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The Business Day of Global Warming (SPWR, LDK, PSD, ACM, ICPR, CAB, CSUN, FTEK, EFOI, HOT, CVX)

Wall Street analysts covered a few of the alternative energy names today: SunPower (NASDAQ:SPWR was started as an Outperform rating at RBC Capital Markets; LDK Solar (NYSE:LDK) was downgraded to "Market Perform" at Piper Jaffray.

Puget Sound Energy, a subsidiary of Puget Energy (NYSE:PSD), is deepening its mark in renewable energy, with the utility and its customers now boasting more than 1,200 kilowatts (kW) of combined solar-power generating capacity or enough to serve the total power needs of 125 homes.  As Puget Energy serves 1 million electric customers and 721,000 natural gas customers, there is still quite ways to go.

ENSR is providing environmental permitting and licensing support for four major solar energy projects in southern California. ENSR, part of AECOM (NYSE: ACM), is a leading global environmental services firm.

Can Google (GOOG) OpenSocial Platform Compete With Facebook?

The new Google (GOOG) OpenSocial Platform list of sites includes Orkut, Salesforce, LinkedIn, Ning, Hi5, Plaxo, Friendster, and Viadeo. Below is a chart from Hitwise comparing the audience to Facebook.

Facebook is nines times larger. Seem tough for the forces from Google.

Cramer Defends Nastech After Weakness (NSTK)

On tonight's MAD MONEY on CNBC, Jim Cramer said he has a small speculative stock that got crushed.  Nastech Pharmaceutical Inc. (NASDAQ:NSTK) is supposed to win from an intranasal delivery system, and it is controversial.  Cramer said the loss was much wider than expected and it got hit hard on Tuesday.  He'd usually say you bail out, but this one is speculative and it shouldn't really trade off of earnings yet.  It was supposed to win a $5 million milestone by P&G (NYSE:PG), but it missed the date for that milestone to go in.  It has trials going for diabetes and obesity, and the bad quarter doesn't kill its pipeline story.  Cramer even noted its autism drug study, RNA studies, and a bone density target for osteoporosis.

So Cramer interviewed Dr. Steven Quay, Nastech's Chairman, and shares traded up over 6% in after hours trading.  That is after a 5.8% gain today in regular trading.  One key note is that the company is looking at unlocking the value of its RNAi unit, and Cramer said that if the company unlocks this it will release a lot of value in the stock.

Jon C. Ogg
October 31, 2007

Last Look At ExxonMobil Earnings (XOM, VLO, SLB, XLE)

Integrated oil giant ExxonMobil (NYSE:XOM) is set to report earnings on Thursday morning, and it is still a wonder as to why shares are lagging behind the market when oil traded up over $4.00 per barrel today to a new $94.53.

A chartist would say this doesn't bode well at all for earnings.  Energy has definitely seen a bit of a sector rotation out into tech, which was partly noted on the Goldman Sachs downgrade on oil as a commodity yesterday.  Without owning a crystal ball, we can't say which is right or if both combined make the explanation right.

First Call has estimates pegged at $1.75 EPS tomorrow.  The company's buyback continues, but with shares up around $90 it's a wonder just how many shares the largest oil company in the world actually bought.  Options are a bit hard to use as a comparison to others, but it looks like options traders have an expected price change in a range of $2.50 to $3.40 in either direction.  Analysts that follow Exxon have an average price target of about $97.00.

What is hard to imagine is that Exxon's numbers would be bad with oil prices this high.  But Valero (NYSE:VLO) posted lackluster earnings because of refinery costs.  Schlumberger (NYSE:SLB) has also performed dismally since its earnings report.

Shares closed up 0.9% today at $91.99, and the 52-week trading range is $69.02 to $95.27.  Regardless of the actual number on EPS tomorrow, you can imagine the media headlines are going to be focused on the monstrous revenue number for its shock effect.  It will be interesting to see the reaction in the Energy Select Sector SPDR (AMEX:XLE) since ExxonMobil makes up some 21.38% of the ETF on last look.

Jon C. Ogg
October 31, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he produces the Special Situation Investing Newsletter and does not own securities in the companies he covers.

Deciphering Medarex Earnings (MEDX)

Some traders might bother peering at the losses on Medarex (NASDAQ:MEDX), but all we are looking at for the time being is the forward study data and the company's use of cash and burn rates.  When you see the explanation and the stock options activity you'll understand why. Here is all that matters, to 24/7 Wall St. anyway:

• Medarex ended the quarter with approximately $396.1 million in cash and equivalents, with roughly $8.9 million related to Celldex. In addition, the fair market value of Medarex's equity interest in Genmab A/S as of September 30, 2007 was approximately $297.0 million.
• It continues to expect total cash burn to be approximately $13.0 million per month for 2007, which includes approximately $3.0 million a month to support its net contribution to the ipilimumab program. The company noted that the cash burn guidance is consistent with the guidance previously provided on February 28, 2007.
• "We and our partners continue to make consistent progress in developing and advancing the clinical pipeline, building momentum for continual long-term growth for Medarex, and we anticipate seeing top-line data from the ipilimumab monotherapy studies in second-line metastatic melanoma patients before the end of this year," said Howard H. Pien, President and CEO of Medarex.

This "ipilimumab monotherapy studies in second-line metastatic melanoma patients" is the program with Bristol-Myers Squibb (NYSE:BMY) that has options traders making huge bets since this is still a relatively untreated killer with blockbuster potential.  This "before the end of this year" statement leaves the NOV and DEC options expiration dates as still having a chance of seeing the news, but the true tally is loaded up in the JANUARY-2008 options contracts:

• Of the 3 most active call option contracts for JAN-08 in Medarex there are more than 450,000 options contracts in the open interest, or 45 million shares on a fully leveraged basis.
• Of the 3 most active contracts in Bristol-Myers Squibb the contracts in the open interest total just under 1 million contracts, or 100 million shares on a fully diluted basis.

Recent key stories on Medarex:

• Banc of America started this recently with a "SELL" rating;
• Updated option review of Medarex;
• An earlier comparison to options trading in Dendreon.

Jon C. Ogg
October 31, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he produces the Special Situation Investing Newsletter and does not own securities in the companies he covers.

CROCS Traders Send Shares To Everglades (CROX)

Shares of CROCS Inc. (NASDAQ:CROX) are getting hammered in after-hours trading.  The highly successful maker of ugly shoes that everyone still loves posted earnings:

• Revenues up 130% to $256.3 million (consensus $258.4 M);
• EPS rose more than 100% from $0.27 in Q3-06 to $0.66 (consensus $0.63);
• CROCS is also raising guidance for 2007 to $820 million to $830 million revenues ($835 million is consensus) and diluted earnings per share at $1.94 to $1.98 ($1.97 is consensus).

