Categories
Articles

The Dow Chemical "White Paper"

You know, I have been so excited waiting for this thing. Is there something wrong with me? Anyway, Dow Chemical (DOW) released the paper Friday and it did not disappoint.

The paper details the Joint Venture Strategy (JV) Dow has embarked on. How important is it and why does it matter? In 2006, the JV’s accounted for nearly 20% of Dow’s EBIT (earnings before interest and taxes) of $4.9 billion. What is even more important here as the US economy slows it that 70% of the JV earnings are from outside N. America where growth is still surging. When you consider this segment is going to continue to grow, a careful reading of the paper then become very necessary. Fortunately for you, I have done it.

Why the JV’s? Essentially, Dow has established a number of joint ventures with upstream partners focused specifically on developing highly competitive,world-scale production facilities with access to cost-advantaged feedstocks. Dow brings technology, operational know-how, global reach and product diversity. Its partners bring cost-advantaged feedstocks, upstream expertise, local market presence
and/or regional perspective. This combination delivers a significant competitive edge to each joint venture.

Is it a wise use of cash and resources? Yes, for the last three years Dow’s return on investment in the ventures has been around 40%.

To date in 2007 announced JV’s include:

• In April, the Company signed a Heads of Agreement with the National Oil Company of Libya to operate and expand the Ras Lanuf petrochemical complex. The venture is a strong example of Dow’s joint venture agenda for its Basics businesses lowering capital investment while capturing the benefits of a strategic location and cost advantaged feedstocks.

• Also in April, Dow announced the execution of a Memorandum of Understanding with Chevron Phillips Chemicals, for a polystyrene and styrene monomer joint venture in the Americas. The joint venture would unite Dow’s industry-leading polystyrene activities with Chevron Phillips Chemicals’ solid position in styrene monomers.

• In May, Dow announced the start of a detailed feasibility study with Shenhua Group for the construction of a world-scale coal-to-chemicals complex in the People’s Republic of China.

• The same week, the Company signed a Memorandum of Understanding with Saudi Aramco to move further forward with the Ras Tanura chemicals and plastics production complex in Saudi Arabia. KBR was subsequently appointed as the project management company for the feasibility study.

• And in July, Dow signed a Memorandum of Understanding with Crystalsev, one of Brazil’s largest ethanol producers, to form a joint venture to design and build a world-scale facility to manufacture polyethylene from sugar cane.

Who are they?

The top JV’s that account for 90% of the “equity earnings” they contribute are:

• Compañía MEGA S.A.
• Dow Corning Corporation
• EQUATE Petrochemical Company K.S.C.
• Equipolymers
• MEGlobal
• OPTIMAL Group of Companies
• SCG-Dow Group
• Univation Technologies LLC

How do you know how well they are performing?

Dow’s equity investments are classified as “Investment in nonconsolidated affiliates” in the consolidated balance sheets. Under the equity method of accounting, Dow’s investment in a joint venture is increased by: the initial investment in the venture
(which could be in the form of cash or assets); subsequent capital injections (typically cash); and Dow’s share of joint venture earnings. Dow’s investment in a joint venture is reduced by: dividends paid to Dow by the joint venture; return of capital to Dow; and Dow’s share of joint venture losses.

Dow’s share of earnings (or losses) in its equity investments are classified as “Equity in earnings of nonconsolidated affiliates” in the consolidated statements of income. Dividends received from equity investments have no effect in the consolidated
statements of income; rather they reduce the carrying value of the investment.

Dow’s consolidated statements of cash flows include the cash flow effect of dividends and other cash distributions from the nonconsolidated affiliates. Since the consolidated statements of cash flows are based on Dow’s net income, the equity in
earnings/losses of affiliates (which are non-cash) must be eliminated and dividends included. The net impact of the elimination of the equity in earnings/losses of these joint ventures and addition of dividends is included as “Earnings of nonconsolidated
affiliates in excess of dividends received” in the consolidated statements of cash flows. Other cash distributions are included as “Distributions from nonconsolidated affiliates” in the consolidated statements of cash flow.

The entire paper (23 pages) can be viewed here (PDF.)

