Betting on the Housing Rebound

Everyone has been waiting for the housing to bottom and looking for plays. Although some are interested in getting into stocks such as KBH, LEN, an PHM, I disagree. The housing bubble took years to inflate and it will take years and much longer to recover. However, there's another market that appears stronger and that is home builders equipment stocks such as Home Depot and Lowes. Currently, people do not want to buy homes but what they do want to invest in is remodeling. People are aware that they will not get a chance to remodel their hopes at a cheaper time than this. Cheap building costs and low property tax values based on current low market values of homes make it attractive to remodel.

Over the long haul, HD and Lowes may be good long term value plays if they continue their downwards fall. According to Ockham Research, they have LOW rated a Hold "because—from a
valuation perspective—the stock looks slightly undervalued compared to historically normal price-to-sales and price-to-cash flow. Given normal circumstances we would anticipate the stock would fetch between $26.70 and $34.10, given current revenue and cash flow. However, the
stock will likely continue to struggle with the housing market weakness through the next quarter or two. If LOW and HD fall much further, the home improvement retailers will likely be a good long- term value play, as the housing crisis will not last forever.

Crude Awakening - Speculation or Fundamental?

I write two point of views, whether the soaring Crude prices is driven by speculation or by pure fundamentals of reaching a peak in oil

1. SPECULATION
A pure manipulation, thats all, that too fueled by brokers and banks from money borrowed from Fed. Its a lengthy article, but read on, it's good.
http://www.marketwatch.com/news/story/wall-street-blame-runaway-energ...

Following is the abstract:
1. The way traders push up prices is surprisingly simple. They buy in European futures markets, which don't have the limits that U.S. markets do. That drives up U.S. prices where they may already have positions.

2. The Goldman problem. During a three-year span ending in 2006, between $100 billion and $120 billion in new speculative money entered the energy markets, according to a congressional report. Investment in commodity index funds surged more than 500% to $80 billion during the
same period.

3. Don't forget the brokers and banks. Commercial and investment banks have launched huge energy trading desks. Among them are Bank of America Corp., Morgan Stanley, and Goldman Sachs Group Inc. These desks aren't much different from their hedge fund brethren. A study by
the International Research Center for Energy and Economic Development concluded "the proprietary trading desks of these and other large investment banks are actually hedge funds in drag, just as Enron was.

4. Last week, J.P. Morgan Chase & Co.'s investment banking co-head, Bill Winters, said that one of the unexpected benefits of the acquisition of Bear Stearns Cos. (BSC:The Bear Stearns Companies Inc was that its energy trading desk was "surprisingly strong."

5. The hubris and insensitivity of energy trading is best personified by Goldman Sachs. A Goldman commodities analyst famously predicted in March 2005 that oil would reach $100 a barrel. At the time, a barrel was trading about $55. The prediction led to a lot of ridicule, but it
also drove up prices in the short term, and ultimately came true. It also led to speculation that Goldman was trying to goose the market because it had a huge position in oil derivatives.

6. Now, Arjun Murti, the same analyst who made the earlier prediction at GS is back, promising $200 oil this year. Murti is again talking about demand, but again, world consumption doesn't suggest the price should double. Saudis confirmed today that demand has not increased hence no need to bump up production when Bush asked for it.

7. Unswayed by Goldman's treatise, Congress, the Federal Trade Commission and the Commodity Futures Trading Commission are all looking to rein in the trading. A House panel is investigating speculation and will hold hearings in May and June. A Senate bill sponsored by Michigan Sen. Carl Levin seeks to put limits on U.S. trades in overseas markets.

Long story short, GS is the big dog here and Fed is the source. When all these financial institutions cried wolf over credit crunch, freaking Fed opened its doors to brokers to play with free Fed money. Since March 17, Oil and commodities have gotten out of control. GS also profited from shorting its own core business where his investors lost billions, that investigation is
ongoing.

2. Fundamental
There's a very interesting article that clearly explains the fundamental point of view of peak oil so there's no need for me to repeat. I highly recommend this article. Here's an excerpt:
"Oil will not just "run out" because all oil production follows a bell curve. This is true whether we're talking about an individual field, a country, or on the planet as a whole. Oil is increasingly plentiful on the upslope of the bell curve, increasingly scarce and expensive on the down slope. The peak of the curve coincides with the point at which the endowment of oil has been 50 percent depleted. Once the peak is passed, oil production begins to go down while cost begins to go up."
-Taken from http://www.lifeaftertheoilcrash.net/

AgFeed Industries, Inc. (FEED) - Technical Analysis

On Monday, May 19, FEED neared the 15.66 support followed by a surge of volume. Today, we saw it pull back and level off 16. Near double bottom play with low risk by setting stop below the support. Resistance is at 20 with the potential to break out if global inflation arises as crude reaches near highs and more natural disasters erupt in the world.

