Stupidity at TheStreet.com - The Case Against Sony Continues

Up for reading something appallingly stupid? Check out the following piece from thestreet.com:

Sony's Adult-Video Decision Stands Up
By Priya Ganapati
TheStreet.com Staff Reporter
1/25/2007 1:46 PM EST
URL: http://www.thestreet.com/newsanalysis/techgames/10334843.html

Here are some brilliant excerpts in this case favoring Sony's prudently prudish decision to cockblock the adult film industry:

Sony has received much recent flak for its decision to not work with adult-content producers. While it hasn't said it won't allow adult-entertainment content on the Blu-ray format, it has damned content producers by not cooperating.

...

But even if many of those producers move to HD DVD, here's why it won't really matter:

In the 1980s, tapes and the neighborhood video rental store were probably the only way to get to adult content. Now much of it is viewed online. The Internet has made it easy and anonymous to get access to movies that are too embarrassing to request in person.

While Blu-ray or HD DVD may offer greater clarity, the big question is, how much does the average viewer want to sacrifice Internet anonymity for the pleasure of walking into a seedy video store in person to rent a hi-def disc?

This argument right here is when the reader has indisputable confirmation that the author has no idea what she's writing about. The "seedy video store" jaunt is a lame straw-man. I'm not speaking from any recent experience, but back in the late 20th century, circa 1998 and very single, the Pig bought his first DVD player. Soon thereafter, after buying classics like The Philadelphia Story and The Great Escape, I purchased my first adult DVD over the internet.

The advent of Blu-Ray and HD DVD has not altered the consumer landscape--adult discs will mostly be bought over the internet. I'm not a Netflix subscriber, but I believe they do not rent out adult DVD's. No matter--a simple Google search will pop up adult rental providers like dvdempire.com.

Betamax tapes could record content for about 60 minutes, while VHS tapes were three hours long. While bulkier, VHS tapes were perfect for recording movies, and the industry took to them.

Um. Betamax tapes were originally 60 minutes long. Common VHS tapes were not three hours long. Someone's researching with Wikipedia, and not much else. T-120 VHS tapes were the standard, with SP recording times of two hours. VHS recording times eventually grew with the introduction of VCR's that recorded on slower speeds (LP and EP/SLP) as well as manufacturers devising thinner magnetic tape for T-160 and T-180 cassettes. I digress, but it's another example of the quality of this article.

"Sony is trying to demonstrate they care about the home environment and what type of content can be played on a PlayStation 3," says Jon Peddie, president of Jon Peddie Research. "Its kind of patronizing that they would do such a thing, but it will appeal to parents who worry about their kids playing video games and what kind of content is available to them."

The Jon Peddie quote is ridiculous. Will over-concerned parents favor buying a PS3 because it may not be able to show some sexy action in HD? I would bet these same parents will be just as concerned about intensely violent HD games PS3 first-person shooters. Won't these parents just buy the Wii, with its cute, kid-friendlier repertoire?

Another bit of stupid:

This way, Sony gets to have its cake and eat it too. Sony can continue to publicly not support Blu-ray but hope that the Blu-ray lobbying group can work out a better relationship with adult-content producers.

It's also worth remembering that what really won the day for VHS were cost, recording time and licensing issues with Sony.

This piece is supposed to be favorable to Sony. I'm just reading argument after argument bolstering the Case Against:

1. Lobbyists have to repair the relationship with the adult industry--while Blu-ray is in its infancy, in the middle of a format war, where the other format is as welcoming as Seka is to John Holmes.

2. If VHS won the day with cost, recording time and licensing issues with Sony, what is the constant in the VHS/Beta and Blu-ray/HD DVD format wars? Licensing issues with Sony.

Super Bowl Advertisers Play - 2004 & 2005

I couldn't resist doing some more data mining of Super Bowl advertisers' stock performance in the week after the game. I know these data make for riveting posts, but I felt a little naked after offering up a thin gruel of a dataset.

Here's the 2005 advertiser list:


(ticker of advertiser - 2/4/05 close - high price between 2/7 - 2/11 - peak % change)

F - $13.22 - $13.54 - 2.42%
FDX - $96.36 - $98.57 - 2.29%
BUD - $48.46 - $48.65 - 0.78%
PEP - $55.31 - $55.71 - 0.72%
KRB/BAC - $46.89 - $47.07 - 0.38%
MCD - $32.57 - $32.85 - 0.86%
MSFT - $26.32 - $26.34 - 0.07%
LLY - $55.03 - $56.69 - 1.56% (midweek dividend of $.38)
VZ - $36.85 - $36.98 - 0.38%
MGM - $78.00 - $79.60 - 2.05%
NWS - $17.70 - $17.76 - 0.34%

Average difference between 2/4/05 close and following week peak: +1.08%

And the benchmarks:

^GSPC (S&P 500) - 1203.03 - 1208.38 - 0.44%
^DJI (DJIA) - 10716.13 - 10865.69 - 1.40%
^IXIC (NASDAQ Composite) - 2086.66 - 2095.64 - 0.43%

2005 gains matched Phil Davis' assertion that advertisers gain about 1%. The Super Bowl picks beat the NASDAQ and S&P, but lagged the Dow's performance for the week ending 2/11/05.

Here's the 2004 advertiser list:

(ticker of advertiser - 2/4/05 close - high price between 2/7 - 2/11 - peak % change)

BUD - $50.59 - $52.43 - 3.64%
PEP - $47.26 - $50.58 - 7.02%
SPLS - $26.61 - $27.00 - 1.47%
HRB - $57.93 - $59.52 - 2.74%
TWX - $17.57 - $17.72 - 0.85%
GM - $49.68 - $49.85 - 0.34%
GE - $33.63 - $33.99 - 1.07%
FDX - $67.28 - $67.85 - 0.85%
IBM - $99.23 - 100.43 - 1.21%
CSG - $29.95 - $31.98 - 6.78%
DCX - $47.53 - $47.88 - 0.74%
MNST - $24.48 - $25.82 - 5.47%
PG - $101.08 - $103.67 - 2.56%
BAY - $30.49 - $30.70 - 0.69%
GSK - $44.00 - $45.22 - 2.78%
MO - $55.59 - $55.65 - 0.11%
DIS - $24.00 - $24.03 - 0.12%
IACI (EXPE) - $32.25 - $32.45 - 0.62%

Average difference between 1/30/04 close and following week peak: +2.17%

And the benchmarks:

^GSPC (S&P 500) - 1131.13 - 1142.79 - 1.03%
^DJI (DJIA) - 10488.07 - 10634.81 - 1.40%
^IXIC (NASDAQ Composite) - 2066.15 - 2085.49 - 0.94%

2004 gains surpassed each of the major indices.

Still interested in this trading scenario? I have 2001-2003 advertiser lists ready to go. Perhaps tomorrow. I need a nice sueño soon.

Super Bowl XLI Picks

Phil Davis asserts that Super Bowl advertisers get a 1% boost in their share prices during the week following the Super Bowl:

Congrats to the Bears and Colts for making it to the Superbowl -- now let's make some money on it!

No, not betting (Colts by 10), but one thing I always notice is that companies that advertise in the Superbowl tend to get about a 1% move in the week following the game. While I wouldn't just invest willy-nilly, we do have some prime prospects to consider:

• Apple Computer Inc. (AAPL)!

Little is known, but they are on the list. Carl Howe agrees with our own Reinharden that there's big news coming involving the Fab Four! Carl also reminds us that Apple may have a real blockbuster in store -- we all remember their 1984 ad 23 years later, even though they only played it once ever! I've got my money on an iTV spot as the roll-out is scheduled for February and it barely got a mention at MacWorld.

Anheuser-Busch Companies Inc. (BUD) -- ten 30-second spots! Too rich for my blood at $51, but I'll be warming back up to BRK.A on a breakout (they own a lot of BUD).

Garmin Ltd. (GRMN) (got 'em) -- if this doesn't do it, we need to pack it in, just one spot though...

Honda Motor Co. (HMC) -- 3 spots, the Asian market's on fire and they are retesting $40.

