEA).

The more aggressive approach would be to invest in international stocks of emerging countries. I would consider looking at iShares MSCI Emerging Markets ETF (EEM) or the Vanguard Emerging Markets Stock ETF (VWO).

Personally, I prefer owning particular stocks over the ETF's. I currently have positions in CVRD (RIO), Banco Bradesco (BBD), and CNOOC (CEO).

China + Crude Oil = Momentum

2007-09-12T11:54:00.000-07:00

If you have been following the energy markets lately you would have noticed that Light Sweet Crude hit an all time intraday high of $80.17 in electronic trading today. Whether the U.S. economic slowdown will put downward pressure on oil remains to be seen. I remain bullish on oil and crude oil trading volume. I am long both the NYMEX (NMX) and the Intercontinental Exchange (ICE). The global growth story will remain bullish for energy trading and demand. Today I increased my energy exposure with the addition of CNOOC (CEO), a Hong Kong based diversified energy company. CEO is more of a technical trade as it is one of the few energy stocks making 52-week highs.

Publicly Traded Chinese Energy Companies (Market Cap)

PetroChina (PTR) $260B
China Petroleum & Chemical Corp (SNP) $93B
CNOOC (CEO) $58B

I am long CEO, NMX, & ICE

Selling This Strength

2007-09-01T15:26:00.000-07:00

I have used the recent market strength to exit several positions. I closed my positions in Silver Wheaton (SLW) and Arcelor Mittal (MT). I still remain bullish on metals but I would like to see more attractive valuations before committing money to the sector. I also closed my position in Terra Nitrogen LP (TNH). I would consider reentering TNH below $85.

BofA Boosts Banks

2007-08-22T21:26:00.000-07:00

Bank America's decision to make a $2B equity investment in Countrywide (CFC) shows that there is value in the banking sector. I still remain cautious about the sector as a whole and would be hesitant to put money to work in the financials. I continue to hold shares of subprime lender Accredited Home Lenders (LEND).

Note: I am long LEND

An Accredited Gamble

2007-08-07T19:47:00.000-07:00

Today I got long Accredited Home Lenders (LEND). Accredited is a subprime lender that actually has a bid from Lone Star V, a private equity fund. Lone Star bid $400M or $15.10 for Accredited on June 4th. LEND now trades under $7 a share. Technically there is 115% upside from the current price. The fact of the matter is that Lone Star is legally obligated to buy LEND and had all the necessary inside information before making its bid. The deal is expected to close by October but the market is pricing in some risk that the deal won't get done or will be repriced.

Note: I am long LEND

So Much For American Home Mortgage (AHM)

2007-08-01T19:31:00.000-07:00

In March I believed that American Home Mortgage (AHM) was safe from the subprime fallout and I wrote positively about the stock on March 18th. I wouldn't touch the stock now. I did say to realize profits on March 21st. I admit I was wrong about AHM and in today's current environment I wouldn't touch any stock that has a residential mortgage unit.

Some Stocks to Avoid

Annaly Mortgage (NLY)
Countrywide (CFC)
Freemont General (FMT)
Impac Mortgage Holdings (IMH)
NovaStar (NFI)
Redwood Trust (RWT)
Thornburg Mortgage (TMA)
Wells Fargo (WFC)

Note: I have no position in any of the above stocks.

Alternative Energy

2007-07-16T20:47:00.000-07:00

I have always preferred to own oil and gas companies over stocks related to alternative energy. Mostly because alternative energy companies are highly dependent on the federal government for subsides to run a profitable business. Now many solar companies are publicly traded and less dependent on the government. The best way to play the growth of solar energy is to own MEMC Electronics (WFR). They manufacture the polysilicon for solar panels.

My second alternative energy stock is NRG Energy (NRG). NRG develops and manages power plants. The US power grid will need to be updated and NRG stands to benefit. NRG is a diverse company with operations ranging from energy trading, distribution, and generation. NRG will be a key player in the "clean coal" IGCC initiative as well as nuclear power.

Note: As of 7/16/07 I have no position in NRG or WFR

Google's Pay Per Action Should Help The Bottom Line

2007-07-08T20:48:00.000-07:00

In late June Google (GOOG) launched a new way for publishers to make money. Through the Google Adsense Network, publishers can receive compensation for sending a visitor to an advertiser's web site only if the visitor completes the specified task by the advertiser. For example, a publisher would only get paid if a visitor completed an online form or purchased a product. Publishers won't get paid for simply redirecting traffic.

This is great for the advertiser because they now have a direct way to calculate the ROI on their ads. In the end this will be a big win for Google because of the large base of publishers and advertisers already in their advertising network. Pay Per Action commands more dollars then regular clicks and should cut down on fraud since the tasks need to be tracked.

From an investment perspective, Google seems to be fairly valued at these levels. I would be a buyer on any weakness.

Google Press Release

Note: I am long GOOG

Take Profits In RIMM

2007-06-30T21:01:00.000-07:00

I have been bullish on Research in Motion (RIMM) for a while. The stock is up 32% since I recommended buying shares of RIMM on May 21st. It has been a great trade and it will continue to be a great stock to own over the next 6 months. It would be prudent to lock in some gains.

Note: I am long RIMM

Buy Dips in the Exchanges & Brokers

2007-06-19T20:34:00.000-07:00

The derivative exchanges remain strong buys with continued consolidation in the group. I would be buying any weakness in Nymex Holdings(NMX), Intercontinental Exchange (ICE), and the Chicago Merc (CME).

For the longer term I even think you could buy the potential acquirers today. Both the NYSE Euronext (NYX) and the Nasdsaq (NDAQ) have been discounted to do an acquisition. The NYSE trades at just 24X forward earnings while the Nasdaq only trades at 18X forward earnings.

Note: I am long NMX

Stay Long The Agriculture Stocks

2007-06-10T19:29:00.000-07:00

Corn is approaching $4 per bushel and soybeans are again closing in on their highs. Higher commodity prices allows farmers to spend more money on new equipment, higher yielding seeds, and better fertilizers. I like Deere (DE) and Caterpillar (CAT) in the equipment space. Monsanto (MON) is the seed play. Potash (POT) and Terra Nitrogen (TNH) are my favorite fertilizer stocks. All of these companies will benefit from increased agricultural spending over the next 12-18 months.

Note: I am long TNH

Portfolio Holdings

2007-05-30T19:36:00.000-07:00

Top Five Largest Holdings as of 5/30/2007

1. NYMEX Holdings (NMX)
2. Silver Wheaton (SLW)
3. Chipotle Mexican Grill (CMG)
4. Cerner Corporation (CERN)
5. Corrections Corp of America (CXW)

US Stocks 80%
International 20%

Large Cap 24%
Mid Cap 63%
Small Cap 13%

Blackberry Curve Debuts May 31st

2007-05-30T16:46:00.000-07:00

The much anticipated Blackberry Curve will be available from AT&T (T) on Thursday May 31st for $199 with a two year contract. Data fees are $30 a month with an existing line. The total cost of ownership will be the $200 plus (24*$30)= $920 or $460 per year. Accessing corporate e-mail will cost an extra $15 per month. Some folks might be able to write this off as a business expense come April 15th.

Overall the phone looks impressive, although the Curve will not have WIFI for AT&T. Stop by your local wireless store and check out the hottest smartphone of 2007.

Note: I am long RIMM

Circuit City Buyout?

2007-05-29T14:41:00.000-07:00

With speculation that CDW (CDWC) could be taken private I created a comparable analysis of Circuit City (CC), Best Buy (BBY), and CDW (CDWC). CDW is not directly comparable since they are less consumer focused than Best Buy and Circuit City.