(1) Point and Figure (PF) chart shows FEED retracing nearly every move up or down by at least 50% with higher bottoms. It is holding at a trend line at 16. BUY
(2) Slo Sto is approaching a bottom (oversold) and tomorrow's action might give the red line intersecting the black line buy signal. BUY
(3) MACD is bottoming and should trend upward. BUY
(4) Bollinger Bands: FEED went to two standard deviations over the Bollinger moving average to two standard deviations below. BUY
(5) Williams %R is close to a bottom, oversold. BUY

Bottom line: This stock is clearly in an upward trend. With a large percentage of the stock held by insiders there will be a demand for available stock, thus higher prices.

Hewlett-Packard Co. (HPQ) Earnings

Hewlett-Packard Co. (HPQ) on Tuesday reported a fiscal second-quarter profit of $2.1 billion, or 80 cents a share, on $28.3 billion in sales.

In a separate call with analysts, Hurd acknowledged the difficulty facing HP in the United States, where the company's second-quarter sales were unchanged from a year ago.

"The best thing that I can tell you about the U.S. is that it's a very spotty market and we try to maintain caution around it," Hurd said.

With 70% of revenues coming from overseas its appears as though HP had 11% organic revenue growth. BUT, when you back out the currency gains "revenue in the Americas grew 2%, revenue in Europe, the Middle East and Africa grew 6%, and revenue in Asia Pacific grew 7%." Without a falling US dollar, this company is just another struggling US tech company. Expect future quarters to be substantially worse unless the dollar falls or international revenue growth starts to multiply.

Solar Industry - TE Shortage?

A little on-line research will turn up many facts about Tellurium (Te)production issues. There are some discrepancies but for the most part they are minor. Te is a by-product of copper mining. About 1 ounce of tellurium is recovered from 500 pounds of copper. Te is not mined outright as the worldwide demand is too low to support Te as a pure mining operation. The three main uses of tellurium are for hardening steel, in thermoelectric coolers and now solar cells. The worldwide production of refined Te is about 135 metric tons in 2007. There are about 21000 metric tons of reserve. Consumption is split between steel and thermoelectric cooler production.

Several sources verify that FSLR uses about 8 grams per 60 watt panel. This works out to about 135 tons of Te to needed produce 1GW. Their need represents an increase in demand presumably above worldwide capacity. FLSR claims that it has tapped into a large source of Te and that supply issues are not a problem----that remains to be seen. Dig a little into VNP and you might get come up with a different conclusion. Perhaps they have figured out a way to cheaply mine Te from ferromanganese crusts on the ocean ridge. Or since the average human body contains about 700 micrograms of Te perhaps they will be grinding and extracting Te from corpses and cadavers ;-) FSLR also will have to use thinner layers of Te to make the supply last. John Benner of the NREL said in a 3/2007 presentation that given Te usage of about 6 grams per meters squared of panel puts the wordwide production limit at about 3GW per year (based upon USGS Te production data) and given process improvements to using reduced thicknesses of Te at most 20GW per year. And BTW, his report ignores the emerging DVD/optical memory use for Te that will eclipse all the other uses combined.

So you might conclude that this is a resource limited technology that will reach saturation of capacity in just a few years barring no increases in supply.

MGM Share Buyback and Insider Activity

On May 14, 2008, MGM announced its approval of a 20 million-share stock repurchasing program after the market close. The very next day, MGM Mirage SVP Punam Mather exercised options for 2,500 shares of common stock, according to a Securities and Exchange Commission filing.

"In a Form 4 filed with the SEC Wednesday, Punam Mather reported exercising the options on Monday for $12.74 apiece and then selling all 2,500 of them on the same day for $50.50 apiece." -Forbes

Am I missing something or does this seem planned?

The Yahoo Mess and ICahn

"Technology and Energy sectors made the biggest gains leading the
Nasdaq (up 1.5%) and the S&P (up 1%) Thursday as the May Options
expiration window winds to a close. Oil prices, still the brightest
mark for the Energy sector stayed around $124, although they were
unable to reach new peaks much past $126 a barrel.