CROCS is introducing guidance for fiscal 2008 revenues and EPS growth of 35% to 40%.  If we took a 37.5% mid-point and used the mid-pont for 2007 estimates as the benchmark:

• 2008 EPS $2.71 EPS (consensus is $2.56)
• 2008 revenues of $1.134.375 Billion (consensus is $1.13 Billion).

Investors have been used to consistent "handily beating estimates and drastically raised guidance" on the shoe (and now apparel) maker.  There is nothing wrong with the numbers here per se, but after a 300% stock run it was only a matter of time before investors would start to sell even the good news or when the good news would be deemed not good enough.

CROX is trading down 16% in after-hours around $62.50, and the 52-week trading range is $17.63 to $73.75.  This was one of the stocks that closed on a new all-time high close today, and we noted that it was likely one of the mutual fund window dressing stocks as today market the year-end for most mutual funds. 

Based upon the cult following and the core audience, it would not be crazy to think that by tomorrow morning some of the analyst notes may be deeming the guidance as overly conservative despite a revenue number that some will deem as light.  We'll know soon enough.

Jon C. Ogg
October 31, 2007

The 52-Week Low Club

Fremont General (FMT) Mortgage company talks with investor fall apart. Stock drops to $2.74 from 52-week high of $17.30.

Watts Industries (WTS) Downgraded after poor earnings. Falls to $27.91 from 52-week high of $46.71.

Time Warner Cable (TWC) Cable loses exclusive franchise in apartment complexes. Drops to $27.55 from 52-week high of $44.

Merge Technologies (MRGE) Company says it will restate some earlier financial results. Shares drop to $1.84 from 52-week high of $8.16.

Lca-Vision (LCAV) Two downgrades on poor earnings outlook. Falls to $16.90 from 52-week high of $50.69.

Douglas A. McIntyre

Why Goldman Sachs' Sell Rating on Sirius Didn't Matter (SIRI, XMSR)

Most days investors might get thrown into a stir when one of the most active stocks like Sirius Satellite Radio (NASDAQ:SIRI) has a "SELL" rating next to it, particularly if it comes from a bulge bracket firm like Goldman Sachs.  But this really didn't matter, and for a few obvious reasons.  Analyst Mark Wienkes of Goldman Sachs is rated a 4 of 5 stars by StarMine, although that leaves 5 other analysts ahead.

Goldman Sachs has the lowest or one of the lowest price targets out there on Sirius at $2.25 per share.  To top it off, the entire call was a whopping change to 2007 estimates of a mere penny per share after its mostly in-line earnings yesterday.  Goldman also noted that the net subscriber additions were 525,000 compared to its own 450,000 estimate and a consensus net subscriber add of roughly 425,000. 

The part that Goldman Sachs used to cut estimates really looks more like it is splitting hairs than it is making any major statements:

• Revenues of $242 million (actually $241.8M) were 1% under Goldman's target;
• Adjusted EBITDA was -$57 million compared to Goldman's -$70 million estimate;
• The $103 average sale of $103 was in-line with Goldman's target;
• Average revenue per user was $10.71 versus the Goldman target of $10.77;
• Churn was 2.16% instead of Goldmans 2.2% target, but above the 2.0% last year;
• Goldman's loss per share for 2007 was adjusted by a whole penny to -$0.41;
• Goldman's 2008 target is -$0.34.

Another interesting note is that Goldman Sachs has put roughly a 30% chance of the XM Satellite Radio (NASDAQ:XMSR) going through.  Over the last few weeks there are some indications that there is a better chance, although any specific percentage chances of this being approved would be hear-say.  24/7 Wall St. still believes that the regulatory powers that be "should" allow this merger to go through, but the government is the government and we aren't going to predict what a few people's decision will be. Particularly when they are heavily under the influence of opposition forces to this deal and make closed decisions in a star chamber.  XM shares have actually been outperforming Sirius as of earlier this week, even though the interim CEO of XM is acting like a normal CEO.

Shares had been up all day on Sirius and the only time it went flat or down marginally was after the FOMC cut initial trader interpretation.  With just under 20 minutes to the close, Sirius shares are up 1.8% at $3.35 and shares briefly touched as high as $3.45 early this morning.

Jon C. Ogg
October 31, 2007

Jon Ogg can be reached at jonogg@247wallst.com; Sirius Satellite radio and XM Satellite Radio have both been reviewed for 24/7 Wall St.'s subscriber newsletters under the  Special Situation Investing Newsletter and the Old Media/New Media newsletters.

FOMC Delivers 25/25 Cuts

The FOMC did trim both the Fed Funds Rate and the Discount Rate by 25 basis points each today.   There was some dissention among the Fed Governors if you read through the statement.  You can see the full commentary here.  Because of the rate cut theorists out there making their opposite calls on the same data, you can imagine there is ammo here for the bulls and bears alike.   Some wanted a 50 basis point cut, while others are arguing that rates aren't able to fix the current credit problems.

We had already noted how a rate cut borders alongside a potential dollar crisis.

Here was the 50/50 cut from September for comparison.

Analysts Likely To Revisit Google Price Targets (GOOG)

Now that Google (NASDAQ:GOOG) has crossed that $700 threshold, there are some analysts that are going to have to either raise thair targets or make other calls on the stock.  We noted before what a $700 GOOG stock is valued as.

Here was a full list of the Google price targets from analysts after they all raised estimates and targets, and we still want to know when the first $1,000 target will be issued from Wall Street.

The highest target at the time was $800, but it is growing quite obvious that some updated calls may already be in order.  Google has also been a beneficary of window dressing as today marks the year-end for most mutual funds.

The volatility is still fairly high with a $700 straddle for a November expiration still priced north of $36.00.

Jon C. Ogg
October 31, 2007

Earnings Preview: JDS Uniphase (JDSU)

JDS Uniphase (NASDAQ:JDSU) is set to post earnings after today's close and First Call had the last estimates seen at $0.06 EPS on revenues of $355.8 million.  The company usually offers some guidance, and next quarter estimates are $0.12 EPS on revenues of $392 million.

Stock options appear to be pricing in a move of up to almost $1.00 in either direction.  Analysts are far fewer than in the dot.com and fiber optic craze days, but the ratings are mixed with an average target apparently just north of $18 per share.  Shares have traded within a band of $13 to $16 for most of the  last six months, although shares are at the higher-end of that band now.  Its average daily volume is now about 4.3 million shares.

Since its reverse split, the split-adjusted trading range over the last year is $12.41 to $19.66 and shares traded north of $30 on a split-adjusted basis in the first half of 2006.