CC, BBY, CDWC
P/Sales 0.22, 0.62, 0.85
P/Book 1.50, 3.62, 4.08
EV/EBITDA 5.68, 7.22, 11.01

Circuit City does have a tough road to recovery ahead but its valuation should make it an attractive LBO candidate. CC has over $4.00 in cash per share and a negligible amount of debt outstanding. Unprofitable stores could be sold off to reduce the debt issued to take the company private. CC has eliminated many of their high paid vice presidents and hourly workers to cut costs. Although this could have a negative effect on sales, it shows initiative by management to make changes and improve the company even if CC fails to get a bid from private equity.

"We view CC as one of the best risk/reward opportunities in our space."-Pacific Crest Securities (5/3/2007) (Outperform)

Note: I have no position in CC

Blackberry Curve Will Have WIFI !

2007-05-26T16:51:00.000-07:00

There have been rumors on the Internet that the new Blackberry Curve 8320 for T-Mobile will have WIFI and regular cellular calling capabilities. Technically if your phone has WIFI and you are out of minutes you can switch over and make your phone calls over wireless networks without paying overages. WIFI phones won't lead to death of cell phone carriers.

The WIFI feature is similar to VOIP/Skype technology but for cell phones. Having WIFI on cell phones will be a big win for consumers. I remain bullish on Research in Motion (RIMM).

Note: I am long RIMM

More Pictures of the new Curve with WIFI

Specialty Metals

2007-05-24T20:41:00.000-07:00

I have been following three specialty metals stocks very closely over the past 2 years. All three have pulled back from their recent highs and offer attractive buying opportunities. The titanium industry has been red hot since the market bottomed in 2003. Titanium is a major component of new airplanes. Just take a look at Boeing’s backlog and see the high demand for titanium. Or look at Harold Simmons, CEO of Titanium Metals (TIE) who has been consistently buying his stock under $30.

Three Titanium Stocks Worth Owning
Allegheny Technologies (ATI): Forward P/E: 12
RTI International Metals (RTI): Forward P/E: 14
Titanium Metals (TIE): Forward P/E: 16

Attractive valuations and future growth prospects will drive M&A activity in the metals sector. We are already seeing this with the aluminum and steel stocks. Titanium is next. RTI looks the most compelling because it will be the easiest to swallow with a market cap just under $2 billion. A company like Arcellor Mittal (MT) can do an all cash acquisition of RTI. An all cash acquisition is more friendly to the company being acquired. Issuing stock to make an acquisition can signal to the market that management of the acquiring company believes that their stock is overvalued and is using the strength in their stock price to make an acquisition. The cash component also protects the shareholders of the company being acquired to serve as downside protection against any merger difficulties. The downside of the cash component is that shareholders in the acquired company will not receive any potential upside from the merger synergies except in the form of the acquisition premium (cash).

Note: I have no positions in ATI, RTI, or TIE. I am long MT.

Three Biotech Stocks That Could Double by '08

2007-05-22T14:18:00.000-07:00

The biotech sector is an exciting space. There is always hope that you might discover the next Amgen (AMGN) or Celgene (CELG) before everyone else. I selected three biotech stocks that could double on any positive news. I should mention that there is also a greater than 50% chance that the stocks I am about to mention could lose half or all of their value by the end of the year.

1. Medarex (MEDX): This stock has been mentioned on various programs and websites as a possible takeover target with over 30 drugs in pipeline. Almost every drug that Medarex is developing is in some form of partnership with big pharma. I wouldn't be surprised if a partner like Bristol-Myers (BMY) buys them. More importantly, Medarex will present June 1st - June 5th at the ASCO conference in Chicago. There have been some leaks that the data from Medarex's Melanoma drug (MDX-010) will be good. I also like the fact that Will Dannoff of the Fidelity Contra Fund is the largest shareholder. He has spotted past winners in New River Pharma, Genentech, and Celgene.

2. Dendreon (DNDN): This could be the most talked about stock of 2007. Lots of folks are betting against this one with over 40% of the float short. The stock has already fallen from its recent high of $25 a share. The company is more of a one hit wonder when compared to Medarex. Dendreon's prostate cancer drug Provenge is in high demand and has proven to extend life for several months. Instead of buying the common I suggest taking a look at the January 2008 $7.50 calls for $1.60.

3. Isolagen (ILE): This stock has not received much attention from the media. Isolagen is currently developing a procedure that rejuvenates your facial skin. Skin cells are taken from behind your ear and then taken to a lab. After about a month the cells are injected back into your face. It is a natural form of Botox that can last up to 2 years. Isolagen appointed Nicholas Teti as the CEO in June of 2006. He was the CEO of Inamed until it was bought out by Allergan (AGN) last year.

Note: I am long MEDX

iPhone Debut Will Lead to Cell Phone Upgrade

2007-05-21T15:12:00.000-07:00

There is no question that the late June debut of the Apple (AAPL) iPhone will create a lot of stir. Much of the hype is already priced into the stock. Or at least most of the hype will be priced into the stock before the iPhone debuts in about a month. I still think you a can stay long Apple until the release. Apple will have a tough time selling the iPhone. An initial $500 price tag for a 4 GB music phone and a $600 price tag for a 8 GB phone will be too steep for most consumers. Still many iPhones will be sold and I remain bullish on AAPL.

Who Else Will Benefit?

1. Research in Motion (RIMM): Many of the same features of the iPhone can be had for a lower monthly fee and lower upfront cost with a Blackberry. The Blackberry Pearl runs between $59 and $149 depending on the carrier. Plus the data fees are $10 less per month than the iPhone. I believe consumers will upgrade their cell phones this summer and choose RIMM over the iPhone.

2. AT&T (T) will be a winner no matter what happens. AT&T is the exclusive carrier of the iPhone and will gain wireless subscribers. More importantly more consumers will add media bundles to their wireless plans when they upgrade to a "smartphone" in order to use all of its features. This is a homerun for AT&T, as the average revenue per user should increase with more "smartphone" subscribers.

3. Motorola (MOT) is my sleeper pick. Hovering near its 52 week low, I see lots of value MOT. Motorola has the RAZR 2 set to debut in July and the Q9 smartphone also set to debut shortly. The Q9 will put added pricing pressure on the iPhone and Blackberry Curve & Pearl.

One important thing to remember is that these cell phone upgrades come in cycles. I would never "invest" for the long haul in any of the above names. These are simply 6-8 month "trades."

Note: I am long RIMM

Image From: http://benlucier.wordpress.com/

Adding Some Nitrogen

2007-05-18T15:57:00.000-07:00

Today I closed my position in the DB Agriculture ETF (DBA) and purchased shares in Terra Nitrogen LP (TNH). Terra Nitrogen is a publicly traded limited partnership. If you do decide to buy shares in the stock you will have to file a few extra forms when you do your taxes next year. I think the stock will see $100 within the next couple of weeks. I have been waiting for a pull back in the stock and finally pulled the trigger today. Terra's fertilizer business is on fire with high soybeans, wheat, and corn prices.

I am long (TNH). I plan to add to my position next week.

One Farm Play That Got Away

2007-05-13T18:14:00.000-07:00

I have been watching fertilizer producer Terra Nitrogren LP (TNH) for over a month. I continue to tell myself that this stock is overbought and I should wait for a pullback. Since that time the stock has run from $60 to $95. This stock has gone up virtually in a straight line since September 2006. I wanted to at least mention TNH as a good momentum agricultural stock. TNH is too rich for me right here. For those who are not risk averse then I would recommend taking a look at TNH. Otherwise I personally prefer Scotts Miracle Grow (SMG) or Potash Corp. (POT) as less volatile plays.