Categories
Articles

Tuesday’s Upgrades and Downgrades

UPGRADES

Ryland Group RYL Citigroup Hold » Buy
Pulte Homes PHM Citigroup Hold » Buy
Lennar LEN Citigroup Hold » Buy
DR Horton DHI Citigroup Hold » Buy
Centex CTX Citigroup Hold » Buy
First Mariner Banc FMAR Ferris Baker Watts Neutral » Buy
Polycom PLCM Wedbush Morgan Hold » Buy
Kellwood KWD Lazard Capital Hold » Buy
Chemtura CEM KeyBanc Capital Mkts Hold » Buy
Switch & Data SDXC CIBC Wrld Mkts Sector Perform » Sector Outperform
SEI Investments SEIC Keefe Bruyette Mkt Perform » Outperform
Alvarion ALVR Susquehanna Financial Neutral » Positive
Intersil ISIL Lehman Brothers Underweight » Equal-weight
Systems Xcellence SXCI UBS Neutral » Buy
Texas Industries TXI Davenport Neutral » Buy
Kilroy Realty KRC Citigroup Hold » Buy
CME Group CME Wachovia Mkt Perform » Outperform
Nutrisystem NTRI Broadpoint Capital Buy » Strong Buy

DOWNGRADES

Navteq NVT Janco Partners Buy » Mkt Perform
MDC Holdings MDC Citigroup Buy » Hold
Meritage MTH Citigroup Buy » Hold
Canadian Natl Rail CNI BMO Capital Markets Outperform » Market Perform
Landstar System LSTR KeyBanc Capital Mkts Buy » Hold
Celadon Group CLDN KeyBanc Capital Mkts Buy » Hold
Amgen AMGN Stifel Nicolaus Buy » Hold
ADVENTRX Pharma ANX Dawson James Speculative Buy » Sell
National City NCC Bear Stearns Outperform » Underperform
Comcast CMCSA Soleil Buy » Hold
NMT Medical NMTI Collins Stewart Buy » Market Perform
Illinois Tool ITW Bear Stearns Outperform » Peer Perform
CGI Group GIB RBC Capital Mkts Outperform » Sector Perform
Citrix Systems CTXS Banc of America Sec Buy » Neutral
Research In Motion RIMM RBC Capital Mkts Top Pick » Outperform
Par Pharmaceutical PRX Friedman Billings Mkt Perform » Underperform
NetLogic NETL Lehman Brothers Overweight » Equal-weight
Marvell MRVL Lehman Brothers Overweight » Equal-weight
Integrated Device IDTI Lehman Brothers Overweight » Equal-weight
3Com COMS UBS Buy » Neutral

Categories
Articles

"Fast Money" for Tuesday

Tuesday’s Picks

Jeff Macke liked Caterpillar (CAT). Open $79.56

Guy Adami said Tesoro (TSO) is a buy. Open $76.77

Karen Finerman preferred YUM! Brands (YUM). Open $34.45

Pete Najarian recommended Terra Industries (TRA). Open $30.50

Since my tracking began on 6/21 (1-1 means one up pick and one down pick and no results from my vacation weeks). The percentage is the percentage of successful picks

Guy Adami= 28-18 = 60%
Eric Bolling= 10-11 = 48%
John Najarian= 13-3 = 81%
Jeff Macke= 33-24 = 57%
Pete Najarian= 21-17 = 55%
Tim Seymore= 3-2 = 60%
Karen Finerman= 13-6 = 68%
Stacey Briere-Gilbert= 2-0 = 100%

Categories
Articles

Today’s 52 Week Lows

RVSN Radvision Ltd 14.50
RUTH Ruths Chris Steak Hse Inc 14.15
NCS NCI Building Systems Inc 42.81
NCR Ncr Corp New 23.93
MRLN Marlin Business Svcs Corp 14.22
MGYR Magyar Bancorp Inc 10.47
MGPI Mgp Ingredients Inc 10.06
MFBC MFB Corp 29.75
CRFT Craftmade Internation … 10.77
CNTY Century Casinos Inc 6.03
CLDN Celadon Group Inc 11.16
ACXM Acxiom Corporation 15.89
ABL American Biltrite Inc 5.70

Categories
Articles

Festival of Stocks 10/1

Here are the latest picks from the festival at Fat Pitch Financials.

Please visit and read the posts here.

Categories
Articles

Monday’s Links

Stupid, Boobs, Parents, Steriods

– Just when you think this guy just cannot be any more stupid, he does it again.

– Why is this such a big deal? If she had ADHD she would get extra time for the test, but to breastfeed a child, no way. Something is wrong here.

– What type of parent category do you fall into?

– It is hard to believe someone actually received a paycheck to study something and come to a conclusion we all already know.

Categories
Articles

Citi Warning: Expected and No Big Deal

Citigroup (C) just announced it expects to report that Q3 earnings will drop about 60% from a year earlier due to “dislocations in the mortgage-backed-securities and credit markets, and deterioration in the consumer-credit environment.”