JSDU has mostly decoupled from its sector and no longer has any real impact on other stocks in the fiber optics and optical communications sector, or at least that is the prevailing opinion since it is no longer thought of as a leader in the sector.

Jon C. Ogg
October 31, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he produces the Special Situation Investing Newsletter and does not own securities in the companies he covers.

Rick's... Now a $100+ Million Empire (RICK)

It isn't every day that stock analysts and reporters get to cover a publicly traded topless bar chain.  But all issues aside and assuming today's rally holds this stock will start showing up on many popular stock screenings that traders use to identify new stocks.  Shares of Rick's Cabaret International, Inc. (NASDAQ:RICK) are trading up over 5% today on the company's forward guidance for fiscal 2008 and 2009, and its fiscal years end on September 30 of each year. 

The company has now crossed the $100 million market cap stock as well to a level of roughly $108 million.  The assumptions (below) seem reasonable if you aren't using an exact target on a month to month basis, and the valuations here with a 35% or more earnings growth and low forward P/E ratios actually make Rick's seem appropriate for growth investors and value investors alike.  The only issue at hand besides the near-micro-cap market capitalization is that the underlying industry will keep some investors away or reserved because it falls under the "sin stock" status.  Here is forward guidance offered:

• For fiscal 2008, the company sees sales of $52 million, and after tax net income of about $7 million or about $0.95 EPS.  For calendar 2008 it is aiming for $58 million in revenues and net income of about $9 million or $1.25 per share.
• For fiscal 2009, the company sees sales of approximately $75 million, with net income of about $13 million or about $1.70 EPS.

Valuations assumptions are using today's values even after the gain to $17.60.

• For Fiscal 2008 (Sept.), Rick's has a forward P/E ratio of 18.5 and trades at roughly 2.07 times revenues. 
• For Calendar 2008, Rick's has a forward P/E ratio of 13.3 and trades at roughly 1.86 times revenues. 
• For Fiscal 2009 (Sept.), Rick's has a forward P/E ratio of 10.35 and trades at roughly 1.44 times revenues.

The assumptions don't seem unrealistic if you look back over the acquisition and growth history of the company:

• These figures include two recent acquisitions and assume a target of 6% on same-store-sales growth. 
• The projections anticipate issuance of 225,000 new shares of common stock for the Philadelphia transaction and up to 1.2 million shares, plus the assumption of $10 million in debt in connection with financing other acquisitions.
• These projections assume the acquisition of one additional club in 2008; and further assume completing two acquisitions in early 2009.
• The 2009 outlook assumes issuing an additional 400,000 shares of common stock in connection with acquisitions.

While shares are not on an intraday high, these levels above $17.60 would mark a high close for the stock.  Its 52-week trading range before today is $5.02 to $16.76 and the company had 180,441 shares listed as its last short interest count, or about a days to cover ratio of 1.4.

Jon C. Ogg
October 31, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he produces the Special Situation Investing Newsletter and does not own securities in the companies he covers. 

Selected Stocks Under $10: Level 3 (LVLT)

Level 3 (LVLT) has fallen almost 35% in the last month. Recent earnings numbers hurt the stock. For the last quarter consolidated revenue was $1.061 billion compared to consolidated revenue of $875 milion for the third quarter last year. . The net loss for the third quarter 2007 was $174 million, or $0.11 per share, compared to a net loss of $163 million, or $0.12 per share, for Q3 06. 

Debt service was still an anchor. Interest payments hit $138 million.

Long-term debt is still an astonishing $6.833 billion.

And, the company lowered forecasts. “Primarily due to the provisioning issues we have been experiencing, we have lowered our Consolidated Adjusted EBITDA guidance for both the full year 2007 and 2008,” said Sunit Patel, CFO of Level 3. “Specifically, we have lowered Consolidated Adjusted EBITDA guidance for the full year 2007 from a range of $860 million to $920 million to a range of $813 million to $833 million and for the full year 2008 from $1.15 billion to $1.3 billion to $950 million to $1.1 billion.

Level 3 has made six significant acquistions since the beginning of 2006, and the market is beginning to believe that this was way too much.

Level 3 is broken at this point. Its businesses include Internet Protocol services, broadband transport and infrastructure services, voice and voice over IP services, and content delivery and media distribution services. A lot of moving pieces.

It is not clear that broadband bandwidth margins are improving at all or whether there is still more bandwidth capacity in the US than there is demand. The content delivery business has begun to be hurt by excess competition with companies like Akamai (AKAM) seeing their shares slide.

Until Level 3 can demonstrate that all of its new businesses work together or there is a sharp spike up in pricing for bandwidth and related services, a company with this much debt is going to be very unattractive to Wall St.

Douglas A. McIntyre

Get a Free Trial Subscription to the weekly "Ten Stocks Under $10" from 24/7 Wall St. and follow our opinions on companies with inexpensive shares, both big firms and small ones.

Hey, Look Who's Now The 5th Biggest Company in the US

From Silicon Alley Insider

That's right: Google (GOOG).  And trading at a not-preposterous 55-times trailing 12-month earnings, too.

Continued....

Will IAC/Interactive Earnings Get Its Stock Back On Track? (IACI)

IAC/Interactive (NASDAQ:IACI) reported earnings that the wires are looking at as lower, although the actual numbers were above what Wall Street was looking for on the earnings front.  The company posted $1.515 Billion in revenues and adjusted EPS of $0.37. First Call had estimates at $0.35 EPS and revenues at $1.52 Billion.

The company also repurchased some 8 million shares during the quarter at an average of $27.54 and its OIBDA was $173 million.  The truth is that revenues were up even though net income on an EPS basis was lower when compared to Q3 2006.  The Associated Press unfortunately is reporting the $0.24 "GAAP" EPS as the drop instead of the adjusted EPS and this may be creating some confusion to some who only use the web for information on earnings and news instead of private systems.

Barry Diller, Chairman/CEO (and one of our "most entrenched corporate leaders")said, "With the exception of LendingTree, this was a satisfactory quarter for IAC. Trends at our businesses are good, and particularly so at HSN, where I believe that Mindy Grossman and her team have now become acclimated and are beginning to demonstrate the great retailing smarts that we knew they were capable of."

So far Wall Street is accepting these numbers because shares are up almost 2% on fairly thin pre-market trading volume at $28.90.  Its 52-week trading range is $25.08 to $40.99.

Here was a brief explanation by the company: Third quarter revenue was driven by increased year-over-year contributions from the Retailing, Media & Advertising, and Membership & Subscriptions sectors. Retailing revenue grew slightly; however, HSN revenue grew 5%, excluding America's Store. Transactions sector revenue reflects strong growth at Ticketmaster, offset by a decline at LendingTree, which continues to operate in a difficult home loan market. Syndicated search and Fun Web Products drove strong revenue growth in Media & Advertising. Increased transaction volume and membership at Interval and higher revenue per subscriber at Match benefited Membership & Subscriptions revenue.