Exchanges In Play With ISE Bid

2007-04-30T17:08:00.000-07:00

I have written that the Nasdaq would go after electronic options exchange ISE (ISE). Today Deutsche Boerse beat the Nasdaq to the prize and made a $2.8 billion bid for the ISE. I continue to believe that you can own just about any public exchange. NYSE Euronext (NYX) just completed their merger and I wouldn't expect them to do a deal anytime soon. ICE & the CME are currently bidding for the CBOT (BOT). If you have some extra dough laying around (roughly $2.4 million) I would look into buying a seat on the CBOE in anticipation of an IPO or a bid from the Nasdaq (NDAQ). In the meantime I continue to remain long ICE and NMX.

ISE: Bid for 31*2008E=$67.50
NDAQ: 31*(1.73E)=$53.63 vs. Current Price $32.56
ICE: 31*(5.10E)=$158 vs. Current Price $127
NMX: 31*(3.76)=$113.77 vs. Current Price $129.71

Ryerson (RYI) Update

2007-04-23T22:07:00.000-07:00

Today steel producer Ryerson (NYSE: RYI) jumped 7.3% on a rumor that private equity firm Apollo Management LLP would make a bid between $44 and $46 per share. On April 9th I mentioned Ryerson as a buyout candidate. I recommend taking profits and moving on. If you still want to hold the shares I would sell calls on your position.

Discount Brokers Continue to Struggle

2007-04-18T22:05:00.000-07:00

TD Ameritrade (AMTD) and Etrade (ETFC) gave disappointing guidance this week. Both will need to make acquisitions to grow earnings. The discount brokers face significant challenges with Wells Fargo, Bank of America, and Zecco offering free equity trades. Etrade has diversified away from stock commissions with banking and futures trading. An acquisition of a derivative focused broker would make the most sense for Etrade or TD Ameritrade.

Three Acquisition Targets

OptionsXpress (OXPS) - Recently expanded futures trading with the purchase of online broker Xpresstrade. OXPS trades at 14x forward earnings. Etrade and TD Ameritrade trade at 11x forward earnings. OXPS has better growth prospects than ETFC and AMTD.

GFI Group (GFIG) is in the sweet spot of the derivative market. GFIG is estimated to grow earnings at 20% per year for the next five years. GFIG provides brokerage services for credit derivatives and energy products. Currently trades at 20X forward earnings.

FCStone (FCSX) - Recent IPO not yet covered by any brokerage house. Provides commodity risk management.

Portfolio Update

2007-04-16T19:12:00.000-07:00

2007 YTD Return: 6.08%

Top Holdings

1. Nymex Holdings (NMX)
2. Silver Wheaton (SLW)
3. Cerner (CERN)
4. AllianceBernstein Holding LP (AB)
5. Corrections Corp of America (CXW)

Strengthen With Steel Stocks

2007-04-09T20:18:00.000-07:00

Schnitzer Steel (SCHN) reported a monster quarter today. Revenues exceeded estimates by $100 million and eps beat estimates by 31 cents per share.

Key Takeaways from Schnitzer

Schnitzer gave a robust outlook for the rest of the year.
Nonferrous metals prices were up 30% year over year.
"The international markets for scrap metal are expected to be robust."
"Average net [steel] prices during the quarter are expected to be approximately 10% higher than the average prices obtained during the recently completed second quarter."

Solid Steel Stocks

Tenaris (TS)-Sells steel pipes mainly to the oil & gas industry
Arcelor Mittal (MT)-One of the most undervalued-forward P/E of 7, Business Week Cover Story
Posco (PKX)-Warren Buffet, Pricing power
Ryerson (RYI)-Small-cap domestic steel company ready to be bought out
Commercial Metals (CMC)- recycles and markets steel

Note: I am long MT

American Home (AHM) Downgraded

2007-04-09T15:39:00.000-07:00

On March 18th I recommended purchasing shares in American Home Mortgage (AHM). The trade was an overreaction to the subprime mess caused by New Century (NEWC), Novastar (NFI), and Accredited Home Lenders (LEND). On Wednesday the 21st I suggested taking profits in case AHM did have some bad news coming. Today American Home Mortgage (AHM) received two downgrades, cut their full year profit outlook, and subsequently cut their dividend. The trade was over when the quick 7% was made in March. Longer term AHM could recover from today's losses. I still see better investment opportunities than AHM.

Note: I have no position in AHM, LEND, NFI, or NEWC

Manage Your IRA Like An Institution

2007-04-03T20:06:00.000-07:00

Mutual fund expenses and even some ETF expense ratios can greatly impact returns over a long period of time. Very few fund managers deserve a 100 basis point expense ratio. ETFs provide a great way to gain broad market exposure with lower expense ratios than index mutual funds.

If you open an IRA with Zecco.com, there are no minimums, no commissions, and only a $30 annual maintenance fee. Zecco provides a great way to invest for retirement with low expenses. Vanguard ETFs have some of the lowest expense ratios in the industry. Below is a list of some of Vanguard's ETFs that would fit well in any portfolio.

Vanguard ETF	Ticker	Current Expense Ratio
Vanguard Total Stock Market ETF	VTI	0.07%
Vanguard Large-Cap ETF	VV	0.07%
Vanguard Extended Market ETF	VXF	0.08%
Vanguard Value ETF	VTV	0.11%
Vanguard Growth ETF	VUG	0.11%
Vanguard Mid-Cap ETF	VO	0.13%
Vanguard Small-Cap ETF	VB	0.10%
Vanguard Small-Cap Value ETF	VBR	0.12%
Vanguard Small-Cap Growth ETF	VBK	0.12%
Vanguard REIT ETF	VNQ	0.12%

Middle East Conflict Stocks

2007-03-28T15:08:00.000-07:00

With recent tension in Iran, it is time to start looking for stocks and ETFs that will outperform during times of global conflict. The most obvious securities to own would be Oil (USO), Gold (GLD), Silver (SLV), and soft commodities (DBA). The defense companies also look attractive trading at forward P/E ratios under 16.

Company Name, Forward P/E, 5-Year Growth
Armor Holdings (AH) (12, 15%)
Lockheed Martin (LMT) (15, 11%)
Northrop Grumman (NOC) (14, 11%)
Raytheon (RTN) (16, 16%)

Note: I am long DBA

Realize Some Gains in AHM

2007-03-21T13:57:00.000-07:00

I did not buy American Home Mortgage (AHM) when I recommended it on Monday. If you did follow my recommendation and bought AHM, I would take some off the table. A 7.5% return in 2-3 days is a great gain I wouldn't want to give back. I still like AHM long term. I believe shares are worth $30 which is 6X 2007 estimated EPS of $5.00. Still AHM could easily fall back between $22-$25 if more bad news is released regarding the residential mortgage market.

Note: I have no position in AHM

Value in American Home Mortgage (AHM)?

2007-03-18T18:03:00.000-07:00

Any stock that provides home loans is probably trading near its 52 week low. I have been bearish on two subprime lenders, New Century & Novastar. The question is whether mortgage REITS are currently a value trap? This reminds me of the summer of 2005 when the homebuilders were all trading at forward P/E ratios under 6. July of 2005 was the top in the homebuilder stocks. The difference is now the mortgage REITS are trading at forward P/E ratios under 5 but are at 52 week lows.

One particular REIT I have been looking into is American Home Mortgage (AHM). I believe the 17% dividend is safe. I am even considering purchasing some shares for my own account. The fact of the matter is that AHM has very little exposure to subprime mortgages. AHM opened its portfolio for investors to look over on March 6, 2007. A loan with a FICO score under 620 is considered a subprime loan.

Percent of Mortgage Portfolio
FICO Score Under 620: 1.7%
Subprime Off Balance Sheet Securitized Loans: 1.1%
Subprime Loans Held for Sale: 7.3%
Subprime Loans Held for Investment: 1.3%

Clearly AHM has very little exposure to the subprime market. I would look to get long this stock on any weakness.