The decline “was driven primarily by weak performance in fixed-income credit-market activities, write-downs in leveraged loan commitments, and increases in consumer-credit costs,” CEO Charles Prince said in a statement. They expect a write-down of $1.4 billion pretax, net of underwriting fees, on funded and unfunded highly leveraged finance commitments and expect losses of $1.3 billion pretax, net of hedges, on the value of subprime mortgage-backed securities warehoused for certain securitizations; and $600 million pretax in fixed-income credit trading due to significant market volatility and the disruption of historical pricing relationships.

Citi’s announcement follows Swiss banking giant UBS (UBS) on Monday said it will take a 4 billion Swiss franc ($3.4 billion) hit in the third quarter from its subprime mortgage exposure.

This means we can expect a $.42 cent hit to earnings that ought to be in the neighborhood of $.63 cents a share or about $4.10 for the year which means that even with this hit (that was somewhat expected) Citi still sports a PE 11 for 2007. In other words do not expect this news to have too much of an effect on the stock price. we ought to get selloff early today as the panicky folks bail out but it will simply be a nice chance to pick up some more shares at discounted prices.

What will be interesting to watch will be if other institutions like Bank of America (BAC) selloff in sympathy today as investors may anticipate a similar warning there. All in all, to have the announcement out of the way to be digested ought to get the weight off shares as investors have been waiting for news like this and now that it is out there, assuming they believe this is the end of the write-downs (It will cost Prince his job if is isn’t) people can move on. After Goldman (GS), Merrill (MER), Bear Sterns (BSC) and Lehman (LEH) all wrote down fixed income assets the last few weeks, only a foolishly optimistic person would have expected this situation to not reach Citi and the other big banks. The questions that needs to be answered for sure is: “Is this it”?. Clearly investors in Goldman Sachs believe it as as shares have rallied 20% off their lows in only a couple weeks. What will happen to Citi shares will not be a results of the announcement but whether or not investors believe the worst is over and Citi has come clean.

Actual earnings will be released the 15th.

Categories
Articles

LeapFrog Has A Chritmas Hit On Its Hands

We bought LeapFrog Enterprises (LF) shares in March and said we would hold them at least until Christmas no matter what they did. It is looking more and more like we may have winner here.

In the original post, I said “I have seen the new LeapFrog products and they are great. They are usable by my 4 year olds and are educational, not just entertaining. The quality is outstanding, meaning they would have to work at breaking them and they are affordable. A Leapster Learning Game System in Target runs about $60 and the games are about $15-$25 a piece. Best of all, the kids really love them and they are learning (to read and write, not blow things up, it’s the little things).”

In a follow up in August I said “As I have said before, this Christmas is make or break and LF is such a small part of the portfolio, we will wait and see what happens. The new products are very good and early reviews have been overwhelmingly positive.”

So, where am I going? Toys R Us released their “Fabulous 15” must have toys for Christmas this year and guess who made the list? You got it…

Here it is:

* Aqua Dots Super Studio from Spin Master

* Clickstart My First Computer from LeapFrog

* Daisy Pocket Mod from Razo

* EyeClops from Jakks Pacific

* GeoTrax Rail & Road System from Mattel’s Fisher-Price

* Grand Walk-In Kitchen from Step 2

* Guitar Hero 3: Legends of Rock Game from Activision

* Hannah Montana In Concert Collection Doll from Play Along

* Made for Me MP3 Music Player from Hasbro’s Playskool

* Monopoly: Boutique Edition from Hasbro

* Shining Stars from Russ Berrie & Co

* T.M.X. Friends from Mattel’s Fisher-Price

* Transformers Ultimate Bumblebee from Hasbro

* XPV R.A.D. Robotic Air Defense from Jakks Pacific

* Smart Cycle from Mattel’s Fisher-Price.

Number two on the list. Here is the deal. Is anyone going to buy any toys from Mattel (MAT) this year given the recent problems they have had? If the answer is no, you eliminate 20% of the list. Not for nothing but I would rather not have my Christmas present to my sons cause them brain damage but, that is just me. This computer game is going to be huge for Leapfrog and with only 65 million shares outstanding, a good Christmas season has the potential to catapult earnings.

Currently shares are trading around $8.25 a share and that price, why not? If you need to have a little “action” in your portfolio for excitement, why not take some? Keep the position small in case things do not turn out as hoped and if it does, the upside potential is big.

Think about it, quality products that teach your kids something that they’ll enjoys and won’t kill them. What’s not to like?