Jon C. Ogg
October 31, 2007

Failed Cancer Drug Trial Drives GPC Biotech (GPCB) Down 62%

Shares of GPC Biotech (GPCB) are off 62% before the open.

GPCB announced that the Phase 3 SPARC trial evaluating satraplatin for the treatment of hormone-refractory prostate cancer did not meet its primary efficacy endpoint.

The shares should open around $4.38. The company has a 52-week high of $37.79.

Douglas A. McIntyre

Pre-Market Analyst Calls (October 31, 2007)

AKAM cut to Hold at Deutsche Bank.
BEC cut to Sector Perform at RBC.
BMS cut to Hold at Deutsche bank.
CF cut to Neutral at B of A.
EL cut to SELL at UBS.
ENR raised to Peer Perform at Bear Stearns.
GFIG started as Outperform at Bear Stearns.
GPCB cut to Sell at Deutsche Bank.
LCAV cut to Neutral at Oppenheimer.
LDK cut to Mkt perform at Piper Jaffray.
LNET cut to Peer Perform at Bear Stearns.
LNG started as Outperform at RBC.
LVS cut to Equal Weight at Lehman.
MCK raised to Buy at Citigroup.
NVAS raised to Buy at Oppenheimer.
PACR cut to Neutral at JPMorgan.
Q downgraded at both JPMorgan and CIBC.
RBA raised to Outperform at RBC.
SFLY cut to Hold at Jefferies.
SPWR raised to Outperform at RBC.
TAM raised to Buy at Citigroup.
TEVA raised to Outperform at FBR.
VTAL cut to Sector Perform at CIBC.

Jon C. Ogg
October 31, 2007

WellCare Class Action Suits & More State Actions Leading Company To The Grave (WCG)

WellCare Health Plans (NYSE:WCG) is falling under class action pressure and more investigations.  Unfortunately the company has yet to admit to or to convince Wall Street that it has a full grasp of the situation and the verdict is still out on whether the company has the wherewithal to get out of the grave.  In its most recent filing it said it will defend itself against class action suits, although based on how this has gone and based on the shareholder implosions it is a safe assumption that any investor trying to use the company's balance sheet for guidance is relying on fictional analysis.

On October 26, 2007, a putative class action complaint was filed in the United States District Court for the Middle District of Florida against the Company, Todd Farha, the Company's chairman and chief executive officer ,and Paul Behrens, the Company's senior vice president and chief financial officer, entitled Eastwood Enterprises, L.LC. v. Farha, et al. The complaint alleges that the defendants materially misstated the Company's reported financial condition by, among other things, purportedly overstating revenue and understating expenses in amounts unspecified in the pleading in violation of the Securities Exchange Act of 1934, as amended. The complaint seeks, among other things, certification as a class action and damages. The Company intends to vigorously defend itself against this claim.

On October 29, 2007, a putative shareholder derivative action supposedly brought on behalf of the Company was filed in the United States District Court for the Middle District of Florida entitled Rosky v. Farha, et al. The action is asserted against all Company directors except for D. Robert Graham and also names the Company as a nominal defendant. The action primarily contends that the defendants allegedly allowed or caused the Company to misrepresent, in a manner unspecified in the pleading, its reported financial condition and asserts claims seeking damages and equitable relief for, among other things, the defendants' supposed breach of fiduciary duty, waste and unjust enrichment. The Company intends to contest, among other things, the standing of the plaintiff to prosecute the purported claims in the Company's name.

OCT. 30: Dreier LLP announced that a class action lawsuit was commenced in the U.S. District Court for the Middle District of Florida on behalf of investors who purchased the common stock of WellCare Health Plans, Inc. during the period from May 8, 2006 through October 24, 2007.

OCT. 29: Law Offices of Brian M. Felgoise, P.C. announced that a securities class action has been commenced on behalf of shareholders who acquired WellCare Health Plans, Inc. securities between May 8, 2006 and October 24, 2007, inclusive.

Yesterday, Reuters was reporting that New York state regulators were also probing the company.  It's a safe bet that every state WellCare operates in is already looking into the company.  That's how this works because if there is money "to be taken back" then they all have to act fast.

WellCare shares closed down huge at $22.04 yesterday.  Earlier this week 24/7 Wall St. noted that an analyst call from Jefferies was either genius or just crazy, and it appears that the analyst there was crazy.

The manner that this company has handled the raids by confirming problems but not fully disclosing what the problems are will be a classic "F" grade for any business school case studies.  These guys really dropped the ball, and personal liability (civil and perhaps criminal) is a serious notion at this point.  Shares have lost roughly 80% of their value since the raids.

Jon C. Ogg
October 31, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he produces the Special Situation Investing Newsletter and does not own securities in the companies he covers.

Affiliated Computer Services: Another Private Equity Deal Bites The Dust (ACS)

Private equity firm Cerberus has terminated its acquisition offer to acquire Affiliated Computer Services Inc. (NYSE:ACS).  This was a $6.2 Billion deal that valued Affiliated at $62 per share.

Cerberus did not blame the company for "material business changes" here like the weasel efforts of some competitor deals that have been called off.  According to the WSJ, the reason here is because of continuing poor conditions in the credit markets.  In other words, "we can't finance the debt portion of the buyout."  Cerberus' offer was made in March as a partial management-led buyout with founder Darwin Deason whom already owned some 42% of the company.

But the group does blame the special committee for taking to long in its search for a potential higher offer, because the group is reported to have said that it is confident the deal would have closed had the schedule proposed been adhered to.

The truth is that shares were trading under $51 yesterday, so this was already on the ropes.  The WSJ is also reporting that the two largest shareholders are unhappy about the board's actions (or inaction), and the word from Pzena Investment Management according to the WSJ was "I don't know why the board didn't respond to us. They were radio silent."

Affiliated Computer is indicated lower, although it is still too early to tell the exact indications.  If you are a board member at Affiliated Computer that was in that special committee, it's probably a good time to start finding out how much personal insurance you have protecting you from shareholder lawsuits.

Acxiom faced a similar drop.

Carl Icahn is going after BEA Systems over the board being childish.

Cablevision's deal from the Dolan's being called off was more the fault of holders.

Jon C. Ogg
October 31, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he produces the Special Situation Investing Newsletter and does not own securities in the companies he covers.

The World Wakes Up To $100 Oil

No one wants to talk about $100 oil when oil is at $70 or $80 a barrel. Most experts want to say it is too high on speculation and will be back at $60 before anyone knows what happened.