Eyeing Two Mortgage REITS

2007-03-16T20:02:00.000-07:00

On Sunday I will be providing a recommendation for two particular mortgage REITS. I have been bearish on Novastar (NFI) and New Century (NEWC.PK) for a long time. I am looking to get long either American Home Mortgage (AHM) or Thornburg Mortgage (TMA). Check back Sunday for more details.

Getting Long The Soft Commodities

2007-03-07T21:17:00.000-08:00

In an attempt to reduce my overall portfolio correlation with the US equity markets I went long the PowerShares DB Agriculture ETF (DBA). The ETF is equally weighted in corn, soybeans, wheat, and sugar. You can read more about the DBA on Stockpickr.com.

As a short term trade, I went long the Intercontinental Exchange (ICE) near today's close. I believe the valuation is more in line with the CME. ICE now trades at 25X forward earnings.

Portfolio Change

2007-03-05T20:50:00.000-08:00

I sold my position in Broadcom (BRCM) last week. I really did not like any of the action in the semiconductors, especially in a down market. I initiated a position in Akamai Technologies (AKAM). Akamai will be providing online streaming video for CBS during March Madness.

I am also looking at some of the agricultural names such as DBA, ADM, SMG, & DE.

Correction Provides Opportunities & Insights

2007-02-28T11:13:00.000-08:00

Yesterday's correction provides a great excuse to rebalance your own long term portfolio. If you experienced significant losses you might want to consider looking at allocating more money to fixed income like the Lehman Aggregate Bond ETF (AGG). If you don't have any international equity exposure, consider looking at MSCI EAFA (EFA) or an emerging markets ETF like the (EEM). If you have large gains in certain sectors consider taking some profits and putting that money to work elsewhere.

As a side note, the US government limits defined benefit contribution pension plans from holding more than 10% of assets in company stock. I would do the same for a defined contribution (401 K) plan. If your employer matches your contribution in company stock, there is nothing wrong with selling the stock and putting that money into mutual funds. Enron employees had over 60% of company stock in their 401K's before the stock plunged. My take is that you already have a lot invested in your job with your company so you need to diversify your future and invest in many asset classes.

Robert Greifeld Nasdaq (NDAQ) Update

2007-02-22T21:11:00.000-08:00

Here are some recent comments by Nasdaq (NDAQ) CEO Robert Greifeld. I reiterate my "buy" on (ITG), (ISE), & (ESPD).

"In 2007, we will do a deal, we can't announce with who or when, but there will be a deal done."

"...we're focused on the domestic market. We're involved with a number of different conversations. There will be a transaction that happens in 2007. And the key thing for our shareholders is we will not do a transaction unless it meets our discipline."

Link to My Merger Candidates

Link to Full Greifeld Interview

Novastar (NFI) Tumbles

2007-02-20T20:18:00.000-08:00

Subprime mortgage lender Novastar Financial (NFI) reported a quarterly loss of $0.39 today. Earnings were hit by defaults and write-downs. The company also said it may change its status from REIT to a regular stock. Say goodbye to that dividend. NFI is down 32% in after hours trading. I would continue to avoid the two well known publicly traded subprime lenders (NFI and NEW).

Greifeld's Next Acquisition

2007-02-15T20:17:00.000-08:00

Nasdaq (NDAQ) CEO Bob Greifeld will make an acquisition in 2007. Shareholders will put pressure on Greifeld to get a deal done after losing the out on the LSE. The most likely US equity acquisition candidate is Investment Technology Group (ITG).

1. Investment Technology Group (ITG)

Leader "...in trading technologies, algorithms and trading analytics..." (CIBC)
Gaining an international presence ($0.06 of EPS in Q4)

Joint venture w/ Merrill Lynch (MER-SP)

Canada 45% growth
Europe 19% growth

Technology initiatives will drive growth in '07
Global shift to electronic trading
10% y/y growth in Nasdaq and NYSE volume
16X forward earnings

2. International Securities Exchange (ISE)

Electronic options exchange
Recently introduced ISE Stock Exchange to compete w/NDAQ & NYX
22X forward earnings
20+% industry growth in '07 & '08
Average price target $50

Note: As of 2/17/07, I have no position in ITG, NDAQ, NYX, or ISE

Nymex Holdings (NMX) Upgraded

2007-02-15T14:15:00.000-08:00

JP Morgan (JPM) upgraded Nymex Holdings (NMX) this morning based on better than expected futures volume growth. I have been bullish on Nymex since its IPO and I continue to hold the stock despite its rich valuation. I have created a model in Excel to estimate revenue based on the published volume from nymex.com.

With average volume of 1.6 million contracts per day, total average net rate per contract of $1.16, quarterly expenses of $40mm, and a 45% tax rate. I estimate EPS for Q1 to exceed the current street estimate of $0.52. I expect Nymex to earn at least $0.55.

Note: I am long NMX

Stay Clear of Subprime Lenders

2007-02-10T14:05:00.000-08:00

Don't be fooled by the high dividend yields of two subprime lenders Novastar Financial (NFI) and New Century Financial (NEW). New Century is going to restate results for 2006 and report a loss in Q4. Both companies are being forced to buyback subprime loans but don't have the cash to buy back the loans. Don't expect either company to continue to pay dividends. I would avoid both NFI and NEW.

Stretched Valuations, Yet Futures Exchanges Look Attractive

2007-02-04T14:17:00.000-08:00

All of the publicly traded futures exchanges have had terrific runs since their IPO price. I have supported all of them since I started this blog. If you were only to own one I would buy the Chicago Mercantile Exchange (CME). Technology is crucial to the future of derivative trading and the CME Globex electronic platform should continue to drive high margin electronic trades. With owning the CME you get the CBOT and part of the Nymex (NMX) electronic trading. The advantage of owning a futures exchange is that both sides of a futures contract have to be traded on the exchange it was first purchased/sold on. With stocks, you can buy or sell shares on an NYSE listed company on the NYSE, Boston, Philadelphia, Cincinnati, Chicago, or Pacific exchange. The futures exchanges have a clear advantage over the NYSE (NYX).

Publicly Traded Futures Exchanges
CME/CBOT (CME) (PEG Ratio = 1.85)
Intercontinental Exchange/NYBOT (ICE) (PEG Ratio = 2.53)
Nymex/Comex (NMX) (PEG Ratio = 2.22)

Note: I am long NMX

AllianceBernstein Holding LP (AB)

2007-01-24T13:58:00.000-08:00

AllianceBernstein Holding (AB) reported a 45% increase in Q4 net income ($1.48 vs. $1.16E). AB announced a $1.48 distribution per share. AB is an asset manager that acts like a REIT, technically it is a publicly traded partnership. I have been long this stock since November when I swapped out of Etrade (ETFC) and went long (AB). The trade has worked out well as AB has increased 19% since my purchase. I am raising my target price to $118 which is 20X my $5.90 2007 EPS estimate. Watch for upgrades to come. AB is called $1 higher in after hours trading.

Note: I am long AB

Maguire Properties (MPG) May Get A Bid

2007-01-23T22:21:00.000-08:00

Vornado Realty Trust (VNO) recently topped private equity firm the Blackstone Group's bid for Equity Office Properties Trust (EOP). There is only a finite amount of prime commercial real estate and VNO sees value in EOP. From a fundamental standpoint REITS look overvalued. Many housing and commercial REITS are trading at upwards of 18-22 times forward earnings. I don't believe Blackstone will make another bid for EOP. Instead I believe they will go after Maguire Properties (MPG).

Why should you buy MPG? & Why would a private equity firm want to buy MPG?