Pepsico Inc. (PEP) -- 3 spots in the first quarter -- they must have something to say. Also possibly in breakout mode after being hammered down to $65 ahead of expiration.

Toyota Motor Corp. (TM) will promote Tundra trucks -- good if oil is $45, bad if oil is $55 again.

Yum! Brands Inc. (YUM) -- Taco Bell -- good luck there! I'm dying to see what they try to do to repair their image; my kid still cringes when we drive past!

I find this potential short-term money making opportunity too intriguing to pass up.

But wait. I need more evidence than a fudgy statement using a soft convictionless expression "tend to get about", referring to the 1% move.

I reviewed this collection of advertisements and advertisers from Super Bowl XL, played on February 5, 2006.

The stock tickers of the companies that traded publicly at that time last year were (in the order of the AdLand piece):

BAY, TM, GM, S, F, NFS, BUD, DMND, HMC, MOT, DIS, FDX, PG, PEP, UN, T, YUM, VIA

I did a wee bit of data mining on Yahoo! Finance's historical price quotes page. I recorded the closing price of each ticker on February 3, 2006, the Friday preceding the Bowl. I then wrote the highest price each stock traded during the following week, between February 6 and February 10, 2006.

What eternal statistical truths did I unearth from this tiny data sample?

These stocks averaged a peak change of +2.45% from the Friday, February 3 close. However, no pattern emerged as to when each ticker hit its highest price. Although every stock traded higher during the following week, only 13 out of 18 stocks ended up priced higher as of market close on Friday, February 10.

Here are the peak percentage gains for each ticker:

BAY +2.64%, TM +3.46%, GM +3.11%, S +2.14%, F +2.06%, NFS +0.37%, DMND +0.33%, HMC +1.46%, MOT +3.68%, DIS +2.03%, FDX +2.58%, PG +0.37%, PEP +1.41%, UN +1.52%, T +3.10%, YUM +3.21%, VIA +2.45%.

Who had the most spots last year? BUD, YUM and PEP. Only YUM exceeded the average 2.45% gain for the group, so having the most spots doesn't necessarily predict success.

If I'm remembering correctly, FDX and UN had the most critically-acclaimed ads, if I can go so far as to use such a description. FDX beat the average; UN didn't.

That 2.45% average gain is lacking context with the larger market. So, of course, I looked up the February 3 closing numbers for the Dow Jones Industrial Average, NASDAQ Composite, and S&P 500 indices, and compared them to the highest points these indices rose to during the subsequent week.

Each index attained its highest levels on 2/9/06. The DJIA rose 1.94%, the NASDAQ rose 0.13% on 2/9/06, and the S&P rose 0.83%. Clearly, the Super Bowl advertisers outperformed the markets by a significant margin over such a limited period. If anyone out in the Blog ether reading this would care to compile advertisers in Super Bowls XXXIX and prior, and perform the same stock price comparison, please take the ball and run with it.

Switching sports for cliche purposes, who's on deck this year?

The list of rumored advertisers during the Super Bowl XLI broadcast is eerily familiar:

BAY, F, FDX, PEP, GRMN, NFS, DMND, HMC, BUD, GM, TM, AAPL, MSFT, S, TWX, T

The newbies here are GRMN, AAPL, and MSFT.

I'm not going to analyse any of these picks--the Phil Davis excerpt above is good enough for starters.

How would I play this strategy? I'm going to look up each of these stocks on Groundhog Day and price out the at-the-money and just-in-the-money February call options. I will favor stocks with low time value premia, as the decay of time value over the course of the following week could very well negate an average gain of 2.45%. And as my limited data set showed me, there is no need to rush like Westbrook on Monday morning and load up on calls.

Case against Sony (SNE) Undermined by Flippancy

MarketWatch reported this morning that Sony's cell phone venture with Ericsson, one that I mocked yesterday out of complete ignorance, reported a tremendous quarter:

Sony Ericsson reported on Wednesday that fourth-quarter profit more than tripled, blowing past analysts' forecasts, as record sales of high-end and Walkman-branded phones helped it gain market share from Korean rival Samsung.
...
"Sony Ericsson is pretty much in a sweet spot right now. They have cool, attractive models supported by cool, attractive brands," said Neil Mawston, associate director in the wireless practice of consultancy Strategy Analytics.
"They have become a phenomenally well-run company over the last year," Mawston said.

I was too flippant in my disregard of Morningstar analyst Bare's report regarding Sony's cell phones.

Let's just say, mistakes were made.

Case against Sony Corp. (SNE) Undermined by Vivid?

Fark.com pointed me to a cheeky column that tries a bit too hard with the puns, declaring Vivid is going to release its product on Blu-Ray:

Big-time porn studio Vivid has announced its first Blu-ray porn movie, so there’s obviously a leak somewhere in the Blu-ray condom. Even the Blu-ray disc Association has reacted quickly by saying there is no ban against adult movie content.

So is one key argument in the case against Sony gone limp? Not entirely:

It’s true that Sony doesn’t care for porn on its devices. It was unhappy when porn started arriving on the UMD disc format for the PSP and from certain quotes by porn makers, Sony is not actually being that helpful with Blu-ray. It’s not blocking them but, at the same time, it’s not exactly pointing them in the direction of Blu-ray disc manufacturers that can help them out. Many are having to find their own production sources.

So Sony's neither cock-blocking the adult entertainment industry, nor is it lubricating the way for them either.

This report demonstrates the need to keep up on the news stories relating to investment positions, current as well as potential.

Sony (SNE) - The Case Against

When I did my usual digging around Google Images for a visual accompanyment for this post, I found the above photo of Michele Wie struggling at the recent Sony Open.

I know, I know. Wrong Wii.

This is the only Wie struggling with Sony.

Enough with the homonyms. Here's how I'm structuring this lengthy post: First, present a link to each recent news story, magazine article, or research piece I'm using to justify my conclusions on how to trade Sony; and second, outline the major points with my sparklingly irreverent commentary. At the bottom of the post, I'll leave you with my current strategic plan on how I'm going to invest in SNE.

Wired Magazine offers up a broad hit piece.
- Sony introduced the PS3 at E3, the Electronic Entertainment Expo in 2005...and again in 2006. The revolutionary new bit of information released in '06 was the staggeringly outsized price of $600.
- Rootkit software embedded on CDs that prompted recalls and plaintiffs attorneys to crap out some class action lawsuits.
- Sony is making attempt number 42 at a proprietary format: "[Sony's]become oddly fixated on imposing its own standards – Betamax for VCRs, the Mini-Disc for digital music players, the Universal Media Disc for PlayStation Portable, the Memory Stick for anything you can think of – despite the world's unwavering rejection of those standards."
- Is Sony too far ahead the consumer taste and demands with its expensive, yet technologically advanced microchip and Blu-ray combo? "[T]he Cell [processor at the heart of the PS3] has caused a lot of headaches for developers. Tim Sweeney, cofounder of the North Carolina-based developer Epic Games, figures it will take at least twice the effort to fully exploit the PS3's potential as to take the Xbox 360 to the max. Until that happens, it's unlikely there'll be much discernable difference between games on the two platforms. "The Cell has more theoretical computing power," says Sweeney, "but it might be years before we see that reflected in actual performance. So it's a fundamental question whether the long-term direction in computing is with architectures like the Cell.""
- "Blu-ray is equally fraught. For starters, the whole business of high-definition disc drives seems designed to invite cynicism. With DVD players now in 85 percent of US homes, sales fell in 2005 for the first time – so some manufacturers may need a next-gen disc player, but it's not clear consumers do."
- Wii, with its flailable wiimote, is fun. Xbox has Xbox Live's online gaming community. What is PS3's winning angle?
- An argument in Sony's favor: the corporate suits are sweating the (up until very recently) crap performance of SNE shares: "A couple of months ago, Howard Stringer and Ryoji Chubashi, Sony's president, reported to a luxury hotel in Tokyo's Shinagawa district to face 7,200 shareholders at Sony's annual meeting. It was not an enviable assignment. With the company in the red yet again in its most recent quarter, Japanese investors were in an unhappy mood. "I bought shares in mighty Sony," cried a woman whose holdings had lost nearly two-thirds of their value. "What are you going to do about this?""