But, with oil above $90, a survey of oil experts and potentates yielded nothing other than comments about how high oil would go now. As a matter of fact, much of the discussion is now about oil being above $100 for good.

According to The Wall Street Journal "Sadad I. Al-Husseini, an oil consultant and former executive at Aramco, Saudi Arabia's national oil company, gave a particularly chilling assessment of the world's oil outlook. The major oil-producing nations, he said, are inflating their oil reserves by as much as 300 billion barrels" The oil may be there, but it is too hard to get to.

The head of Schlumberger (SLB) put a point on it by saying that 70% of the world's major oil fields are now over 30 years old. Other sources expressed concern that "investment, skilled workers and technology" may not be available to help avert an oil price crisis.

The media is awash with economists saying the the US and other major nations have adjusted to high oil prices and that increasing costs for crude are not likely to drive down GDP growth in this country or other major economies like China. The comments are naive. If the cost of a commodity as widely used as oil makes a 100% price move over less than two years, global growth will pay a price, and a dear one.

If there is a global recession, oil will almost certainly be the cause.

Douglas A. McIntyre

Europe Markets 10/31/2007

Markets in Europe were narrowly mixed at 6.20 AM New York time.

The FTSE was down a fraction to 6,658. BHP Billiton (BHP) was down 1.4% to 1792. Vodafone (VOD) was down .2% to 189.4.

The DAXX was also off a fraction to 7,974. Deutsche Bank (DB) was up 3.9% to 92.29. MAN AG was up 3.8% to 122.81.

The CAC 40 was up a fraction to 5,806. Alcatel-Lucent (ALU) was up 1.1% to 6.7. BNP Paribas was up 1.9% to 76.02.

Data from Reuters

Douglas A. McIntyre

Verizon And Sprint: Cat Fight Over Google (GOOG) Phone?

Verizon Wireless, a JV between Verizon (VZ) and Vodafone (VOD) appears to be vying with Sprint (S) over rights to distribute new handsets loaded with the Google (GOOG) mobile OS and goodies like the search company's maps, g-mail, and YouTube.

According to The Wall Street Journal "a Google technology partnership might let the carriers offer cheaper phones, because Google's licensing fees for its software and operating system would likely be less than the industry standard." But, that seems counterintuitive. Why would wireless carriers want to sell cheap phones? Probably they won't.

But, the chance to pick up a product that might rival AT&T's (T) distribution of the Apple (AAPL) iPhone may be too difficult to resist, And, the Google phone will have an open software architecture which means that a carrier may be able to create and install its own applications. That could add value to the product and drive a higher price point.

The fact of the matter is that Verizon Wireless may not need the product at all. It would do a deal with Google to keep the product out of the hands of Sprint, but the Verizon third quarter numbers indicate that ii is doing very well against arch-rival AT&T. Verizon has also been fighting with Google over the terms under which the FCC should auction its newly available wireless spectrum. It is unlikely that those differences will disappear due to a handset deal.

Sprint, on the other hand, needs a product like the Google phone. And, it needs it badly. The company lost its CEO over poor performance. Customer satisfaction has been awful since the company's merger with Nextel and subscriber growth has been moribund. The company is trying to launch a nationwide WiMax network for next generation wireless broadband. Having a signature product could help that.

Look for Sprint to do whatever it has to so that it can be the Google phone distribution network. And, look for Google to march into a new market with a partner which already has over 50 million subscribers.

Douglas A. McIntyre

Alcatel-Lucent (ALU) Fires Everyone

Alcatel-Lucent (ALU), which may go down in the annuls of business as one of the most poorly conceived mergers in modern business history, announced another large quarterly loss and said it would fire another 4,000 people.

According to The Wall Street Journal "the disclosure of further cuts came as the group reported a third-quarter net loss of €345 million, compared with a pro forma €532 million net profit a year earlier." The merged company is also running into a slowdown in its core telecommunications equipment business as large telcos cut or delay spending.

The merger was a classic screw-up almost from the start. That is because its success was based on a number of factors that even a first year business school student should know were not likely to work.

The first is that a successful business is built on cost cuts. From the beginning, much of the talk from CEO Pat Russo and her management team was about the hundreds of millions of dollars that combining two similar companies would save. The management team emded up focusing its attention on integration and savings and marketing and product development appear to have fallen into chaos.

The next assumption that the company made was that the merger would take one competitor out of the market and that prices could move up for the entire industry. Lucent and Alcatel did fight for the same customers and the merger may have cut the number of companies vying for the same pieces of business. But, the new company did not look ahead and see that demand for its products was falling off.

The final issue that the companies missed is that combining two mediocre companies does not make a good one.  Both Lucent and Alcatel were very modest performers. If either had been strong enough, the merger would not have been necessary. New companies have moved into the telecom supply business especially from China. And weak companies like Nortel (NT) must cut prices to pick up new business.

The merger does not work now, but it was never going to.

Douglas A. McIntyre

Media Digest 10/31/2007 Reuters, WSJ, NYTimes, FT, Barron's

According to Reuters, a number of experts do not believe that a rate cut by the Fed will help the falling housing market.

Reuters writes that Alcatel-Lucent (ALU) will cut another 4,000 jobs.

Reuters reports that the UAW takes with Ford (F) have hit an intense phase.

Reuters also reports that Dell (DELL) has filed amended financials and will begin its share buy-back.

The Wall Street Journal reports that Google (GOOG) is in talks with Verizon (VZ) and Sprint (S) about offering a news phone loaded with the search company's mobile software.

The Wall Street Journal writes that Stan O'Neal left Merrill Lynch (MER) with a $162 million exit package.

The Wall Street Journal reports that oil experts are discussing the possible effects of oil going well above $100 a barrel.

The Wall Street Journal writes the Cerberus has dropped its bid for Affiliated Computer Services (ACS).

The Wall Street Journal writes that experts are questioning if Citigroup (C) should account for structured investment vehicles on their own balance sheets.

The New York Times writes that pharmaceutical ingredients exported from China are often made by firms that are not certified.

The FT writes that Congress has extended the internet tax ban.

Barron's writes that shares in Shutterfly (SFLY) dropped on a weak forecast for the next quarter.

CNN Money reports that Google (GOOG) and several social networks will offer a platform for applications that will run on any social networking site. The move is seen as a challenge to Facebook.

Douglas A. McIntyre

Asia Markets 10/31/2007

Markets in Asia were mixed.

The Nikkei rose .5% to 16,738. Hitachi (HIT) was up 3.4% to 781. Honda (HMC) was up 3.4% to 4200. NEC (NIPNY) was up 2.4% to 570.