MPG has listed itself for sale and estimated a sale price of $50 per share
FBR added it to their "Top Picks" on 12/11/06 $47.50 price target, $51 buyout price
High G&A Expense ($34mm). "...exceedingly high...on a percentage of NOI, it is the highest office REIT [Stifel Nicolaus] covers." (Stifel Nicolaus 12/11/06) There is room for cost cutting if taken private.
Owns highly desirable office space (15.4mm square feet) in downtown LA, Orange County, & San Diego, as well as a Westin Hotel and 32,000 parking spaces
Possible occupancy gains as space is currently less than 90% occupied
Industry best development pipeline according to Stifel Nicolaus
Can develop up to 1mm square feet of land in downtown LA

MPG is now trading at $42 a share. I see it fairly valued at $42 with a target price of $48-$50.

Oil Trade

2007-01-18T18:47:00.000-08:00

The trend is your friend in oil's recent 30% slide. A safe trade would be to go short the US Oil ETF (USO) and long Halliburton (HAL). From a fundamental basis, Halliburton has more limited downside than the actual commodity. The other trade would be to go short the ethanol producers (PEIX or VSE) and long Halliburton. If you have an option account, consider buying puts in USO, VSE, PEIX.

Costco (COST) Should Continue to Climb

2007-01-09T19:27:00.000-08:00

Costco (COST) is a stock that I have regrettably overlooked in the past. I thought big box retailers were out of favor. Wal Mart is gasping for air every time it reports same store sales numbers. BJ's Wholesale (BJ) is in a restructuring phase. So why would anyone want to own Costco?

I finally stepped foot into a Costco store this week. I was impressed with how friendly the staff was and how well the store was laid out. Below are some brief observations.

All merchandise is sold in bulk. Customers spend a significant amount of money each time they visit the store. Costco has high inventory turnover. Therefore, Costco is able to collect revenue from the sale of inventory before they have to pay suppliers.
Only American Express, cash, or checks are accepted as tender. Costco has bypassed the high credit card fees charged by Visa and Mastercard (MA).
Merchandise is placed into your cart once it has been scanned at checkout. No plastic bags are wasted. Two stores in CA are solar powered.
Costco has industry low employee theft due to the large nature of products sold.
Costco owns the building and land of 359 out of its 458 warehouse properties.

All of the above information would make me want to buy the stock. Plus Costco trades near the same EV/EBITDA values as Target (TGT) and Wal Mart (WMT).

For my up to date portfolio check out Stockpickr.com

Nymex (NMX) Aims for ICE

2007-01-05T19:57:00.000-08:00

On Sunday January 7th, Nymex Holdings (NMX) will be launching six financially settled futures contracts that aim to directly compete with contracts traded on the NYBOT. Rival Intercontinental Exchange (ICE) recently bought the NYBOT. The Nymex contracts will include Cocoa, Coffee, Cotton, Frozen OJ, and Sugar (#11 & #14). The contracts will trade fee free for six months. The question is whether the Nymex contracts will be liquid enough to compete after the initial six month period. With the two exchanges essentially listing the same products, more arbitrage opportunities will be created to take advantage of price discrepancies between the two exchanges. Nymex looks be the winner as it will grab market share from a space it was never involved in (soft commodities). With Nymex and ICE now both involved in soft commodities, the question is will the new contracts lead to greater interest in futures trading? We will soon find out.

Note: I am long NMX

Nordstrom (JWN) Update

2007-01-05T19:30:00.000-08:00

Nordstrom (JWN) reported a 9% increase in same store sales above the expected 4.3% estimate. I would take profits in JWN and sell on the good news. The trade is over in my opinion.

Note: I have no position in JWN

Continue to Stay Long China (FXI)

2006-12-27T21:04:00.000-08:00

On November 28, I posted about getting long the iShares FTSE/Xinhua China 25 Index Fund (FXI). I will reiterate my "buy." It would be prudent to take some profits in China Life Insurance (LFC) if you went long on the November 28th. I still like LFC and FXI long term.

Note: I have no postion in LFC or FXI

Sell Coke (KO), Buy Proctor (PG)

2006-12-20T19:15:00.000-08:00

It is always nice to "buy what you know." Some of the best investments have been in things we use everyday. Based on pure valuation, Coke (KO) (8% Growth) is overvalued trading at 19 times forward earnings while Proctor & Gamble (PG) (12-14% Growth) is fairly valued at 19 times forward earnings. One of the two stocks will correct in the next 6-12 months. In 12 months P&G should trade around $70 and Coke see little price appreciation.

Note: As of 12/20/06 I have no position in either KO or PG

Buy Federated (FD) & Nordstrom (JWN)

2006-12-17T18:52:00.000-08:00

There has been a lot of negativity recently surrounding Federated (FD), which owns both Macy's and Bloomingdale's. Sales in Midwestern stores are estimated to be off 11-20% from consumer backlash against converting Marshall Field's stores into Macy's. Eventually, these customers will come back looking for great deals and quality products. In the meantime, the trade is to buy Nordstrom (JWN), which has many stores directly next to Marshall Field's/Macy's stores in the Midwest. The bad news is already priced into Federated, which makes it a great buy at $38. FD can't lose any more loyal Marshall Field's customers. Take advantage with the recent decline from $45 to $38 in and buy Federated.

The trade is to buy Nordstrom now and sell it after they report a monster same store sales number the first week of January. Hold Federated long term as customers will come back that were once loyal to Marshall Field's. Carl Ichan has also considered Federated as a LBO candidate because of its real estate holdings.

Note: I am currently a seasonal employee at Macy's. As of 12/17/06, I have no position in FD or JWN.

Buy When It's Down

2006-12-12T20:42:00.000-08:00

The best time to get into a hot stock is when it is taking a "breather." Take a look at Apple (AAPL). With the stock selling off because of declining iTunes revenue is no reason for the stock to drop from $93 to $86. I would still consider setting a stop-loss to avoid any unnecessary pain.

Note: I have no position in Apple as of 12/12/06.
Invest at your own risk. Consult your financial advisor.

Drilling For Value

2006-12-05T22:58:00.000-08:00

Energy stocks have held up well in 2006 despite volatile crude oil prices. If you are looking for energy exposure, the big integrated oil companies are the best way to play high oil prices. The big oil companies should outperform the drillers. Just using EV/EBITDA multiples the big oil companies are cheap.

Name, EV/EBITDA, Price/Sales
ConocoPhillips (COP), 3.8, 0.62
Chevron (CVX), 3.9, 0.79
Petroleo Brasileiro (PBR), 4.8, 1.51
ExxonMobil (XOM), 5.3, 1.30
BP (BP), 5.7, 0.84
Petro China (PTR), 6.6, 2.92

Private Equity Takeover Targets

2006-12-01T23:48:00.000-08:00

Private equity has a lot of money to invest. The buying binge has just begun. The best way to spot future deals is to see what multiples private equity firms paid in recent buyouts. I focused on the retail sector.

Recent Deals
Golf Galaxy (9.9 xEBITDA) (0.82 xSales)
Eddie Bauer (9.3 xEBITDA) (0.6 xSales)
Yankee Candle (9.8 xEBITDA) (2.1 xSales)
OSI Restaurants (9.0xEBITDA) (0.77 xSales)

Based on recent deals, look for companies trading under 7 x EV/EBITDA , Price to sales under 1, a low amount of debt, and real estate assets)

Takeover Targets, EV/EBITDA, Price/Sales
Finish Line (FINL), 5.5, 0.50 (No long term debt)
Barnes & Noble (BKS) , 5.9, 0.51 (Stock options overhang)
Kirkland's (KIRK), 6.0, 0.21
Charming Shoppes (CHRS), 6.2, 0.56

Banking on Chinese Stocks

2006-11-28T21:09:00.000-08:00

Chinese stocks have significantly outperformed the US markets this year. That trend looks to continue for the next several years. Many believe there is plenty of room for further growth. Citigroup along with several other investors recently paid $3.6 billion for an 86% stake in Guangdong Development Bank. According to thestandard.com.hk, Citigroup paid 3 times book value for shares of Guangdong. The average price to book value for money center banks is 2.01 (Source: Reuters). The best way to invest in China is through the iShares ETF (FXI). PowerShares also has a China ETF (PGJ) but it is comprised mostly of Chinese ADR's. PowerShares' ETF only has financial exposure in China Life Insurance (LFC) (4.82% of holdings). If you want to own a piece of the Chinese banking sector you need to buy FXI not PGJ.