Zacks Investment Research issued a recent negative report on Sony.
- Zacks named SNE Bear of the Day for 1/12/07. Investors apparently didn't notice this as SNE jumped $2.03 (4.45%) to $47.68.
- Zacks has a Sell rating and a $35 price target on the stock.
- Sony's LCD business is facing competitive pressures and lowering prices.
- Sony's brand image hurt by the global recall of notebook computer batteries.
- PS3's hefty price tag and launch delays, especially the failure to launch in Europe during the '06 holiday season.
- Rich valuation: "In spite of its difficulties, Sony is currently trading at a rich 68.3x extimated fiscal 2007 ending March 31, 2007 EPADR, a significant premium to its peer group." Even the six-month price target of $35 represents a robust P/E multiple of 52.2x of estimated 2007 EPADR of $0.67.

Fark.com linked to this, which used this post as its source:

"The MD of US development studio Valve Corporation has labelled Sony's PlayStation 3 "a total disaster" and predicted that Nintendo's Wii will win the next-gen console battle."

Why is this guy pissed? I think this issue is developing games for PS3:

Just say, 'This was a horrible disaster and we're sorry and we're going to stop selling this and stop trying to convince people to develop for it.'

Sony gets a 3-star rating from Morningstar, and a fair value estimate of $50 per share.

Morningstar analyst Rod Bare's report dated 12/7/06 is oddly dissonant in its use of positive adjectives like "leading" "robust" and "intriguing" to describe Sony's fortunes:

Sony's Bravia line of flat-panel televisions is a growing success. Sony Ericsson phones have leading market share among profitable high-end customer segments, and Walkman phones are showing real promise. Sales of the PlayStation Portable video game player are robust, and the PlayStation 3 is selling well, when it's available. More importantly, these investments have partners with skin in the game. They represent an intriguing consortium of tech-savvy allies with a very Sony-friendly set of incentives.

Newer reports say the PS3 isn't selling well and has plenty of availability. Dunno about you, but all I've read and heard on the phone front is the promise of the Apple I-Phone and Motorola's Razr/Krazr glut. I have read nothing about Walkman phones or Sony Ericsson phones. Either Bare's analyst report is stale (after only a month and change) or it's off-the-mark.

Jim Cramer, on the 1/11 edition of Mad Money, pushed Sony as a value play, hated by Wall Street. How did he equate SNE with value? By comparing it to the current beauty queen of the market, Apple. Apple commands a market premium because investors love the Apple story and its innovative products. Unlike Sony, Apple has had tremendous success with foisting its proprietary music format on consumers via I-Tunes.

Cramer then bizarrely talked about the value of Sony broken up into its indvidual businesses and valued the entire package in a wide range between $61 and $72.

If Howard Stringer announces that he's going to spin off valuable parts of the Sony conglomerate, then yes, Cramer's value thesis would take purchase on the Pig, but until that happens, I think the Sony-as-an-investing-alternative-to-Apple thesis is a stretch.

I am in complete agreement with Jonathan Last, and his argument against Sony at Galley Slaves.

JVL says to short Sony for two huge reasons: PS3 sales are severly lagging expectations, and Blu-ray purchasers will be unable to go on Rome adventures with Barbara Dare.

Here is the first site cited by JVL, plus a related post at The Guardian.

Sony doesn't want porn produced on Blu-Ray discs. Apparently Sony made this same mistake with Betamax. Porn helped VHS win the videotape format war. Didn't Blockbuster's policy of no porn/no NC-17 videos save the mom-and-pop video store from oblivion by leaving a tremendous revenue source in the marketplace? Is Sony doing the same thing here? Or is Sony worried that it currently cannot manufacture enough Blu-Ray discs and doesn't want the market dominated by Digital Playground and Vivid titles? This is negative for Sony's bottom line, either way.

Here is the second site mentioned by JVL.

Sony has sold only 687,000 PS3 units, whereas Nintendo sold 1.1 million Wiis and Microsoft sold 4.5 million Xbox 360's. 'Nuff said.

Finally, a brilliant commentator kicked Sony around in November 2005 over its penchant for awful DRM software. He also didn't care for the stock's fundamentals either. Of course, SNE stock shot up from $32 to $50 soon after this post.

Which makes a perfect segue for some second-guessing:

- A hot must-have game for PS3 could generate considerable interest and demand, much like what Halo did for Xbox.

- What is the forecast for the yen versus the dollar? Last week's weaker yen drove up Japanese stocks, including Sony.

I'm not going to make this post any longer by recapping the cons (and pros) for Sony. The case against Sony is wholly convincing.

What am I looking at investment-wise? Puts that are barely out-of-the-money. As I write this, SNE is trading at around $46.90. The April $45 puts are $1.45/1.55 bid/ask. The July $45 puts are $2.15/2.25. The January '08 $45 puts are $3.10/3.20. If Sony rises a bit, then I'll also consider the $50 puts.

Before I pull the trigger on any of these, I'm going to do three things: 1. Look up the yen/dollar exchange rate and yen forecasts; 2. Check for any new Sony news reports, especially on PS3; and 3. Make sure it's a bullish day for Sony and Wall Street.

Western Union (WU)

Blog Hog John C. recently said hello and suggested the Pig sniff out a truffle-y morsel called Western Union (WU).

I haven't had my value-investing cap on recently, so no wonder WU failed to get noticed by yours truly. So I went to Morningstar, Seeking Alpha, and Google News to dig up some reports and insight into this well-known, and recently spun-off stock.

Western Union is a $17B company that specializes in worldwide money transfer services. Morningstar's Mark Weber has has a fair value of WU of $32 a share. WU closed today at $21.96, putting it in deep 5-star territory. Weber likes WU's industry-dominant position over competitors like MoneyGram (MGI), and its high profits and billion-plus-and-growing free cash flow. Western Union is a long-standing, trustworthy brand in a business that thrives on convenience and reputation.

If you don't have a Morningstar subscription, here is a no-subscription-required interview with Mark Weber, discussing why he would buy WU if his employer permitted. Weber makes a key point regarding the competitive advantage of the Western Union brand:

Western Union is one of he world's most-recognized brands. More importantly, it's a trust brand. Most of the firm's customers are immigrants to wealthier countries from poorer ones...They need to know that the cash they send home will be available to their families. After years of reliable service, Western Union has established a solid reputation among migrant communities. Immigrants know that their hard-earned cash will get from point A to point B if they use Western Union. Given how important the transaction is to the customer, it's hard to get him or her to switch to a competing service when Western Union has never let them down.

Fat Pitch Financials on Seeking Alpha distilled Weber's arguments (and on the surface, his $32-a-share valuation model) making the long case for WU. Fat Pitch likes WU's wide business moat and vast network that grows with minimal incremental costs.

BusinessWeek just published a piece on a remittance transfer upstart called Microfinance International (MFIC) that is supposedly going to stir up the industry. The MFIC business model/article thesis is a lovely bit of Nobel-inspired optimistic hooey.

We'll just ignore those parts.

Here's a good bit from the article:

In the U.S. alone, 12.6 million Latin American immigrants will send home $45 billion in remittances in 2006. Over the last two years, the percentage of Latin American immigrants regularly sending money home to their relatives has increased from 61% to 73%, and the average amount of each remittance increased from $240 to $300.

These figures are great news for WU. 12% more immigrants sending 25% more money home should equate to increased revenues and cash flow for WU, and higher share prices for WU shareholders.

Here's an even better bit from the article, including use of the "some say" journalistic crutch, but with an actual, live, named source:

Traditionally, the remittance industry has been dominated by Western Union (WU), which made almost $1 billion on sales of almost $4 billion last year, and Moneygram (MGI), companies some say haven't had the customer's best interests at heart.

"They're gouging. Their profit margins are 30%, so if you can serve the poor efficiently charging an appropriate rate, then that's great. It's a great opportunity," says Geoff Davis, president and CEO of Unitus...

Blah blah blah.

Okay, I'm not so heartless as to not want to profit off of the gouging of the poor.




*cough*

C'mon, don't cry.