It's an Oil price era in Stock and Futures trading right now and the
commodity folks have been rejoicing the last couple of months
virtually non-stop. Concerns over high oil resonate through many
facets of the economy, with the biggest being the story of inflation.
As high oil funnels itself through each and every sectors of the
consumer business the increasing cost of manufacturing, transport and
services will all have to be pushed onto the consumer, thus sparking
increased inflation. Definitely an issue the Fed doesn't want to have
to dive right into after seemingly only months ago steering the US
away from a full blown recession by dramatically cutting Interest
Rates.

In other news, technology related, Carl Icahn (shareholder activist/
corporate wheeler-dealer) took a large stake in Yahoo (YHOO) and is
prepared to enter into a proxy battle with current management. It is
clear, several large shareholders were unhappy with the way the whole
Yahoo-Microsoft (MSFT) situation went that the pressure was applied in
order to unseat the current board at Yahoo, which for one will be more
open to a buyout. The $33/share offer from Microsoft was substantial,
and on the brink of completely overpaying, for the struggling Yahoo
Internet outfit. On the one hand, the Internet is the future and
Internet advertising is leading that future, but on the other, Yahoo
is a struggling horse in the advertising game and can't seem to find
any ways of putting together its huge customer base into meaningful
and exciting new services. Carl Icahn thinks he can help though, and
his track record for displacing management rings throughout Wall
Street (see Motorola (MOT) for an example). Icahn is going to nominate
his board members that will be more open to deal and hopefully get
shareholders a fair price above $30/share. With Yahoo currently
trading under $28 there's a potential there for an easy profitable
trade, if Icahn is able to do as he wants.

Getting Microsoft back to the table will not be easy, as Microsoft's
own shareholders jumped ship sending the stock to drift lower as the
weeks to the potential alliance dragged on and on, so it is clear the
deal isn't the most favourable from within the Software Giant's rank
and file. Microsoft however, is desperate for an Internet presence and
it can't seem to find the functionality and scale of web software and
web services on its own. Windows Live is frankly unheard of in tech
and user circles, Office Live, hasn't made any sort of dent and the
Advertising division is losing money hand over fist as Google (GOOG)
dominants Internet Search. Microsoft's biggest fear in this space has
to be Google Apps (Google's free word processing, spreadsheet and
presentation tools hosted on the web), and as such they have got to
think that Yahoo's Internet service experience and scale will allow
them to have viable online software tools when the game really
changes.

Icahn will definitely use these points to re-open dialogue, and this
along with Yahoo's profitable advertising initiatives should get Steve
Ballmer talking again, which might at the end of the day reward those
patient Yahoo shareholders."

Apple's (AAPL) Market Cap

After today's close, AAPL's market capitalization surpassed Bank of
America. Recently, it has surpassed Toyota Motor Corporation, as well
as JP Morgan Chase. The list of companies that have smaller market cap
than Apple is quite impressive:

Cisco, Telefonica, ConocoPhillips, Intel, Pfizer, Coca-Cola,
GlaxoSmithKline, Novartis and many other very impressive names. If
AAPL's surge continues for a few more weeks, it will soon surpass IBM,
then Google, Johnson & Johnson...

To see Apple among the twenty most valuable companies in the world is
nothing short of remarkable. I remember we were all discussing this
last November, when we were more-or-less in the same situation,
cracking $190 for the first time. Today, though, it is even more
meaningful. The big reversal of January caused many other companies to
lose value, while Apple quickly regrouped and surged ahead (for
reasons we all know very well - the fundamentals).

The current economic mess is holding back many of the top twenty
corporations, and that is certain to give AAPL a chance to leap over.
This Christmas season, unless there are new surprises like last
January, we just might see AAPL surpass MSFT and get into the top five
(or three).

Some might say: "one can always dream"; this doesn't sound so far-
fetched, though.