FTSE/Xinhua China 25 Index Fund (FXI)
Expense Ratio 0.74%
Beta 1.6

Holdings as of 11/24/06 (Source: iShares)

9.27%	China Mobile Hong Kong, Ltd.
9.05%	PetroChina Co., Ltd.-Class H
8.44%	Industrial & Commercial Bank of China-Class H
7.23%	China Life Insurance Co., Ltd.-Class H
6.23%	Bank of China, Ltd.
4.33%	China Telecom Corp., Ltd.-Class H
4.22%	China Construction Bank-Class H, 144A
4.16%	Bank of Communications Co., Ltd.-Class H
4.10%	China Petroleum & Chemical Corp.-Class H
4.06%	China Shenhua Energy Co., Ltd.-Class H

Watch Silver, Apple (AAPL), and Retail

2006-11-26T20:27:00.000-08:00

I will be focusing on Nymex spot silver prices as they approach important technical levels. I would like to see silver break $14 an ounce. Look for continued weakness in the US dollar to drive metal prices higher. (Note: I am long Silver Wheaton SLW)

Apple (AAPL) continues to be on a terror. This Christmas season looks to be another record quarter for Apple. Apple is not just an iPod story. I am looking at the January $100 calls for $2.75.

Hopefully we can get some good retail sales numbers. I especially want to see JC Penny (JCP) and Kohls (KSS) post good numbers. Kohls' stock has shown some weakness of late.

Veolia Environment (NYSE: VE)

2006-11-26T18:01:00.000-08:00

Many people have mentioned that the next commodity boom will be for water not oil. There are a limited number of ways to play the "water rush." PowerShares has a Water Resources ETF (PHO) , but not all of the companies in the fund own water resources. The best way to play the growing demand for fresh water is through Veolia Environment (VE). Veolia is a European water utility. When comparing Veolia with Aqua America using P/E ratio analysis, Veolia is undervalued.

Aqua America (WTR) 2007 P/E = 29
Veolia 2007E EPS ($3.80) * 29 = $110 (62% Upside)

The 2007 multiple used for Veolia could be more conservative and there is still a healthy amount of room for price appreciation.

Note: As of 11/26/06 I have no position in Veolia Environment

Nymex Holdings (NMX)

2006-11-19T21:15:00.000-08:00

On Friday I went long Nymex Holdings (NMX). I am using some leverage with this position. CBOT's (CBOT) stock traded higher on its second day of trading. Will Nymex follow? Nymex will be range bound between $120-$140 for the next couple of sessions. Over the long term, Nymex will benefit from exchange consolidation, higher contract fees, new product introductions, electronic trading agreement with the CME (Globex), and an increased public interest in trading commodities.

Note: I am long NMX

Speculating On Takeovers and Buyouts

2006-11-17T11:51:00.000-08:00

Private equity has been in full force of late. There has been plenty of mergers and LBO's. I have compiled a list of deals that have been rumored in the media. One way to play these possible takeovers is to go long distant call options. This involves a significant amount of risk, but provides limited downside to your initial investment in the call option premium. I do not know when any of the speculated deals will go through. In many cases the deals might never materialize. If you decide to speculate on takeover candidates with options, remember that options have a declining time value built into the premium.

Possible Deals

Federated Department Stores (FD)- Carl Ichan has expressed some interest.

Harrah's Entertainment (HET)- casino operator already received a potential bid around $83 per share. Bid could be raised.

International Securities Exchange (ISE)- electronic exchange for equity options. Could merge with Nasdaq (NDAQ) or NYSE Group (NYX).

SBAC Communications (SBAC)- cell phone tower operator. Competitor Crown Castle (CCI) recently purchased Global Signal (GSL).

The Tribune Company (TRB)- could go private or sell off its assets. Owner of the Chicago Cubs, TV stations, and newspapers.

United Airlines (UAUA)-further consolidation in the airlines sector makes sense. Could also go private as restructuring has helped curb costs.

Note: I have no position in the above mentioned stocks.

NYMEX Holdings IPO Update (NYSE: NMX)

2006-11-15T18:11:00.000-08:00

Nymex Holdings (NMX)

Now selling 6.5 million shares up from 6 million
New Price range of $54-57 up from $48-52
Will start trading Friday November 17, 2006 on the New York Stock Exchange.

How to get in?

Generally, you need to have an account with one of the lead underwriters. The two lead underwriters are JP Morgan Chase and Merrill Lynch. You can try calling JP Morgan or Merrill Lynch but it is unlikely that a "common investor" will be able to pick up any shares pre-IPO. "Hot" IPOs are generally reserved for the best customers.

Other Underwriters: Lehman Brothers, Bank of America Securities, Citigroup Global Markets, and Sandler O'Neill Partners.

Side note: KBR priced at the high end of the range ($17).

Russian Wireless

2006-11-14T23:08:00.000-08:00

Emerging market wireless carriers have outperformed the overall markets. Some of the popular names include China Mobile (CHL), America Movil (AMX), and NII Holdings (NIHD).

It is time to look at two Russian wireless providers, Vimpel Communications (VIP) and Mobile Telesystems (MBT). Both stocks are up over 60% in the past year. I still believe there is more room to run for both MBT and VIP. Average Revenue Per User (ARPU) has started to climb after two years of declining ARPU. Vimpel and Mobile Telesystems both can trade at 10x 2007 EBITDA for 20+% annual growth.

10x 2007 EBITDA would value MBT at $85 (ING Bank EBITDA Estimate). 88% Upside
20x 2007 EPS would value MBT at $72.40. 60% Upside
20x 2007 EPS would value VIP at $93.80. 40% Upside

NYMEX Holdings IPO (NYSE: NMX)

2006-11-13T14:56:00.000-08:00

The New York Mercantile Exchange (NMX) will trade publicly on either Thursday November 16th or Friday November 17th. Again I will recommend purchasing shares in the NYMEX (NMX). There will continue to be consolidation with exchanges. I look at this IPO as free money if you can get some shares at the IPO price.

Shares Outstanding Following Offering: 79,924,800
Total Liabilities: $2,924,774,000
Total Assets: $3,087,826,000
2006 Net Income (6 Months Ended): $71,766,000

Average Revenue Per Contract
2006 (6 Months): $1.41
2005 (12 Months): $1.29
2004 (12 Months): $1.14
2003 (12 Months): $0.97

Portfolio Holdings

2006-11-12T21:19:00.000-08:00

2005 Return 10.5%
2006 YTD Return: 22.0%

I am considering adding some more international exposure to the portfolio. AllianceBernstein (AB) is in the asset management business and has considerable exposure to the global markets.

Holdings
1. Silver Wheaton (SLW) 15%
2. Altria (MO) 12%
3. Cerner (CERN) 11%
4. AllianceBernstein LP (AB) 10%
5. Corrections Corp of America (CXW) 9%
6. Broadcom (BRCM) 9%
7. Chipotle Mexican Grill (CMG) 9%
8. Chesapeake Energy (CHK) 8%
9. Banco Bradesco (BBD) 8%
10. Citigroup (C) 6%
Other 3%

Recent Pick Performance

2006-11-12T17:29:00.000-08:00

Performance Since Posted on October 23-25

GOL Airlines (GOL) Down 8%
Copa Holdings (CPA) Up 1.4%
Ryanair Holdings (RYAAY) Up 9.4%
Nasdaq Inc. (NDAQ) Up 2.3%
ISE (ISE) Down 1%
NYSE Group (NYX) Up 26%
CME (CME) Down 1.5%

Note: I have no position in the above stocks (11/12/06).