Price gouging and ridiculous profit margins are good for investors. And Western Union should feel secure in their ability to generate those margins. Congress isn't going to go after Western Union. Immigrants don't vote much. The poor--not so much either. We can start to worry if AARP-card-carrying seniors start using Western Union's services, and then complain to their Representative. And anyway, another W stock, Wal-Mart (WMT), already has the starring role of corporate whipping boy.

One of Western Union's hometown papers ran a supportive piece last Saturday:

One of Brian Barish's hot stock picks: Western Union, the money-transfer business spun off by First Data.

The Douglas County-based company is a good example of a "misvalued" stock he likes.

Barish, lead manager of the Cambiar Opportunity Fund, cites uncertainty surrounding Western Union and notes investors have worried about a drop in business along the "U.S.-Mexico corridor" amid the immigration reform debate.

"It's had a chilling effect," he said.


I think this creepy photo has a chilling effect, Brian.

Perhaps this short-term uncertainty argument is why the stock is a relative bargain.

The Watch List grows...

Canetic Resources Trust (CNE)

Okay, so the CNE logo is not as eye-catching a graphic as Salma, but until Playboy runs a spread on the women of the oil patch, this'll have to do.

Canetic is one of many income trusts that Canadians, especially retirees, invest in for the large monthly dividends. Nice thing is, this one trades on the NYSE as well, unlike COS.UN, the income trust I examined back in 2005.

Canetic, along with all other Canadian trusts plummeted in October after the Tory finance minister, Jim Flaherty, shocked Canuck investors by sunsetting existing trusts' tax benefits in 2011.

Cramer noticed. The Canadian Press noticed:

After roiling financial markets and riling investors, the federal government's decision to tax income trusts has been named 2006 business story of the year by CP and Broadcast News.

Cramer took a look at CNE (as well as another interesting trust, Enterra) back on November 15:

In response to all the email he gets regarding Canadian energy trusts, Cramer told viewers these stocks are worth owning now.

In fact, he said he would rent a U-Haul and back up the truck. Cramer believes two Canadian energy trusts, Canetic Resources Trust ( CNE - news - Cramer's Take) and Enterra Energy Trust (ENT - news - Cramer's Take - Rating), are done going down and ready to bounce.

Even if these stocks don't move one bit, they are worth owning because they are "dividend-ilicious," he said, adding that Canetic offers a dividend of 19%, while Enterra has a 20% yield.
...
There is also a chance the government might change its mind and retract the law, an event that could cause both Canetic and Enterra shares to jump, Cramer said.

I agree that the monthly dividend is the real draw of Canetic. Cramer was a bit premature with his assertion that these trusts were "done going down." They both popped in the days following this Mad Money broadcast (CNE went from just over $13 to $15 a share; ENT went from $7.48 to $10.) and have since recovered from the Cramer effect.

Actually, today was a pretty rough day for oil stocks as CNE closed today at $13.25, down 4.6%.

Before I leave Cramer alone, he is also wrong (wha? Cramer wrong?) about the Canadian government changing the law. First, the Conservatives are in charge, and they pulled this unfriendly-to-investors manoeuver. The Liberals certainly won't turn away higher government revenues. Second, the Tories rightfully feared that huge traditional corporations like telecommunications giant BCE and natural gas producer EnCana would become income trusts to lessen their tax burden.

I've picked on Cramer enough. Now let's look at Kish Patel from Morningstar's reasoning behind giving CNE one miserable star:

We are reducing our fair value estimate for Canetic to $10 per unit from $11. We have reduced our production estimate for 2007 to approximately 78,000 boe/d. Since we had originally factored in some uncertainty around the Starpoint merger by utilizing an elevated cost of equity, we think it's appropriate at this time to lower Canetic's cost of equity now that some of that uncertainty has been reduced.

Our fair value estimate is based on benchmark oil price forecasts of $66 per barrel in 2006, $54 in 2007, $46 in 2008, $44 in 2009, and $46 in 2010, and natural-gas price forecasts of $6.70 per thousand cubic feet in 2006, $6.10 in 2007, $6.10 in 2008, $6.20 in 2009, and $6.50 in 2010. A 10% increase in these forecasts would result in a fair value estimate of $14 per share, and a 10% decrease in these forecasts would result in a fair value estimate of $5.50.

My beef with Morningstar's low fair value estimate comes from their 2007 oil price forecast. The Energy Information Administration of the Department of Energy recently projected crude oil to average $65 per barrel in 2007.

Morningstar used $54 in their valuation model.

But they were nice enough to show how a 10% change in the price of oil either way would change the estimate.

We're not talking about a 10% change. $65 per barrel is a bit more than 20% higher than $54 per barrel. So if a 10% increase raises the fair value of CNE from $10 a share to $14, shouldn't a 20% increase bump up CNE's fair value to around $18?

Patel is also worried about the power of the Loonie:

The trust could also be hurt by continued strength in the Canadian dollar, as it would receive less for each U.S. dollar-denominated barrel of oil it sells.

The Canadian dollar has softened to $0.85 from almost $0.91 earlier this year, alleviating some of Patel's concern.

So there are some significant risks that come with these attractive yields. Dividend-yielding stocks are usually dull, low-volatility affairs.

I should consider my options.

Theoretically, if I were to purchase say 1000 shares of CNE tomorrow, I would consider picking up ten August 07 put options with a $12.50 strike as a hedge. Each option last sold for $1.05 today. These puts would give me ample insurance against a collapse of CNE shares.

CNE is headed for the Watch List. In order to keep tabs on the stock and information that can affect its price, here are several links of note:

Here is where you can get the Canetic Trust investor fact sheet.

Here is a site to keep up on oil price forecasts.

Here are current oil prices.

Google Finance will help keep tabs on CNE's price and its competition.

Here is AccuWeather's 15-day forecast for a particular Northeast locale that can help you keep up with whether the winter weather is abnormally warm or cool, thus affecting the price of oil (and CNE)

Cemex (and Salma) are World Class

The Pig, as well as this blog, spends a hugely disproportionate amount of time focusing on all things North of 49th Parallel. I read Canadian media too often, listen to too much Canadian rock, and know far too much about the differences between Harper, Dion, Layton, and Duceppe. So, in this post, I'm going to turn my attention southward. Let's take a look at Cemex (CX)...

but first, let's take a look at another fine Mexican offering, care of Goldenfiddle and Campari:



Now that things have perhaps solidified a bit, let's turn our, um, attention back onto the cement maker.

Fool.com has written up the stock, picking it as the "Best International Stock for 2007" and as a Motley Fool Stock Advisor recommendation. Cemex is also looking for growth opportunities, and is continuing its attempts to complete a hostile takeover of Rinker Group.

SmartMoney tells me that CX has a very low P/E of 9.3 compared to its competitors, and offers a 2% yield. Morningstar rates it a 5-star pick and was glowingly optimistic in Matthew Warren's analyst note from November 1:

We are raising our fair value estimate for Cemex CX to $45 per share from $33 for three reasons. The first is Cemex's attempt to acquire Rinker RIN for $12.8 billion in cash, which we expect to be additive to our valuation. This stems largely from the additional cash flows that we think Cemex can extract from Rinker's assets (relative to the price paid for those assets) versus what would be possible on a stand-alone basis. If Cemex were pressed to raise its bid 18%-20%, our fair value estimate would drop to about $41 per share. The second reason for the fair value increase is the cash that Cemex has earned since our last revision.

We now know that Rinker rebuffed Cemex on its first attempt, but with CX closing yesterday at $32.26, the stock is still significantly undervalued using Morningstar's admittedly conservative methods.

The subscription-only analyst note continues on, expressing some concerns with Rinker's exposure to the U.S. market and the slowdown on housing construction. That's good to know.

Cemex also yielded two mentions (1, 2) in the recent Economist survey on Mexico. The first piece counters the above-mentioned concern about the U.S slowdown with the growth in Mexican construction:

Until recently the banks did very little lending, but credit is now expanding. Mexicans are able to take out mortgages again and loan interest rates are coming down fast. Such is the boom in house construction that Cemex, Mexico's biggest cement company, in September announced its largest capacity expansion in a decade.