Categories
Articles

Monday’s Upgrades and Downgrades

UPGRADES

Bank of the Ozarks OZRK B. Riley & Co Neutral » Buy
Synovus SNV Keefe Bruyette Mkt Perform » Outperform
Cullen/Frost Bnkrs CFR Keefe Bruyette Mkt Perform » Outperform
Watson Pharm WPI Roth Capital Hold » Buy
CRA Intl CRAI William Blair Mkt Perform » Outperform
Harman HAR Bear Stearns Peer Perform » Outperform
Thor Industries THO RBC Capital Mkts Underperform » Sector Perform
Conseco CNO Friedman Billings Mkt Perform » Outperform
Luminent Mortgage Capital LUM Deutsche Securities Sell » Hold
HDFC Bank HDB Credit Suisse Neutral » Outperform

DOWNGRADES

Zoran ZRAN Longbow Buy » Neutral
Atlantic Tele-Network ATNI UBS Buy » Neutral
Bigband Networks BBND Jefferies & Co Buy » Hold
Cognos COGN Soleil Buy » Hold
Centerstate Banks of Florida CSFL Keefe Bruyette Mkt Perform » Underperform
First Horizon FHN Keefe Bruyette Mkt Perform » Underperform
Franklin Bank Corp FBTX Keefe Bruyette Mkt Perform » Underperform
CPB Inc CPF Keefe Bruyette Mkt Perform » Underperform
Sun American Banc SAMB Keefe Bruyette Outperform » Mkt Perform
Gateway Financial Holdings GBTS Keefe Bruyette Outperform » Mkt Perform
Colnl BancGrp CNB Keefe Bruyette Outperform » Mkt Perform
Spectra Energy SE Jefferies & Co Buy » Hold
Bigband Networks BBND Morgan Keegan Outperform » Mkt Perform
Chipotle Mexican Grill CMG Citigroup Buy » Hold

Categories
Articles

Six Flags: A Ripoff

So, took the family to Six Flags New England (SIX) this weekend. Last time.

Let me start out by saying we went with friends who had free passes so we did not have to pay the $50 a ticket it would have cost us to get in, saving me $200 right off the bat. In order to fully appreciate this, one has to recognize we have choices here. The same distance from where I live but in the opposite direction we have a great place called Canobie Lake Park.

At Canobie, the admission would have run us a cool $96 for the same number of people and we would have had access to all areas of the park. We also would have saved the $25 that Six flags charged us to park. So, we would have been a nice $125 ahead of the game before we even walked into the park. Once there we paid $3.50 for a water that cost $1.50 at Canobie and $36 for a lunch that would have been 1/2 that at Canobie. Do you see where this is going?

What does Six Flags have going for it? They have the Thomas the Tank Engine rides and the Luney Tunes rides and other licensed areas (Batman, Superheros etc.) Neat right? Well, not so much. Here is the thing. The rides were all manned by 1 person. Virtually all the parks I have been to (Canobie, Disney (DIS), Storyland, Sesame Place, owned by Anheuser Busch (BUD)) have teams of people at almost all rides. Having only one person at the rides cause the wait between them to be intolerable . It wasn’t that the people were lazy or not trying, it is just that in order to do the job efficiently and well, it takes two people. The time spent waiting to unload and reload the rides was actually longer than the rides themselves!! This meant for the money we spent, the actual number of rides we went on was far less than a comparable park.

What made this annoyance even more blatant was the staffing in the shops. If I was in an area where my wallet might be pulled out, there was a plethora of people there ready to assist me and help me make a decision, but up yours on the tea cups buddy. Maddening.

Open Areas:
There weren’t any! Six Flags did a masterful job packing as many rides and shops into the space they had that I was impressed. I also felt highly claustrophobic (I do not usually). The walkways are all extremely narrow and open places to sit and relax simply do not exist. This causes massive congestion and makes for a very stressful day when you have a stroller and two four year old to keep and eye on that are constantly getting jostled as we tried to go from ride to ride.

Now I though it may have just be a feakishly busy day but a look at the parking lot showed it half empty and a few questions to the staff confirmed it wasn’t. Employees also confirmed that the level of staffing Saturday was on par with normal levels so it was not an “out of the ordinary” day in any way. HMMM

Shops:
The shop were good and the selection of food was great but here again Six Flag took a good thing a ruined it. They have a Coldstone Creamery which makes just about the best ice cream in the world. Great, right? It would have been except the 2 kids (1 scoop) cups, my medium cup and my wifes small cup came to $20.50!! Twenty bucks for 6 scoops of ice cream? I’ll never bitch about gas prices again, Six Flags make OPEC look like a charity. Holy Christ!!