Healthcare Looks Attractive

2006-11-09T19:24:00.000-08:00

With the Democrats winning the house and senate, healthcare names have been hammered the past few sessions. It is time to buy Johnson & Johnson (JNJ), Merck (MRK), UnitedHealth (UNH), Humana (HUM), Gilead Sciences (GILD), Wyeth (WYE), and Novartis (NVS). The selling is overdone and a rally is imminent.

I continue to like the electronic medical record companies such as Cerner (CERN), Quality Systems (QSII), and Allscripts (MDRX).

Note: I am long CERN

Swap

2006-11-06T11:55:00.000-08:00

On Friday I entered into a long position in AllianceBernstein Holding (AB). Today I closed my position in Etrade (ET) to reduce my margin exposure.

"Bet" On Politics

2006-11-02T16:06:00.000-08:00

You can now legally "bet" (invest) on politics with futures contracts. The University of Iowa allows you to deposit between $5 and $500 into an account. There are some restrictions. The futures contracts trade just like index futures. No commodity is delivered. For more information visit the Iowa Electronic Markets (IEM).

Current Quotes: Republicans Gain, Hold, or Lose

Symbol	Bid	Ask	Last	Low	High	Average
RH.gain06	0.028	0.043	0.030	0.028	0.047	0.041
RH.hold06	0.268	0.288	0.289	0.246	0.289	0.264
RH.lose06	0.701	0.725	0.703	0.703	0.730	0.720

More Graphs and Quotes

AllianceBernstein Holding (NYSE: AB)

2006-10-30T20:09:00.000-08:00

AllianceBernstein Holding LP (AB) looks like a good long term investment. I would wait for the stock to pull back before going long. AllianceBernstein provides investment management services for pension funds as well as the retail investor with mutual funds and managed accounts. If you are bullish on the stock market, then this is the stock to own. AllianceBernstein pays out all of its earnings in dividends.

Current Yield: 4.70%
Expected Annual Growth: 12%
P/E: 21

Note: I have no position in (AB) as of 10/30/06

What's Wrong With Checkfree (CKFR)?

2006-10-26T23:34:00.000-07:00

Checkfree (CKFR) has a great business model. Yet management has underperformed in growing the online transaction business. I have written positively about Checkfree before. But now Checkfree is on my watch list. Management has produced two terrible quarters back to back. They botched earnings in early August and the stock fell from $43 to $37 overnight. In October management guided below consensus and the stock dropped 7%.

"The company found a difference between quarters that begin with long months, vs. those that begin with short months, Kight said. As a result, the first and fourth quarters of the company's fiscal year have lower transaction volumes." -TheStreet.com 10/25/06

Message to Management: "Stop making excuses and start executing or else shareholders will call for a change."

Note: I have no position in CKFR

Qlogic's Success Should Benefit BRCD & ELX

2006-10-25T17:21:00.000-07:00

I was considering going long Qlogic Corp. (QLGC) before they reported earnings. After reading several analysts reports I decided to stay on the sidelines. I was clearly wrong and so were most of the analysts. Most analysts believed that Qlogic's valuation is limited to 20X forward earnings. That was one dollar of upside before the close yesterday. The market liked Qlogic's report (up 8%) and rivals Emulex (ELX) and Brocade (BRCD) should benefit when they report.

Note: I have no position in ELX, BRCD, or QLGC
This is not investment advice. Invest at your own risk.

High Flyers

2006-10-24T23:20:00.000-07:00

The airlines are probably one of my least favorite sectors. Brand loyalty no longer exists, no airline has premium service, and most airlines are constantly fighting with labor unions. But there are three airlines worth investing in.

The first one is RyanAir Holdings ADR (Nasdaq: RYAAY) . Don't let the long ticker symbol scare you away. On average RYAAY trades 209,000 shares per day on the Nasdaq. RyanAir is expected to grow at least 16% per year for the next five years. They only fly 737-800's between Ireland and Continental Europe. RyanAir has discovered how to run a profitable airline. Read this article on how RyanAir will be profitable by offering flights for free.

The other two airlines that are work investing in are GOL (GOL) and Copa Holdings (CPA).

Watch the Exchange Stocks

2006-10-23T21:47:00.000-07:00

I owned shares of the Nasdaq Stock Market Inc. (NDAQ) for a short period of time in 2005 & 2006. I would consider buying back shares in NDAQ on a pullback. I am also bullish on NYSE Group (NYX), International Securities Exchange (ISE), and the Chicago Merc (CME). The Intercontinental Exchange (ICE) needs to pull back under $75 before I would buy. Also keep an eye out for the Nymex IPO, which may go public in 2006. Eventually, a Nymex/ICE merger seems likely.

Recent Deals
NYSE & Euronext??
NDAQ & LSE ??
CME proposed merger with CBOT (October 2006)
ICE buys NYBOT (September 2006)
NYSE merged w/Arca (March 2006)
Nasdaq bought Inet (April 2005)

IBD Free Access & Earnings

2006-10-22T17:12:00.000-07:00

Investors Business Daily is having a free access week (October 23-27) sponsored by TradeKing. I am an annual subscriber to IBD and recommend checking the website out during free access week.

There are a plenty of earnings to watch on Monday: Amgen (AMGN), AT&T (T), Ford (F), Kimberly Clark (KMB), Kraft (KFT), Netflix (NFLX), Texas Instruments (TXN), and Western Union (WU).

Akamai (AKAM) Buying Opportunity

2006-10-20T22:40:00.000-07:00

Akamai Technologies (AKAM) is up over 140% YTD. Many of us have missed this one. Akamai has pulled back to its 50-Day moving average. The current closing price of $46.19 looks like a nice entry point. I would set a stop-loss around $42.50.

As of 10/20/06, I have no position in AKAM. This is not investment advice. Invest at your own risk.

Self-Promoting

2006-10-18T22:44:00.000-07:00

On October 6th I told readers to look into Johnson & Johnson (JNJ). Today JNJ hit another 52-week high. Readers could have made a quick 4.7%. For the risk averse, Nabi Biopharma (NABI) is up 14% since I mentioned it and NeoPharm (NEOL) is up a HEFTY 41%. Nice work Big Ben! I wish I had followed my own advice.

Takeover Target: SBAC Communications (SBAC)

2006-10-18T22:37:00.000-07:00

It is time to make some money off cell phone towers. Recently Crown Castle (CCI) offered to buy rival Global Signal (GSL) for $55.95 in stock and cash. The deal was priced at 25x cash flow. The next takeover target is SBAC Communications Corp. (SBAC). SBAC owns over 3,300 cell towers. Rival American Tower (AMT) or privately held Global Tower could be acquirers. Stanford Group Research believes SBAC is worth 35x 2007E Free Cash Flow = $34 per share. On October 9th Lehman Brothers raised their price target on SBAC to $37 and reiterated their "overweight" rating. Lastly, there is significant open interest (+20,000 Contracts) for the March 2007 $30 Call. The October $25 calls (1,600+ Contracts) have the next largest open interest. SBAC closed at $26.53.

Why Buy SBAC?

* High barriers to entry
* Industry consolidation
* Double digit growth
* Option market (March 07 $30 Calls)
* At least 25% upside

Disclosure: As of 10/18/06 I have no position in GSL, AMT, CCI, or SBAC. I may go long SBAC.

Is it time to buy Sprint Nextel Corp (S)?

2006-10-11T22:06:00.000-07:00

Currently, Sprint's (S) book value per share is close to $18. The stock is trading just under that price. Sprint faces major challenges in the wireless space as it continues to integrate Nextel customers. Sprint has been hurt by signing up sub-prime credit customers and has a significant amount of "bad debt."

