ValuePlays

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.

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.

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?

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

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….

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%

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%

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

Apple’s (APPL) quest to keep total control over its iPhone seems to have caused it to break the law.

Ever heard of the Magnuson-Moss Federal Warranty Act? It would seem those at Apple’s HQ have not either but when they put out an iPhone update this week that disabled hacked iPhones, they broke this law.

The site Phone News.com details how Apple did do. The act says that Apple cannot void a warranty for a product with third-party enhancements or modifications to their product. The only exception to this rule is if Apple can determine that the modification or enhancement is responsible damaging the product in question. Since it was Apple that intentionally caused the damage to the iPhone, the phones are still technically still covered under the warranty. Apple has a problem because they are refusing to honor the warranty on the hacked phones.

Once ownership of the phones was transferred from Apple to the buyer at purchase, the new owners have the right to do whatever they want with the phone. Kind of like buying a car and customizing it. Now, if your customization of the car (phone) causes it not to work, the auto maker (or Apple) need not honor the warranty, but, and this is a key point, the car maker (or Apple)cannot come out and take the transmission out of the car because they do not like the modifications you made. This is essentially what Apple did. They said “if you change the phone, we will break it on you”. Illegal.

If nothing else this come as another PR pothole for Apple who has gone from wearing the lovable underdog label to corporate bully in the course of a few weeks. First there was the unexpected (not to ValuePlays readers) $200 price drop on the phone less than 3 months after it’s release that had those who waited in lines for two days to get the initial phones outraged. Apple attempted to sooth them by offering them a $100 rebate which still leaves them $100 short but it was better than nothing.

The iPhone hype has subsided and sales are not as hot as Apple would like them. they are running short of their 10 million unit by the end of 2008 goal and negative press like this will not encourage those folks on the fence to make the plunge and pony up the $399 necessary to get one now.

Apple could miss a quarterly earnings expectation and still keep the aura around itself. The stock would take a hit but a good quarter following it would repair that. Expectations are way too high currently for the company and its products and it would seem Apple may be letting that guide its decision making process. If they alienate those who are buying it’s products with moves like this that make them feel like the enemy, that damage will take much longer to repair.

Ethanol makers still going lower, someone will start snapping them up soon.

SMRT Stein Mart Inc 7.66
SCSS Select Comfort Corp 13.95
RUTH Ruths Chris Steak Hse Inc 14.31
RT Ruby Tuesday, Inc. (G … 18.37
PTRY Pantry Inc 25.69
USBE US Bioenergy Corp 7.65
UFPI Universal Forest Products 29.65
SPF Standard Pacific Corp 5.49
MGPI Mgp Ingredients Inc 10.24
MED Medifast Inc 5.58
MAXY Maxygen Inc
HMX Hartmarx Corporation 4.94
HHS Harte-Hanks Communica … 19.83
GMTN Gander Mountain Co 5.45
LZB La-Z-Boy Incorporated 7.50
DSW Dsw Inc 25.55
DEIX Directed Electronics Inc 3.97
CRC Chromcraft Revington, Inc 4.67

I Greenspan jockeying for a job on Vegas?

Before the summer began he made waves with the first understandable statement of his career. “The US has a greater than 30% chance of a recession this year”. Whoa, it is actually a coherent blathering from the former chief. Since that prediction seems to be wrong, Greeenie decided to follow it up yesterday.

“The danger of recession has obviously risen but in my judgment … is still less than 50/50. It’s less optimistic than one would like,” Greenspan told BBC Radio 4. So, I guess that means we are about 30% to 45% chance? If only he were this clear when he was in office.

Oh yea the reason for the interview? He was peddling his new book overseas. Funny how the almighty quest for a fast buck clears ones thought process.