The second piece immediately links "world-class" with Cemex:

Mexico does have a handful of big world-class firms. Cemex has grown to become the world's third-biggest cement company, with factories in 50 countries, thanks to professional management, a highly efficient production system and a string of acquisitions.

Anecdotally, when I was down in the Mexican Riviera last year, I noticed the presence of Cemex throughout the region as it underwent post-hurricane reconstruction. I also noticed the Mega Superstore competing with Wal-Mart, but that's for an altogether different post.



The chart shows quite some volatility, but that comes with investing in Latin America. I would be more interested in CX if and when it gets closer to its 50 and 200-day moving averages, i.e. $.50 to $1.75 below its current share price.

And before we return to North of the Border, how about one more shot of Salma for the road:

Haverford in Brooklyn

Lovely post this morning from one of the Pig's daily blog reads, according to Curbed, offering up the newest residents of Boerum Hill. Now, I know 'Fords that have moved to neighborhoods like Carroll Gardens, Prospect Heights, and yours truly in Brooklyn Heights, but it's good to see the revered mascot movin' on up.

For more photo action, here's the site to which Curbed linked.

Scapegoating the green onions

Taco Bell is attempting to shift the focus away from the "processed meat food" in their gorditas and chalupas, and, according to Reuters, blaming green onions for the E. coli scare.

Taco Bell, a unit of Yum Brands Inc. (YUM.N: Quote, Profile , Research), said preliminary tests showed three samples of green onions were found to be "presumptive positive" for the E.coli 0157:H7 strain. Tests were not yet conclusive, the company said.

Amazing. I never would have suspected one of the few fresh ingredients on the Bell menu would make so many people sick.

On the YUM stock front, I noticed yesterday that the opportunity to buy on the bad news was a very brief one. Within ten minutes of the open, YUM dropped from about $61.60 to $60.98 before shooting up to the $63.25 range. YUM couldn't have picked a better time to release news that it was doubling its dividend.

However, the Great Green Onion Scare of '06 has pushed YUM back down to $62 as I write this.

Yum, the reprise...

It's a ho-hum story about the Salvation Army closing a women's hotel/apartment house on the primest of prime real estate of Gramercy Park. But check out the sexy pose of the Belgian tv producer/hotel resident. It's pleasingly naughty stuff from the normally stuffy Gray Lady.

YUM

One of the top stories last night on channel 4, after I typically sorta enjoyed Studio 60, featured an E. coli break at Taco Bell restaurants throughout North Jersey and Long Island.

Here's an excerpt fron the AP story at the NY Times:

It is not immediately clear whether the New Jersey and Long Island
outbreaks are related. A Taco Bell restaurant in South Plainfield,
N.J., where 11 of the people who were sickened ate, has been closed
for inspection. Four Taco Bell outlets in Suffolk County were closed,
and Nassau County officials asked that another four of its locations
in their county be closed.

Nassau County Executive Tom Suozzi said the restaurant chain had yet
to respond to the request, but said company officials were cooperating
with the county health department. He said the closures were being
sought "out of an abundance of caution."

YUM is running like a bull in Pamplona.(Check out the chart below) Today's E. coli story didn't
trip up the toro one bit, but will the news take hold tomorrow? Or is the idea of Taco Bell serving tainted "meat" already priced into the stock?

I appreciate that Taco Bell responded immediately to the outbreak by closing stores.

I'm curious to see if this episode challenges the intestinal fortitude of YUM shareholders, and affects the stock today.

Down, and I Mean Down on the Farm

I figuratively returned to the farm yesterday to listen to Sanderson Farms' conference call. I previously took a brief look at SAFM a few months back when I declared this stock the winner among NASDAQ losers in a silly battle royale. I say silly, because SAFM has continued to lose, going from $31.70 back in November down to $23.32 yesterday.

SAFM is a poultry producer based in Mississippi. (I listened to chicken-talk, delivered in rich, thick Gulf accents, just for you.) There is enough grist in that sentence to tell you exactly why this stock has dropped more that 25% in just a few months. Fears of AI (avian influenza, not artificial intelligence) and the destructive effects of Katrina took SAFM's stock, and feathered it, deboned it, and turned it into a roaster.

On the call, I heard that earnings per share for 1Q06 would be a loss of $0.43 versus a profit of $0.50 for 1Q05. I heard phrases like "difficult current market conditions" and "a very difficult market environment."

Then there was some good news: SAFM is investing in a Waco, Texas plant that will process 1.25M birds per week by 2008. Growth is good news, indeed. (As a blogger, I should add, "Heh.") And Sanderson reported no lingering Katrina effects.

And there were some forward-looking statements and hopeful rationalizations: People will become less emotional, and get used to hearing reports about wild birds with AI, just like they did with reports about additional heads of cattle with BSE. And the growth of casual dining restaurants will drive demand for chicken breasts.

SAFM is a financially secure company riding out some tough times in the poultry market. I think chicken is on sale for 39-cents a pound.

Let's check out the circulars from supermarket to make sure:



SAFM versus its much larger competition (Hormel (HRL), Smithfield (SFD), and Tyson (TSN)):
Net Profit - 7.0%, 4.7%, 2.4%, 1.3%
Forward P/E - 11.1, 17.6, 12.0, 22.2
ROE/ROA - 15.6%/12.1%, 16.6%/9.3%, 15.0%/5.0%, 7.5%/3.3%

I'm not sure how up-to-date the above SmartMoney.com numbers are, but they suggest, if not confirm, that SAFM is a solid poultry player. It's all cock.

And I should correct myself. If you look very carefully at the lower right corner of the Schnucks' circular I found, chicken breasts are on sale (in St. Louis, MO) for 99-cents a pound, so my 39-cents crack was a bit of an exaggeration.

Missing the Quick Dip in the Online Education Stocks?

Apollo (APOL) dropped 15.5% yesterday, to $49.38. The operator of the for-profit University of Phoenix missed earnings and revenue estimates. Analysts' consensus called for earnings of 54 cents per share on $586M of revenue. APOL forecasted 43 to 44 cents per share on $570M of revenue.

A competitor in the online and distance education field, Strayer (STRA) had a sympathy drop of 6.5% to $96.33.

SmartMoney gave me some quick numbers to consider, STRA vs. APOL:
5-yr Earnings Growth - 19.17% vs. 30.97%
Net Profit Margin - 21.80% vs. 19.90%
PEG - 1.46 vs. 0.87
ROE - 31.90% vs. 71.10%
ROA - 21.60% vs. 37.20%

These are some riveting numbers. They are downright gaudy.

I thought about buying on the dip, but would sleep on it. A prudent, not piggish, move.

Then I saw this piece early this morning in the Times with an opening sentence that should help these stocks rebound quicker than even I expected:

It took just a few paragraphs in a budget bill for Congress to open a new frontier in education: Colleges will no longer be required to deliver at least half their courses on a campus instead of online to qualify for federal student aid.

I think I missed the opportunity to take advantage of a real bargain. I'm looking forward to the opening of the market today to see just how much APOL and STRA rebound on this significant piece of news.

Creepy Lifecell Update

Here is another BNBNRBN excerpt on the Lifecell story, from the AP, in the Houston Chronicle:

NEW YORK — Shares of human tissue reprocessors have reversed a noticeable dive in the five months since allegations arose that one of their suppliers stole body parts from coffins, but the stocks have yet to return to pre-October levels, even as charges are filed against the supplier.
...
The first of the companies to issue a recall of tissue products was LifeCell Corp. of Branchburg, N.J. Lifecell recalled products made from human tissue obtained from the supplier on Sept. 30 after a doctor the company hires to screen tissue noticed discrepancies in paperwork from Biomedical Tissue. The recall was made public Oct. 7.
...
However, the extent of the recall can be seen in financial filings for the quarter. LifeCell took a $1.4 million charge in the third quarter for inventory affected by the recall. The company booked $24.5 million in revenue in the third quarter. Lifecell added that Biomedical Tissue was only one of out about 40 tissue suppliers it used.

Here's the kicker:

FDA spokesman Stephen King said the agency ensured all unused product had been returned after the voluntary recalls started. King said the agency and the Centers for Disease Control and Prevention determined the risk of the suspect parts communicating disease to patients is considered very low, but still unknown. The FDA is unable to comment on details of the investigation as it is still ongoing, but King said the agency is working with all affected parties, as well as all state and local officials involved.