The Hang Seng fell .7% to 31,421. China Netcom (CN) was down 2.7% to 23.25. CNOOC was down 4.3% to 10.2.

The Shanghai Composite was up 1% to 5,955.

Data from Reuters

Douglas A. McIntyre

Verizon (VZ) May Team With Google (GOOG) For G-Phone

Business makes strange bedfellows. Verizon Wireless, a JV between Verizon (VZ) and Vodafone (VOD), is in discussions with Google (GOOG) about distributing phones with the Google handset operating system.

According to The Wall Street Journal a "Google technology partnership might allow the carrier to offer cheaper phones, since Google's licensing fees for its software and operating system would likely be lower than the industry standard."

Verizon Wireless has over 63 million customers, but it may need a unique product to offset the Apple (AAPL) iPhone which is sold by cellular system rival AT&T (T) Wireless.

The cell subscriber market in the US is not growing as fast as it once was. The three largest wireless providers, which includes Sprint (S), have over 180 million customers. That is approaching the number of adults in the US, and some of the aged cannot use cell phones. Much of the revenue growth over the next decade may come from the wireless contenders taking market share from one another.

Google and Verizon against AT&T and Apple. Steel cage death match. (The loser will probably be Sprint, which is not even in the ring.)

The

Merrill Lynch (MER) May Face Class Action Suit Over Loss

Merrill Lynch (MER) may be facing a class action suit over the losses it reported in the last quarter.

According to Reuters "the lawsuit, which the lawyers said was filed in U.S. District Court for the Southern District of New York, seeks class-action status. It was brought by law firm Coughlin Stoia Geller Rudman & Robbins LLP on behalf of an institutional investor, Life Enrichment Foundation."

The suit says that Merrill made "materially false and misleading statements about its financial exposure to collateralized debt obligations."

Douglas A. McIntyre

Holiday PC Sales Seen As Brisk (HPQ)(DELL)(AAPL)

According to data from big computer seller Ingram Micro and research firm Endpoint Technologies Associates, PC sales look very strong going into the holidays with particular strength outside the US.

Reuters writes that "sales are being driven by falling component prices, entertainment applications such as games, videos and music, growing demand for portable machines and consumer adoption of Microsoft Corp's Windows Vista operating system." Improvement in the income of consumers in emerging markets has been helping to drive sales in those regions.

The sales up-tick in Q4 is seen as benefiting Dell (DELL), Hewlett-Packard (HPQ), Apple (AAPL), and Acer.

Douglas A. McIntyre

Dell (DELL) Share Up After Hours On Restatement

Dell (DELL) finally filed its past financial statements including past due periodic reports with the U.S. Securities and Exchange Commission. Those reports contain restated financial information for Fiscal 2003, 2004, 2005 and 2006 (including the interim periods within those years), and the first quarter of Fiscal 2007.

Dell believes that, with the filing of these reports, it will achieve compliance with NASDAQ's continued listing requirements, and expects that NASDAQ will send the company an acknowledgement to that effect in the near future.

According to MarketWatch the restatement cut Dells earnings by $92 million, and its earnings-per-share by 3 cents for the combined period of its 2003, 2004, 2005 and 2006 fiscal years, and the first quarter of its 2007 fiscal year.

Dell's shares are up over 2% after hours to $30.40 which is above the stock's previous 52-week high.

As 24/7 Wall St. wrote earlier, the will allow the company to resume its share buy-back.

Douglas A. McIntyre

The 52-Week Low Club

Wellcare Health Plans (WCG) Regulators keep asking for more info and class action suits are beginning. Shares fall to $21.41 from 52-week high of $128.42.

Qwest Communications (Q) Big telecom company turns in ugly forecast. Shares fall to $6.94 from 52-week high of $10.45.

Rite Aid Corporation (RAD) Still dogged by high costs and low margins on generic drugs. Falls to $3.80 from 52-week high of $6.74.

American Medical Systems (AMMD) Lowers outlook for the year and is hit with downgrade. Drops to $11.89 from 52-week high of $33.18.

Openwave Systems (OPWV) Still slipping after last week's earnings. Drops to $3.86 from 52-week high of $10.58.

Divx Inc (DIVX) Deal the company has with Google (GOOG) gets unpleasant amendment. Share move down to $12.24 from 52-week high of $31.89.

Douglas A. McIntyre

Sanmina-SCI (SANM): A Quiet Company Announces Quiet Results

Sanmina-SCI (SANM) announced that for the fiscal fourth quarter ended September 29, 2007,  the company had revenue of $2.5 billion, compared to $2.7 billion in the fourth quarter ended September 30, 2006. Revenue for the year ended September 29, 2007 was $10.4 billion, compared to $11.0 billion in the prior year.

Net income for the fourth quarter 2007 was $10.2 million, $0.02 diluted earnings per share, compared to a net loss of $2.1 million, breakeven diluted earnings per share for the fourth quarter 2006. Net income for fiscal year 2007 was $22.8 million, $0.04 diluted earnings per share, compared to $102.4 million, $0.19 diluted earnings per share in the prior year.

Wall St. had expected the quarter to have nil EPS and revenue of $2.53 billion. For the year, expectations were for EPS of $.03 on revenue of $10.6 billion.

For the next quarter, the company expects revenue to be in the range of $2.5 billion to $2.65 billion range and Non-GAAP diluted earnings per share to be between $0.02 to $0.04.

The shares moved down a fraction after hours.

Websense (WBSN) Falters

Websense (WBSN) released earnings with revenue in the third quarter was $50.4 million, an increase of 10 percent from the third quarter of 2006. Net income calculated using generally accepted accounting principles (GAAP) was $6.4 million, or 14 cents per diluted share, compared with net income of $8.3 million or 18 cents per diluted share in the third quarter of 2006

Wall St. had been looking for revenue of $50.5 million and EPS of $.22.

Websense completed the acquisition of SurfControl on October 3, 2007. Combined third quarter net billings for Websense and SurfControl were $79.1 million and within the anticipated range of billings for the combined company. Websense billings were below the previously guided range of $56 to $59 million, primarily due to increased competition from SurfControl in North America.

The newly combined company expects revenue in the range of $92 million to $95 million in the fourth quarter and $.20 to $.23 EPS. For the full-year 2008, the merger operation is expected to have revenue of $330 to $345 million and EPS of $1.10 to $1.17.

The stock looks like it will be hit with some selling as the evening wears on.