HPQ and EDS Deal

Toni Sacconaghi, an analyst at Bernstein Research, notes that since 2002, EDS has generated annual revenue growth of just 0.4% versus 8% for HP. And he notes that gross margins at EDS are around 15%, versus 24% for HP. “Given that we do not believe HP will be able to materially improve either revenue growth or gross margins,” he writes, “the acquisition is likely to result in some multiple compression over time even though the deal is accretive and HP has the opportunity to boost EDS’ operating margins from current levels.” Sacconaghi also notes that EDS is heavily weighted to the U.S., with only a third of the company’s workers outside the country. He says that appears inconsistent with HP’s stated goal of building global capacity in its services business. Sacconaghi suggests that for $13 billion, the company could have instead bought Satyam (SAY) or Cognizant (CTSH), which have higher growth and fatter margins. He keeps his Market Weight rating on the stock.

Louis Miscioscia, Cowen: “Now is a good time to buy given the recent hit due to the announced deal with EDS,” he writes. “We would not have recommended that HP acquire EDS, and are concerned about opportunity costs, but we do believe that HP can make it work, that is with a lot of heavy lifting. Financially the deal is about a push, strategically this should actually help HP’s positioning in services and finally operationally one has to decide if Mark Hurd can run EDS better than EDS running itself. We think he can.” He keeps his Outperform rating.
Richard Gardner, Citigroup: “We would be aggressive buyers of HPQ shares on today’s pullback,” he writes. Gardner says the sell-off is “a clear overreaction.” Gardner says that HP faces slower industry growth, more stable component pricing and a more stable dollar going forward, but that “these factors are more than fairly reflect in consensus estimates” and the stock price.

Doug Reid, Thomas Weisel Partners: Reid writes that he is “incrementally more negative on HPQ” for three reasons: EDS’s “comparatively weak” margins and revenue profile and “significant integration risk.” He maintains a Market Weight rating.
Richard Krugele, Needham: He contends that “investor sentiments appear to be overdone.”
Scott Craig, Bank of America: Likewise, he says that “the stock price decline over the past 2 days…is an overreaction and a good buying opportunity for the stock.” He says that the deal “makes strategic long-term sense, even if the price paid is a little aggressive.” He says the reasons investors are nervous about the deal include lack of detail on potential cost and revenue synergies and “EDS’s challenging history.”

LDK - Q2 FY08 Thoughts

After reviewing the financials I have a few thoughts:
What the analysts do not like:
1. Q2 looks to have a GM of 23-27%
2. Inventory over one year to be processed- 21 Mil (reduction of roughtly 20% from end of Q1)
3. Taxes increased to $8.5 million from 500K.

What analysts do like:
1. Prepayments increased 65% from $141 mil to $231 Mil.
2. Sales FY 08 increase from 960 mil to 1.08 to 1.18 BIL.
3. Cash on hand increase a tad over 10% from $83 mil to $93 mil.
4. Inventory on hand increase from $349 mil to $519 mil. meaning delivery shortages are not likely to happen.
5. Total current assets increase 40%
6. R&D dropped significantly from 1.6 mil to 370K
7. They are paying their taxes...
8. Foreign currency benfit of $5 mil
9. General admin expenses increase 20% from 9.5 mil to 11.1 mil.
10. Nice bump in Government subsidies up over 100%.
11. Most important: Plant is on track and will be producing 100 to 350 MT of Poly by end of the year increasing the GM.

All in all, LDK is positioned extremely well for the future and continues to exceed expectations. FY 2008 It apprears that 2.20 per share is attainable. At a PE of 25 to 30, I think 60 to 75 by year end is very realistic not taking into account the buy-back of shares.
------------

After reviewing the conference call and the numbers:

The current cost of PS is $200/Kg.
They roughly sold 105 MW in qtr 1 and produced $233.4 Million in revenue with an average sell amount of $2.22 per watt.
They need about 8 grams/watt of Polysilicon.
This equates to 840,000 Kg's of PS at a cost of $200/kg.
So the costs of PS = $168 million.
1 - $168M /$233 = about 28 % gross margin.

From the CC lets advance 3 years:
The future costs of PS will cost them $35/Kg to produce with the new plant.
Let's say that at the end of 2009/ beginning 2010 they ship at a rate of 1.8 GW/year.
How much PS will they need?
The amount of PS will drop to 6.5 grams per watt.
So they need about 12 Million KG of PS per year, which is a lot of material.
This equates to about 15,000 Tons the magical new PS production capacity.

Bottom line:
The 1.8 GW will give revenue about $3.6 Billion/year ($2/Watt).
But the PS will only cost LDK $35/Kg to produce = $420 million/year. The gives a gross margin value of: 88%.

If you crunch those numbers LDK could net of $1.5 - 2.2 Billion or an EPS of $13-20 per share/year.