I didn't know Mr. King was moonlighting as both an Entertainment Weekly columnist AND an FDA spokesman. King's nothing if not prolific.

And here's the good news to calm the shivers:

Shares of Lifecell have recovered the most. The company's stock closed at $21.63 on Sept. 30, then dropped 11 percent to close Oct. 7 at $17.75, hitting a low that day of $15.11. Lifecell shares close at $21.20 Friday on the Nasdaq, down 56 cents, or 2.6 percent for the day's session and down only 2 percent since announcing the recall.

Portfolio Changes

I made some changes to the portfolio today, based on two bits of bad news.

The first bit of bad news came from last week's Poore Brothers conference call. The new CEO, Eric J. Kufel, apologized for the abysmal downturn in SNAK's business and promised a turn-around. I expected this, judging from the stock price and events of Q4 2005. But then I listened to the dismal roll-out of the Cinnabon-branded snacks. Kufel mentioned significant inventory write-downs, and said that Poore Brothers management was considering all options regarding the Cinnabon endeavor, including killing it.

The tasty cinnamony morsels on the Poore Brothers website were a (minor) deciding factor in my decision to start a position in SNAK at $2.65. Thoughts of cream cheese icing convinced me to add to the SNAK position at $2.60.

This afternoon, I sold my shares for $2.80, a perfectly reasonable profit after losing my justification for holding the shares.

The second bit of bad news came in the BNBNRBN variety. An ongoing criminal investigation involving a corpse tissue thief mentioned Lifecell.

From NorthJersey.com:

Ex-dentist indicted in plot to sell body parts
Thursday, February 23, 2006

By TOM TRONCONE
STAFF WRITER


The owner of a Fort Lee tissue recovery firm has been indicted in a plot to sell body parts from corpses illegally dissected in New York funeral homes, his lawyer confirmed Wednesday night.

Michael Mastromarino, a once promising dental surgeon, surrendered to authorities in Brooklyn late Wednesday night, said attorney Mario Gallucci.

Mastromarino allegedly stole tissue from the cadavers and sold it to tissue banks for use in medical and dental implants.

It was unclear whether Mastromarino would face any charges in connection with his work with New Jersey funeral homes. The majority of his tissue harvesting was conducted in New Jersey, but so far allegations have surfaced only in Brooklyn.

The Kings County District Attorney's Office would not discuss the investigation. However, a spokesman for the office confirmed that a press conference regarding the case was scheduled for 1 p.m. today.

Mastromarino will appear in court shortly after the news conference, said Gallucci, of Staten Island. The attorney said his client committed no crimes while harvesting tissue for legitimate sale and will fight the charges.

Gallucci expects that at least three other people could be indicted in the case. They likely include staff at the firm, BioMedical Tissue Service, and could include Mastromarino's alleged partner in the scheme, 49-year-old Joseph Nicelli, a former Brooklyn funeral home owner.

Gallucci said he could only speculate on what charges might be included in the indictment when it is unsealed today.

"The fact that the prosecutor hasn't told me what they are and wants him in custody before he tells me leads me to believe it includes state racketeering charges," Gallucci said.

Mastromarino might also face fraud and forgery charges, the lawyer said.

"We absolutely, vehemently deny the charges," he said. "He was not doing anything illegal or wrong when he harvested."

Mastromarino was a respected dental surgeon with offices in New York and Fort Lee before drug use sidelined his career. After surrendering his dental license in 2000, he entered the world of biomedicine, extracting bones, tendons and skin from hospitals, morgues and funeral homes.

The case involves allegations that the ring carved up the remains of "Masterpiece Theatre" host Alistair Cooke, who died of cancer in 2004 at age 95, and sold them on the open market. In another case, a Brooklyn grandmother's leg bones were replaced with pipes.

Since investigators opened the case in October, dozens of people around the country -- including at least 60 in New Jersey -- have been notified that bones and other implants they received in surgeries have been recalled. Several lawsuits have been filed.

The case also has sparked calls for tighter regulations on the tissue industry, in which more than 1 million bone, tendon and skin transplants help cancer and burn victims annually.

According to New Jersey dental board records, Mastromarino surrendered his dental license in November 2000 after he tested positive for cocaine and the narcotic meperidine. He was arrested for possessing Demerol, a painkiller.

Mastromarino, 42, and his wife, Barbara, live in a $1.5 million house on the Palisades in Fort Lee.

Mastromarino came under suspicion when Branchburg-based LifeCell, which purchased tissue from him, found irregularities while reviewing documents pertaining to the donors.

LifeCell discovered that the phone numbers for the donors' physicians were wrong. The phone numbers listed for family members who gave consent for the donations were also wrong, leading the company to believe the tissue was harvested illegally. LifeCell executives immediately alerted the U.S. Food and Drug Administration and voluntarily recalled compromised batches of tissue.

Late last year, the FDA ordered a recall of the potentially tainted products because of an exposure risk to HIV and other diseases.

However, FDA officials insisted the risk is minimal.

The FDA shut Biomedical Tissue Services on Feb. 3 after allegedly uncovering evidence that the firm failed to screen for contaminated tissue. The agency also said it found that death certificates in the company's files contradicted state files on age of death and cause of death.

I know, it takes a while before Lifecell gets mentioned, but when it does, LIFC acted as a responsible corporate citizen. Lifecell investigated the situation, notified the FDA immediately, and recalled batches voluntarily.

I call this Bad News But Not Really Bad News. Yes, the stock dropped 4% yesterday. It dropped another 2% today, just in time for me to take my SNAK money and increase my LIFC position at $21.25 per share.

Why did LIFC drop again today after rebounding at the end of trading yesterday? I'm guessing more BNBNRBN stories from the Rochester and Syracuse newspapers:

7 got suspect tissue, report no ill effects


Matthew Daneman
Staff writer


(February 23, 2006) — Suspect bone and tissue harvested by Biomedical Tissue Services found its way into the bodies of several local patients. None has reported any ill effects.

In October, the U.S. Food and Drug Administration directed the recall of all material that originated with the company, and recommended that hospitals and physicians notify any patients who had received material from that company.

Hundreds of patients nationwide have received that notification in recent months.

Locally, the University of Rochester Medical Center found that it had used nine tissue specimens from Biomedical in medical procedures involving seven patients at its hospitals, spokeswoman Karin Gaffney said Wednesday.

A spokesman at Rochester General Hospital did not respond to a call early this week about any patients affected there. A Park Ridge Hospital spokeswoman did not return a call placed Wednesday.

The UR contacted its seven patients after it received letters from LifeCell of New Jersey and Regeneration Technologies of Florida, both of which provide tissue to UR for medical procedures, Gaffney said. In all, five regional or national tissue processors had acquired material from Biomedical Tissue, according to the FDA.

The seven URMC patients were offered counseling and free testing for HIV, hepatitis and syphilis. None of the seven has experienced any related health problems , Gaffney said.

Several people elsewhere have claimed they contracted syphilis or hepatitis from Biomedical Tissue implants.

UR went through its tissue bank and its database of tissue to make sure it had no Biomedical Tissue Services material on hand, Gaffney said. She said it was the first such recall at UR.


Two CNY patients got tissue linked to indicted supplier
Community General received products from New Jersey firm in body-parts probe.
Friday, February 24, 2006
By Delen Goldberg
Staff writer
Two patients treated at Syracuse's Community General Hospital received transplant tissue supplied by a company facing charges of harvesting skin, bones and tendons from cadavers without permission or proper screening, a hospital spokeswoman said Thursday.

The hospital would not name the patients Thursday or say whether they got sick.

Community General received products supplied by Biomedical Tissue Services Inc., a New Jersey company currently being investigated for selling stolen cadaver tissue for use in skin grafts, dental implants and hip replacements. Biomedical Tissue Services was one of dozens of companies that provided tissue specimens to LifeCell Corporation, Community General's tissue supplier.

In a short statement released Thursday night, Community General spokeswoman Maria Damiano said the hospital "conducted a thorough investigation" and "considers the matter resolved."