Catalysts

Sprint might look attractive to a cable or satellite company for integrating a "quadruple play" (wireless, video, internet, and land line). Sprint derives 93% of it revenue from wireless and 7% from long distance.

The popular Motorola RAZR and KRZR will be available in Q4. Sprint has lagged the other wireless carriers in phone selection.

Merger synergies with Nextel will start to impact the bottom line in 2007. Sprint will save with a uniform billing, IT, and customer service system. (Source: SG Cowen)

Analysts

Wachovia

* $16-$18 value per share
* Stock deserves discount with integration problems and sub-prime credit customers
* Fundamentals continue to get worse
* Limited downside

SG Cowen

* 6X 2008E EBITDA = $29.26 per share
* Catalysts mentioned above

Sources:
Wachovia Equity Research 9/26/06
SG Cowen Equity Research 9/26/06

Note: As of 10/11/06 I have no position in Sprint Nextel (S)

Yield Curve

2006-10-11T17:43:00.000-07:00

Over the past week I began trading in a "hypothetical" commodity account. In this account I initiated a NOB (notes over bonds) spread. I went long the December T-Note futures (TY6Z) and short the December T-Bond futures (US6Z). This spread implies that interest rates will rise and the yield curve will become more "normal." I am also long March Wheat call options and the December Wheat futures. This should be a nice practice account to see how futures markets work.

Free Trades With Strings Attached

2006-10-11T12:10:00.000-07:00

The online brokers are getting hammered today. Etrade (ET) and TD Ameritrade (AMTD) are both down over 9% with an hour left in trading. The Bank of America announcement of 30 free trades per month will attract many investors. You still must read the fine print. Option trades are $19.95 plus $1.50 per contract. The free trades are only on stocks and ETF's. Bank of America is giving you something that costs them basically nothing. And no load mutual fund transactions are still $45. In return they are hoping that you switch from your local bank to Bank of America. You also must maintain a $25,000 balance in all of your accounts to receive the free trades. This is a good move by Bank of America. Let's see who is next in line to match this offer.

Note: I am long ET

JP Morgan Upgrades Chipotle (CMG)

2006-10-09T07:43:00.000-07:00

As I posted last week, too many analysts were negative on Chipotle Mexican Grill (CMG). Today JP Morgan upgraded Chipotle from neutral to overweight. Chipotle should be back around $60 by the end of the year.

Note: I am long CMG

Drugs & Biotech

2006-10-06T19:46:00.000-07:00

After the bell Johnson & Johnson (JNJ) reported positive news about the use of Risperdal for autism. If you are looking for speculation in biotech take a look at NeoPharm (NEOL) and Nabi Biopharmaceuticals (NABI).

As of 10/6/06 I have no position in any of the above stocks.

Looking for Growth in Chipotle (CMG)

2006-10-05T18:21:00.000-07:00

Today I initiated a position in Chipotle Mexican Grill (CMG). Chipolte was spun off from McDonalds during the first quarter of 2006. I personally enjoy eating at their restaurants. Chipotle is definitely popular with the college crowd. Lines are often out the door at the University of Illinois. Chipotle in 2006 has been compared to Starbux (SBUX) back in 1992. The stock has settled around $50 with about 2 points of downside. It seems to be holding $48 fairly well. Two down and ten points of upside. There is also room for upgrades as a fair number of analysts are bearish.

Dow Time?

2006-10-03T21:23:00.000-07:00

I don't believe the recent rally in the Dow is anything special. It mostly confirms the switch from small and midcap stocks to large cap stocks. Most of the homebuilders and energy related stocks are small or midcap. Over the past few months there has been a shift to more defensive names like P&G (PG), Colgate (CL), (JNJ), Bank of America (BAC), and AT&T (T). REITS should outperform if rates stay low or move lower, as their dividend becomes more attractive.

I still like a few tech names CRM, CKFR, AKAM, GOOG, AAPL.

Bought Some Altria (MO)

2006-09-27T15:31:00.000-07:00

I have been looking to put some cash to work and Monday provided a decent buying opportunity in Altria (MO). I still believe shares are worth $92 if the company spins off Kraft. The speculated deal would be that for each share of Altria you would get 0.70 share of Kraft. The price of Altria would drop, but a 5% dividend yield would keep the stock around the $68 level.

Math
Kraft: 0.7 * Kraft Price Per Share ($34.51 Per Share= 17*2007E) = $24
PMUSA & PMI: = $68 (Maintain a 5% yield $3.44 Dividend)
Altria Dividend might have to be lowered since it will no longer receive a dividend from Kraft.
My conservative value: $24+$68=$92

Note: I am long Altria (MO)

CVS Trade Update

2006-09-22T19:06:00.000-07:00

Today I closed my position by selling the CVS Nov 30 call for an 8% return. I bought the contract yesterday speculating that CVS would "bounce." Today I got the bounce and realized a gain. CVS is still a good long term investment.

CVS Trade

2006-09-21T15:08:00.000-07:00

Today I went long the November 30 call for (CVS). S&P did a discounted cash flow analysis with a weighted cost of capital of 9% and found an intrinsic value of $36 per share. Today's selloff on the Walmart announcement will have little effect on sales at CVS. In my opinion, there is a sense of security getting a prescription filled at a pharmacy over a discount retailer. CVS will lose some customers but not enough to have a significant impact on the bottom line.

Buying Something Hated

2006-09-18T18:04:00.000-07:00

The most hated sector right now is anything energy related. If you are looking for value and will forgo any momentum, then I suggest you take a look the integrated oil companies. My favorites include Suncor (SU) , Occidental (OXY), Chevron (CVX), and Conoco (COP). All are closer to their 52-week lows than their 52-week highs. And all now yield at least 2% (except SU). Suncor is the most levered to the price of crude with its Canadian Oil Sands.

From Bill Cara via Trader Mike
Credit Suisse says commodity crash likely over, Fri., Sept. 15, 2006, 12:59 PM

Stocks to Watch

2006-09-17T19:42:00.000-07:00

I am keeping an eye on Colgate (CL), Proctor & Gamble (PG), and Checkfree (CKFR) as potential longs. P&G and Colgate will see increases in their bottom line with lower raw costs and increased consumer spending due to lower energy prices. Proctor is more diversified than Colgate. Colgate is mainly toothpaste and soap. P&G has a top selling product in virtually every "beauty & health" and "household care" product division.

Stocks To Watch

2006-09-08T21:21:00.000-07:00

I have compiled a list of a few stocks that have grabbed my attention as potential longs. The first stock is Checkfree (CKFR). It is 33% below its 52 week high, but has rallied in the past few trading sessions. Checkfree has a great business model and has low fixed costs. Checkfree offers companies the ability to process personal checks over the internet. They offer cheaper processing fees than Mastercard or Visa. Earnings are expected to grow between 12-14% annually for the next five years.

USG Corp. (USG) manufactures and distributes building supplies. Despite the housing bubble, commercial real estate is booming. Sales of USG's dry-wall continue to see record demand and pricing (PDF). The stock has a black cloud hovering over it with a $4 billion asbestos trust liability pending. I believe most of the $4 billion liability is already priced into the stock. Keep in mind that Carl Ichan has a large short position in this stock. Warren Buffett has been buying up shares under $47. Buffett now owns over 17% of USG. The recent decline in the stock is due to a rights offering. Which created more dilution (doubled the share count). The offering gave shareholders in July of 2006 the right to buy one additional share of USG for each share owned for $40.

Altria (MO) is a stock that I already own but would consider buying more at current levels. The stock is somewhat oversold in the short term. I still believe shares are worth $95 if the company is broken up. Altria also recently raised its quarterly dividend 7.5% to $0.86 per quarter.