Douglas A. McIntyre

RealNetworks (RNWK) Posts Boring Numbers

RealNetworks (RNWK) today announced that for the third quarter of 2007, revenue grew 55% to $145.1 million compared to $93.7 million for the third quarter of 2006. Technology Products and Solutions revenue of $53.3 million, a 377% increase over the third quarter of 2006, due in large part to the acquisition of WiderThan during the fourth quarter of 2006. So, much of the improvement was not "organic" as Wall St. types like to say.

Net income for the third quarter of 2007 was $4.3 million or $0.03 per diluted share, compared to $42.2 million or $0.24 per diluted share in the third quarter of 2006. Results for the third quarter of 2006 included payments related to Real's antitrust settlement and commercial agreements with Microsoft.

Gross margin was 61% in the third quarter of 2007 compared to 70% in the third quarter of 2006.

For the fourth quarter of 2007, Real expects revenue in the range of $152 million to $157 million, GAAP net income per diluted share of $0.00 to $0.01 and adjusted net income per diluted share of $0.06 to $0.07. For the full year 2007, Real expects revenue in the range of $563 million to $568 million. Real expects 2007 GAAP net income per diluted share of $0.28 to $0.29 and adjusted net income per diluted share of $0.23 to $0.24.

Analysts had looked for EPS of ($.01) on revenue of $143 million. And for Q4 guidance of $.02 on $168 million in revenue.

In the eyes of Wall St. the figures were close enough for government work. The shares were up a fraction to $6.60 after hours.

Douglas A. McIntyre

Shutterfly (SFLY) Paints Itself Out Of the Picture

Shutterfly (SFLY) announced that its total revenues were $32.6 million, an increase of 54% over the third quarter 2006. The online photo site had a GAAP net loss per share was ($0.14), as compared to a net loss per share of ($0.70) for the third quarter 2006.

Transacting customers for the quarter totaled 844,000 – a 35% increase over the third quarter 2006.

The company's forecast for Q4 was revenues within the range of $90.5 million to $93.5 million, an increase of 38% to 42% as compared to the fourth quarter of 2006. For the full year revenues will be within the range of $180 million to $183 million, an increase of 46% to 48% as compared to the full year 2006

Analysts had been looking for Q3 revenue of $31 million and EPS of ($.16) and revenue for Q4 of $93 million with EPS of $.67.

The earnings gods were angry with the foecast and sent the shares down 9% after hours to $33.

Douglas A. McIntyre

Mutual Fund Year-End Window Dressing Meets FOMC Date (MSFT, CSCO, GOOG, AAPL, RIMM, VMW, EMC, KO, YUM, MCD, BIDU, CROX, DELL, SCI, GS, STT, NYX, TXT)

Wednesday is much more than Halloween and it is more than the FOMC announcement date.  We have an event that has been perhaps more influential to many key stocks than the upcoming announcement on Wednesday out of the FOMC.  The key event is that it coincides with being the fiscal year-end for most mutual funds out there.  There are many stocks that were prior beneficiaries of WINDOW DRESSING at the end of September, but this list may be far more important as the year-end names will appear in annual reports for mutual funds.  Oddly enough, these might not see the same love as the last quarter (see below).

Goldman Sachs Oil Call Overshadows ExxonMobil Earnings (XOM, SLB, BP, BHI, TSO, XLE, OIH)

Goldman Sachs may not be reversing its entire bullish stance on oil after oil traded over $93.00 per barrel on Monday, but it is recommending some old fashioned profit taking.  Goldman Sachs noted specifically that it is not necessarily calling a top here, but it is encouraging to take some profits and lock-in some gains.  Here was the prior equity analyst call on oil names out of Goldman Sachs.

At the end of last week, 24/7 Wall St. was looking at ExxonMobil (NYSE:XOM) ahead of earnings and we noted that its chart was not indicative of a great earnings report being priced-in.  Schlumberger Ltd. (NYSE:SLB) has been a disaster since its earnings were greeted with major selling, and BP (NYSE:BP) already noted that Q4 was going to be ugly.  The stock was not following oil prices and the price at the pump according to gasbuddy.com was not following the per barrel price trend of black gold.  Naturally, there is a "be careful what you wish for, you might get it" lesson here: yesterday at the pump the price was back over $3.00 per gallon.

This report isn't entire out of line with Goldman Sachs' recent lifting of its Super-Spike price band where it noted the possibilities under extreme circumstances for $135/barrel and $4.50/gallon at the pump.  Today's call looks at a downside risk of $80/barrel at the end of Q1 2008.

You can bet this won't change the stance of many oil bulls.  Ken Heebner of CGM is very bullish on oil properties and T. Boone Pickens recently called for $100/barrel.  Jim Cramer even went on the line and noted some key oil takeover names in Canadian Oil Sands Trusts.

The truth is that the fundamentals right now do not seem to justify the current prices, but 24/7 Wall St. still believes that $100 can easily be hit based upon the trading patterns.  There has still yet to be a single net delivery miss in and to the U.S.  If a net delivery miss were to occur you can imagine what the trading reaction will be, regardless of the price.  Traders are in charge of oil, just ask Tesoro's (NYSE:TSO) analyst/economist that was saying just last week how the fundamentals in today's oil markets should have oil in the $60's rather than the $80's or $90's.

We still wonder if Baker Hughes Inc. (NYSE:BHI) is going to make an acquisition after that last filing for it to raise $2 Billion in cash, which has been a signal in the past since it does not need cash.

Oil is down almost $2.00/barrel at $91.60 on last look.  The Energy Select Sector SPDR (AMEX:XLE) is down over 2% to $75.47 (year range $53.89 to $78.50) and the Oil Services HOLDRs (AMEX:OIH) is down 2.8% at $188.28 (year range $125.81 to $204.62).

Jon C. Ogg
October 30, 2007

Why Wall St. Hates Starbucks (SBUX)

Starbucks (SBUX) broke below $25 today, not too far from its 52-week low. Less than a year ago, the shares traded over $40.

The last significant analyst call on the company was a Banc of America downgrade late this September which took the shares from "neutral" to "sell". But, that was over four weeks ago which can be a long time in this market.

Expectations are that the company will grow over 20% again when it reports earnings next month. Wall St. Expects revenue of $2,43 billion and an increase in EPS from $.17 last year to $.21 this.

Starbucks can do deals with Apple (AAPL) to put music downloads in stores and can get exclusives to sell CDs for big artists. It can say that the increase in milk prices will be passed on to customers. The problem with Starbucks is simple. Investors think it has too much competition now, and that it is a barricade to growth that the company cannot overcome.

That seems like old news. But, it is also new news. Starbucks management has been in the market saying that its long-term growth rates area achievable. No one is buying it.

Starbucks could solve part of that problem tomorrow. It could begin to release monthly same-store sales again. When it stopped a few quarters ago, Wall St. thought it had something to hide. The company felt that the numbers jacked the price around too much.