Damiano would not elaborate Thursday. She would not say whether the hospital offered free counseling and testing for diseases, as many of LifeCell's other clients did. Hospital President and CEO Thomas P. Quinn did not return several calls.

Late last year, the Food and Drug Administration ordered a recall of the potentially tainted products and warned that an un-

told number of patients could have been exposed to HIV and other diseases during the procedures. The FDA said the risk of infection was minimal.

On Feb. 3, the FDA shut Biomedical Tissue Services, saying it had uncovered evidence the firm failed to screen for contaminated tissue. The agency also said it found that death certificates in the company's files were at odds with those on file with the state over the age of the deceased and the causes and times of death.

Authorities on Thursday announced a 122-count indictment charging four people, including Biomedical Tissue Services founder Michael Mastromarino, with looting dead bodies.

Mastromarino, Joseph Nicelli, a Brooklyn mortician, and two other defendants, Lee Crucetta and Christopher Aldorasi, pleaded not guilty to charges including enterprise corruption, body stealing, opening graves, unlawful dissection and forgery. Each would face up to 25 years in prison if convicted, prosecutors said.

Authorities released gruesome photos of decomposed bodies that were exhumed as part of a widening investigation expected to result in more arrests. The photos offered proof that the defendants removed bone and replaced it with plastic pipe - normally used for plumbing - to conceal the theft, District Attorney Charles Hynes said.

Hynes compared the crimes to "something out of a cheap horror movie."

Among the bodies said to be tampered with was that of "Masterpiece Theatre" host Alistair Cooke, who died in 2004. Paperwork was doctored to show Cooke's cause of death as a heart attack and his age as 85. He died of cancer at age 95.

Mastromarino's defense attorney Mario Gallucci has said his client "vehemently denies doing anything illegal or wrong."

LifeCell, which used tissue from Biomedical Tissue Services for several skin graft products, issued a recall on Sept. 30. Community General conducted an investigation shortly after, Damiano said.

Community General appears to be the only hospital in Central New York to receive potentially tainted tissue. Other hospitals in the region use tissue supplied by different companies that never worked with Biomedical Tissue Services, spokespeople for those hospitals said.

A Batch of BNBNRBN Stocks

Tomorrow, I'm going to follow the progress of some potential BNBNRBN stocks. For now, I'm going to offer recaps of today's news, along with my musings on these stocks backed up by minutes and minutes of in-depth research.

And yes, my horrible acronym-of-sorts is back. I'm interested in a few stocks that the market eviscerated today, to see if any fell in price because of "Bad News But Not Really Bad News."

Here were today's losers, excerpted from MarketWatch.com's Movers and Shakers page:

Shares of Educate Inc. (EEEE :8.89, -3.01, -25.3% ) tumbled 25.3% after the Baltimore-based provider of education services posted a loss from continuing operations of $1.7 million, or 4 cents a share, down from a year-ago equivalent profit of $3.9 million, or 9 cents a share. The average estimate of analysts polled by Thomson First Call was for a profit of a nickel per share in the December period. Revenue totaled $76.6 million in the quarter, compared to Wall Street's consensus estimate of $77.4 million. "We were disappointed by our fourth quarter operating performance," said Chris Hoehn-Saric, the company's chairman and CEO. Looking ahead, the company said it expects its operating performance in the first half of 2006 to continue to be hurt by declines in enrollment in the fourth quarter, and the integration of acquired territory.

Espeed Inc. (ESPD : 8.37, -0.93, -10.0% ) shares fell 10% after the New York-based provider of electronic marketplace and trading technology posted an in-line adjusted profit of $900,000, or 2 cents a share, for the fourth quarter, but gave a disappointing forecast for fiscal 2006. The company said it sees an adjusted profit of 2 to 6 cents a share for the year on revenue of between $147 million and $150 million. The current average estimate of analysts polled by Thomson First Call is for earnings of 17 cents a share for 2006 on revenue of $165.4 million.

Expedia Inc. (EXPE :19.82, -4.43, -18.3% ) shares plummeted 18.3% after the company reported fourth-quarter earnings of $25.2 million, or 7 cents a share, down 43% from $44.1 million, or 13 cents a share, in the year-earlier period. Excluding certain items, earnings came in at 20 cents a share compared with 27 cents last year. Revenue at the Bellevue, Wash., travel-services company rose 13% to $494.7 million from $439 million. Analysts polled by Thomson First Call had forecast revenue of $505 million.

Shares of Navigant Consulting Inc. (NCI :19.83, -2.52, -11.3% ) dropped 11.3% after the Chicago-based consulting services provider said it's received an adverse order and an interim finding from an arbitrator related to its dispute with the City of Vernon, Calif. The order denies the company's right to recover unpaid fees and expenses previously billed to Vernon. For the fourth quarter, these fees and expenses totaled $1.4 million. The arbitrator also found that Vernon is entitled to recover certain amounts already paid to Navigant. In addition, the company reported fourth-quarter earnings of $11.6 million, or 22 cents a share, up slightly from a year-ago profit of $11.1 million, or 22 cents a share. The latest results include charges totaling $1.5 million, or 3 cents a share. Revenue rose 16% in the latest three months to $150.5 million from $129.3 million in the same period a year earlier. The average estimate of analysts polled by Thomson First Call was for a profit of 25 cents a share in the December period on revenue of $151.6 million.

Each of these stocks is highly rated by Morningstar, except for Navigant, which is not rated.

First off, Jonathan Schrader at Morningstar relayed the bad news at EEEE:

Educate reported fourth-quarter results Thursday that were much worse than we'd expected. The company actually posted a loss in the quarter, while consensus estimates were for a nickel per share. We've been somewhat concerned about weak demand for Sylvan's services brought about by declining consumer confidence, but it does not appear that this was an issue. Rather, the company blamed the shortfall on a declining conversion rate, meaning that a lower-than-usual percentage of the people that inquired about its tutoring services in the quarter actually enrolled. This declining conversion rate points to subpar execution by management, which is quite troubling from our perspective.

Educate admitted that it had done a poor job, suggesting that the significant number of acquisitions during 2006 distracted Sylvan's managers from their most important job: providing topnotch service to potential and current customers. In response, Educate moved its president and COO Peter Cohen back into his old post as president of Sylvan, while adding two new positions reporting directly to Cohen: vice president of company-owned centers and vice president of franchise services. Educate also replaced two of its five regional managers and hired a new director for its important contact center operation.

It appears that Educate has recognized its failure and has moved quickly to improve. Heads have rolled, but that doesn't mean that improvement will be immediate. Rather, we suspect that conversion and organic growth will gradually improve in the coming year. It should help that management has decided to turn off its acquisition machine until it rights the ship. No acquisitions, however, doesn't mean no growth. 2006 should still be a pretty good year thanks to acquisitions made in 2005, greenfield additions in Sylvan's territories--the firm has already added seven this year--and organic growth in Hooked on Phonics. We're forecasting 20% growth, at the low end of management's projection for 20%-25%.

Educate will have to spend some more money in order to make money, so we have increased our cost assumptions for 2006 and 2007. This reduced our near-term cash flow estimates--the most valuable in any discounted cash-flow model--and brought our fair value estimate down by a little more than 10%, to $15 per share. With the stock now trading near $9, we think it is an extremely compelling investment. The stock, however, is very volatile, and near-term results will likely be poor. If you don't like volatility in your investments, Educate is probably not the stock for you. But if you don't mind some volatility and have a two- to three-year window, Educate could be a good pick.

Morningstar missed this one. And the last paragraph definitely has some hedging of one's bets.

Cantor Fitzgerald's Espeed deals with bond market trading. All I really know about Cantor is that Lutnick pours a lot of cash into our alma mater. I knew Cantor as the name of Haverford's art gallery before I knew that it was a bond-trading powerhouse. Morningstar suggests that Espeed is run more for his and Cantor's interests, and not the other minority shareholders.

EXPE competes with Cendant's Orbitz, which is now part of the WershovenistPig Portfolio. And the competition between these two players and Travelocity is good for travelers, but does not seem to be a good deal for shareholders. And personally, I use SideStep.com for my flight, car, and hotel needs. But a compelling price is a compelling price.