Finally my wife and I (and the kids) surrendered and decided it was time to get out before we needed to refi the house for dinner. On the way out the boys were thirsty so I stopped in for a water, $3.50 (for those of you who do not want to do the math that works out to $18.55 a gallon).

Hope they enjoyed it, they’ll never see another dime of mine. Had we bought the admission tickets it would have been a $400 day for nothing but aggravation. Was it just me being cranky? No. You know it was bad when your 4 year olds look at you and say “can we go to the other place next time”? Next summer Canobie Lake here we come, probably three times for what it would cost us for a day at Six Flags.

As for the stock? Don’t touch it. My experience cannot be that unusual and I have to seriously wonder how many repeat customers they get. A closer look shows that attendance last year dipped 14% over 2005 and as of July 2007, it had not risen over those low levels. Gouging those left in the park is not really the best way to go to create loyalty.

Six Flags made a bunch of noise in July about it’s customer service ratings hitting an “all time” high. At first glance this seems great but, the more you look at it you have to ask, “higher than what”? From “sucks” to “dismal”? There was no quantifiable results to look at, only a press release that told us how great they were. Did they go from a 2 out of 10 to a 3 out of 10? That would be an “all time high” but hardly anything to brag about.

The company, currently valued at $325 million is saddled with over $2 billion in debt and will lose over $2.50 a share this year. Cash flow from operations, after they pay their dividend is a sweet negative $14 million. This is where you have to look at the financials. Six Flags does not pay a dividend on the common but pays out $20 million a year in dividends, probably on preferred shares owner Daniel Snyder (who owns and has ruined the Redskins) has. Let’s reverse it, can you find anything about the company that is positive?

Me either.. but they did screw me for a hundred and change this weekend, fool me once….

Categories
Articles

"Fast Money" for Monday

Monday’s Picks…

None. It was a “Review” show. Records and winning percentages to date below

Friday’s Results

Jeff Macke recommended getting long Yahoo (YHOO) Open $26.27 Close $26.84 and Palm (PALM). Open $16.40 Close $16.27

Guy Adami liked KB Home (KBH). Open $24.71 close $25.06

Karen Finerman preferred Seacor Holdings (CKH). Open $93.83 Close $95.10

Pete Najarian said Nordic American Tanker Shipping (NAT) is a buy. Open $38.60 Close $39.24

Since my tracking began on 6/21 (1-1 means one up pick and one down pick and no results from my vacation weeks). The percentage is the percentage of successful picks

Guy Adami= 28-18 = 60%
Eric Bolling= 10-11 = 48%
John Najarian= 13-3 = 81%
Jeff Macke= 33-24 = 57%
Pete Najarian= 21-17 = 55%
Tim Seymore= 3-2 = 60%
Karen Finerman= 13-6 = 68%
Stacey Briere-Gilbert= 2-0 = 100%

Categories
Articles

RED SOX: AL EAST CHAMPIONS

Categories
Articles

This Weeks Notable Dividend Hikes

National Home Health (NHHC)= 133%

Diamond Foods (DMND)= 50%

National Semiconductor (NSM)= 50%

Curtis Wright (CW)= 33%

Lockheed Martin (LMT)= 20%

Sanderson Farms (SAFM)= 16%

Campbell Soup (CPB)= 10%

Categories
Articles

This Week’s Insider Buys

Smithfield Foods (SFD)= $9,429,000

American Financial Group (AFG)= $4,211,000

Credit Acceptance (CACC)= $1,414,000

Inventure Group (SNAK)= $1,040,000

Valance Technology (VLNC)= $1,019,000

Mercer International (MERC)= $890,000

Chesapeake Energy (CHK)= $882,000

Pep Boys (PBY)= $826,000

Lions Gate Entertainment (LGF)= $636,000

Categories
Articles

The Week’s Top Stories at Value Investing News

Here are this weeks tops stories. If you are a value investor and do not read this site daily, you are cheating yourself…

5. Aventine Renewable Energy’s hope: The 2008 Presidential Election

(via thestockmasters.com)

Ethanol investors know the Aventine Renewable Energy Holdings, Inc. (Public, NYSE:AVR) sad story well. The IPO in 2006 showed amazing potential, but then shares of AVR fell to the $30’s, then $20’s, and today they barely register above $10. So is ethanol just a fad fuel, yesterday’s news, and a lost investing opportunity?