But, same-store sales are not only G2 for the markets, they are discipline for the management. Monthly numbers are like water torture, if the company is not keeping up. If it is, that story about the Starbucks growth machine, gone now for a year, comes back.

And, so do the shares.

Douglas A. McIntyre

RealNetworks Earnings Expectations (RNWK, TIVO, VIA)

RealNetworks Inc. (NASDAQ:RNWK) is set to report earnings after today's close.  First Call has estimates at -$0.01 EPS on revenues of $143.4 million, but there are some estimates with a break-even to even a slight positive earnings for the quarter.  Estimates for next quarter are $0.02 EPS on $158.1 million in revenues.

It looks like the average analyst target is still over $10, but there have not been any major calls on today's expectations.  Morgan Keegan started this with an Outperform rating back in September and J.P. Morgan just initiated coverage earlier in October with a "Neutral" rating.  Options are hard to use for any real indicator ahead of earnings and the open interest is not even worth noting.  The stock has spent most of the last three-months in a $6 to $7 trading band, and it has been in a $5.45 to $12.08 trading range over the last 52-weeks.

This company would have been easy to attack ahead based on the fact that recent earnings have been skewed by one-time payments that are not going out indefinitely into the future.  This will make comparisons to past quarters quite difficult.   The good news is that the company has become more and more prominent in digital music downloads via its Rhapsody joint venture with Viacom (NYSE:VIA) and its recent TiVo (NASDAQ:TIVO) pact.  Another interesting push here for looking ahead is its recent casual gaming infrastructure company called Game Trust.

One key issue is this huge short interest of 7.729 million shares as of mid-October.  Shares are flat mid-day ahead of earnings and RealNetworks carries roughly a $987 million market cap.  As of last quarter the company had almost $615 million in cash and equivalents and its net tangible assets after removing goodwill and other items was listed as $489.6 million.

Jon C. Ogg
October 30, 2007

New Emerging Markets ETF (DGS, WSDT)

There is a new ETF trading on the NYSE today. The WisdomTree Emerging Markets SmallCap Dividend Fund listed on NYSE Arca under the ticker symbol DGS, and it has begun trading.

This ETF was created to track the price and yield performance of the "WisdomTree Emerging Markets SmallCap Dividend Index."  This index is a fundamentally weighted index primarily measuring the performance of small cap stocks.

If you'd like to see the top components you can find that here on the WisdomTree site.  According to that site and performance results, it appears that this index is up some 63% over the last year.

WisdomTree Investments Inc. is also public and trades under the OTC/PinkSheets ticker "WDST."

Jon C. Ogg
October 30, 2007

Best Buy (BBY) Goes Video

Since every other company in the world from NBC to Wal-Mart (WMT) to Amazon (AMZN) is in the video distribution, why not Best Buy (BBY)?

Why not, indeed. Today the company launched Best Buy Video Sharing, an online-based solution for customers to safely store and share home movies and videos via the Web.

Best Buy Video Sharing is a subscription-based service for users to upload their personal videos for sharing on web sites and blogs, with family and friends, or in e-mail messages. Unlike many other video sharing services, Best Buy Video Sharing allows the user to choose who can view their home videos, and enables the user to do so in an advertising-free environment.

Best Buy Video Sharing was created in partnership with Mydeo, a provider of quality streaming video hosting for home and business users. The service will be merchandised online and in Best Buy’s retail stores.

Base plans start at $6.97 for 100 minutes of video hosting and video lengths up to 30 minutes each. Customers can chose premium plans for extended video lengths, additional video storage capacity, and other sharing features.

While it does seem like a good idea, the program competes with 10,000 others not unlike it.

Douglas A. McIntyre

Coca-Cola (KO) Shown Disrespect For Desani Water

Consumers International give out annual prizes for the world's worst products. Perhaps someone from Coca-Cola (KO) showed up a the award dinner to collect its prize.

According to the AFP news agency, one award went to drinks giant Coca-Cola for pushing marketing "into the realms of the ridiculous" in the United States and South America with its Desani bottled warter which is sourced from the same reservoirs as local tap water.

Kellogg's (K) did equally well. "Kellogg's are one of a number of international food companies that make money by selling products high in fat, sugar and/or salt," Consumers International said.

And, we can't forget Chinese toys. Toymaker Mattel (MAT) was also named over the global recall of more than 19 million products made in China because of high lead levels and small magnets.

Let's hope they display the awards in their HQ lobbies with pride.

Douglas A. McIntyre

EA To Reap Rewards From LucasArts (ERTS)

LucasArts and BioWare Corp. today announced that they have entered into an agreement to create an interactive entertainment product.  Normally we wouldn't cover this because both are private companies.  But BioWare is in the process of being acquired by Electronic Arts (NASDAQ:ERTS), and we have covered how EA wants to come up with more answers to the success of the Halo franchise.  This is not the first such agreement between the two companies.

The product, details of which will be unveiled at a later date, will be developed and published by BioWare and LucasArts, and will push the boundaries of the gaming market by utilizing the strengths of both companies to deliver an innovative, high-quality experience.

It sure sounds like a new MMORPG (massive multiplayer online role playing game) is coming down the pipe.  These and other companies are soon to be covered in our Special Situation Investing Newsletter because of some radical changes that are coming in the video game sector in 2008.  Bungie Studios is on the path to independence, at least somewhat.  Certain previews will be made to our free email distribution list.

Jon C. Ogg
October 30, 2007

Finally, Merrill Lynch Announced the Inevitable (MER)

Merrill Lynch (NYSE:MER) has finally announced a part of the inevitable.  Stan O'Neal is retiring effective immediately, which we all know is a mutual resignation and firing after the worst brokerage quarter out there.  The company said the board of directors has elected Alberto Cribiore as interim non-executive chairman, and he also will chair a search committee that will identify and evaluate chief executive candidates from within and outside of the company.

The company said Mr. O’Neal and the board of directors both agreed that a change in leadership would best enable Merrill Lynch to move forward and focus on maintaining the strong operating performance of its businesses, which the company last week reported were performing well, apart from sub-prime mortgages and CDOs. We won't even bother noting the "thank you for your services" comments.

Ahmass Fakahany and Gregory Fleming will continue as Merrill Lynch co-presidents and chief operating officers.

This "retiring" rather than an outright firing will likely allow for quite a large retirement or severance package to remain in place.  Without an immediate succession plan being put in place, this is going to disappoint many skeptics.  The net result here really just boils down to whether you view change as a glass half-full or a glass half-empty.

Shares are down roughly 2% at $66.16 pre-market, and the 52-week trading range is $59.14 to $98.68.

Jon C. Ogg
October 30, 2007