Navigant provided litigation consulting services on an obscure bit of litigation I worked on for the past three years. From my perspective, if you want to talk about a growth industry, it's companies that help law firms deal with enormous document-intensive litigations. This price dip seems like a fine opportunity to me.

Such a slew of bad news for all of these stocks, and on an up day for the market, too. Out of these four, I am most interested in NCI and EXPE.

Do you agree?

Rearranging the deck chairs at Pier One?

Back in August, back when this blog was a wee one, I compared DWRI and PIR. Fortunately, I did not have money to invest, because I may have flushed it into DWRI. Yes, I picked the purveyor of sorta-affordable high design furniture over the Pottery Barn wannabe Pier One.

Cramer can and does change his mind on a stock from one day to the next. I'm taking a second look at PIR six months later.

Nat Worden at thestreet.com thinks Pier One could be a Danish takeover target:

Jacobsen, a European retail magnate and chairman of an Iceland-based firm called Lagerinn ehf, franchises Jysk stores (pronounced yoo-sk), a home furnishings chain that's known as the Danish version of IKEA. Jacobsen's chain has 1,000 stores worldwide, with 23 stores in Canada and two in New Jersey under the name Inspiration. Some investors see his interest in Linens 'n Things, which has now shifted to Pier 1, as a sign that he is looking for a cheap acquisition to expand his reach in the U.S. -- the consumer capital of the world.

"It's entirely possible that he views Pier 1 as a potential takeover target," says Morningstar analyst Anthony Chukumba. "Acquiring Pier 1 would give him entry into the U.S. with a company that has a fairly well-known and well-respected name brand, a nationwide store presence and a decent amount of scale."

The presence of Jacobsen at Pier 1 adds one more wrinkle to a value play that has already attracted legendary investor Warren Buffett, whose Berkshire Hathaway (BRKA:NYSE) disclosed a 9% stake in 2004. Buffett cut his stake in half as the retailer floundered, and Berkshire now owns about 3 million shares.

Shares of Pier 1 have declined about 50% over the last two years as its sales and earnings have consistently slowed and disappointed Wall Street. So far this year, the stock has shown some signs of life after dipping below $9 in December. Despite a dreary holiday performance, shares are now up 29% for 2006, and with a major merchandise overhaul in the works, investors are starting to look at it as a glass-half-full situation.

Sanford Bernstein analyst Colin McGranahan says an investment in Pier 1 is speculative, as it is currently trading at about 86 times earnings estimates reported by Thomson First Call through 2006. But he also says the upside reward potential far outweighs the downside risk.

"It's a very cheap stock with massive potential upside if any kind of turnaround ever materialized," McGranahan said. "It looks like the downside, especially with this guy Jacobsen poking around, is minimal. The stock has bottomed out at around $9 on a few occasions.

Anthony Chukumba at Morningstar spells out the four possible reasons to pick up shares of PIR as a value bet:

We think that there are four possible scenarios for Pier 1 over the next 12-18 months that could significantly increase shareholder value. The first is the planned introduction of more modern styling to the company's products being well received by customers and spurring a sales rebound. The second is the closing of several unproductive locations, leading to higher sales and profits in the remaining store base. The third is an overhaul of top management, which is long overdue, in our opinion. Finally, with all the recent interest in the retail sector by private equity firms, we think that a leveraged buyout of Pier 1 is a distinct possibility. If none of these scenarios appears likely to play out, we will cut our fair value estimate substantially.

Morningstar puts a fair value of $17 on this $11.11 stock. I'm putting PIR in the on-deck circle.

The Mighty Wind

I've made my oil investment.

Ethanol is a bunch of hooey. Nobody has convinced me that the energy used to grow, harvest, and convert corn into fuel is or will be economical without governmental handouts.

But the wind. Yes, the neverending wind. The mighty wind. And the panoply of original Quixote references, made by journalists (or headline writers) who've never read Cervantes. Speaking of, here's Claudia H. Deutsch in today's New York Times:

Investors Are Tilting Towards Windmills
...
"When you get the president talking about renewable energy, it has to be turning up the dial at G.E.," said Deane M. Dray, an analyst at Goldman Sachs who has an outperform rating on General Electric shares.

Certainly, it is getting attention from Energy Financial Services. The unit recently bought a wind farm in Germany and is installing new turbines there at a rapid pace. It has invested in solar energy farms in California and is in the end stage of negotiations for a large solar project in Europe. Indeed, renewable energy projects already account for $1 billion of the unit's $11 billion portfolio and are its fastest-growing niche. "The renewables space has really heated up, and I hope it will account for 20 or 30 percent of our investments in five years," J. Alex Urquhart, the unit's president, said.

Today, alternative energy financing is barely a footnote in G.E.'s revenue stream. But the G.E. machine is gearing up for change. On Jan. 30 — a day before the president bemoaned the nation's "addiction to oil" — Mr. Urquhart carved out a separate group to focus solely on renewable energy projects. Lorraine Bolsinger, who runs G.E.'s Ecomagination program, says she has begun to "run the financial projects through our scorecard process" to see which ones she should include in her group of G.E.'s "green" products.

The pace is quickening in G.E.'s industrial camp, too. Energy equipment and related services, which accounted for about $42 billion of G.E.'s $149.7 billion in revenue last year, is G.E.'s largest industrial business. Alternative energy products like wind generators accounted for less than $6.3 billion of last year's sales.

Four years ago, G.E. bought Enron's wind-turbine unit, and it is now a $2 billion business, heading rapidly toward $4 billion. In five years, G.E. expects that alternative energy products will account for more than a quarter of energy equipment revenue.

Institutional investors are backing this strategy as well:

G.E. is not alone in backing renewables, of course. In November, Goldman Sachs committed to investing $1 billion in renewable energy, and it is already "well on its way" to achieving that, according to Lucas van Praag, a Goldman spokesman.

J. P. Morgan Chase , too, has said it will invest more than $250 million in wind-energy projects. And venture capitalists have for some time been investing in smaller renewable energy projects and technologies.

Cramer had an alternative stock suggestion back on January 20th. Here's the Mad Money recap:

Chasing Windmills
General Electric (GE:NYSE) , the parent company of CNBC, which airs "Mad Money," reported earnings Friday. While Cramer wouldn't say whether the conglomerate is a buy or a sell, he did say that its performance could indicate which sectors warranted a closer look.

Wind power was one of the most exciting things happening at GE in the latest quarter, he said. So for a wind power play, Cramer suggested taking a look at Zoltek (ZOLT:Nasdaq) , a stock recommended to him by Will Gabrielski, co-author of TheStreet.com Stocks Under $10 newsletter.

Zoltek is not strictly speaking a wind power company, but it makes carbon fibers used to reinforce windmill blades, Cramer said. It supplies its products to Spanish and Danish wind power companies, and it doesn't really have any competition, he added.

If Zoltek were the best play on wind power on earth and everyone thought so, the stock would be expensive, Cramer said, but right now no one knows about it and it's near its 52-week low.

There is some risk here because the company issues warrants, which Cramer said is not the best way to raise money. But it's a well-positioned wind power play.

So while he was excited about Zoltek, he cautioned viewers to use limit orders if they want to buy it because it is such a small stock.

Zoltek (ZOLT) is trading at around $14.70 right now, up 4% for the day, and up about 40% since Cramer's mention. Talk about the wind blowing this stock up. ZOLT is not profitable, with a large and growing negative free cash flow. But who cares about that--this is a momentum play based on windmill write-ups in the Times, an off-note portion of the State of the Union delivered by our former-oil-man President, and attention by James J. Cramer.

As you would expect, Morningstar has not rated ZOLT.

GE gets 4 stars and a fair value of $38 from Morningstar. GE currently trades at around $33.35, with a 2.72% yield, near its 52-week low. It's a classic mega-cap multinational that seems to be trading right now at a bit of a discount.

ZOLT could jolt one's portfolio. I personally wouldn't even consider ZOLT as a speculative play until it pulls back considerably. GE looks like the staid, safe investment it is. If the Times article is correct, GE is a long-term alternative energy play that is priced right, right now.