A three-horse video game race?

Nov 29, 2006 20:21 UTC

While Sony Corp. (SNE) remains mum on initial sales of PlayStation 3, a Nintendo Co. Ltd. executive says the company’s on track to meet a goal of selling 4 million Wii consoles globally by the end of the year. The risk is not geared to demand, but to its ability to manufacture enough units.

Wall Street had already expected Sony and Microsoft Corp. (MSFT) to easily sell their new-generation consoles and for manufacturing to be the issue that determines whether they meet, miss, or beat their expectations.

What’s new is the fact that Wii’s initially strong reception. For some early, anecdotal evidence, we find an aggregate 4.5 star rating from 165 customer-reviewers, versus PlayStation 3 with 4 stars from 72 customers and Xbox360, with 3.5 stars from 469 customers. If that sort of trend surfaces in other places, this has the potential to change the next-generation gaming competition from the two-horse race many expected to a three-horse race.

It’s also possible that Wii may expand the market by attracting new gamers, something it expressly set out to do with its less-tech-intensive design philosophy and its new motion-sensitive controller. It’s not clear right now to what extent, if any, this is factored into the price of retailer GameStop (GME) shares. Analysts have been focusing mainly on the impact of hardware availability. The possibility that Nintendo may expand the market is something that, if it materializes, would likely be visible around, or possibly after, mid-year.

Analysts have 7 Buy ratings, 5 Outperform ratings and 3 Hold ratings on GameStop stock, for an average of 1.73 on a scale of 1.00 (best) to 5.00 (worst).

As goes Wal-Mart, so goes Wal-Mart (again?)

Nov 27, 2006 17:11 UTC

A 0.1 percent decline in November same-store sales at Wal-Mart Stores Inc. (WMT) was not what the market wanted to hear on the first trading day after black Friday, judging by the approximately 1 percent decline in the S&P 500. But there’s no reason to assume Wal-Mart’s fortunes have any relevance beyond the company itself.

In response to a market worry nearly a year ago, we published a column suggesting Wal-Mart’s struggles were entirely due to its own situation and had no bearing at all on how retail as a whole was doing. Let’s review how things turned out for retail investors, and for Wal-Mart shareholders, over the past 12 months.

Wal Mart stock is down 5.1 percent. That’s certainly not bottom-of-the-barrel.

Google above $500: A look at valuation

Nov 21, 2006 17:36 UTC

Google Inc. (GOOG) crossed above $500 today. Yawn . . . Sure, it’s an exalted level. Of the more than 8,000 companies in our domestic stocks database, only 16 others can make that claim. Of that batch, only six have market capitalizations above $1 billion. Two companies, TouchTunes Music Corp. (TTMX) and NewAx Inc. (NWXJ) were below $10 million. It goes to show that if a company has a sufficiently small number of shares outstanding, 1,034 and 7,414 respectively, getting up in price can be pretty easy. Even bigger, better-known firms in the $500-plus club, such as Berkshire Hathaway Inc. (BRKa) and Chicago Mercantile Exchange Holdings (CME) get there by having a small number of outstanding shares and steadfastly refusing to split their shares.

The real issue is whether Google’s valuation is high. As it turns out, the stock is not cheap: It’s priced at about 36 times estimate 2007 earnings per share. But as valuations go, there are others at or above that level: 337 as of Monday.

Right now, Google’s forward price/earnings (P/E) ratio is nearly double the S&P 500 level. Let’s assume that shrinks to a 25 percent premium five years hence. Assuming further a risk-free interest rate of 5.5 percent and a future S&P 500 P/E of 18.2 (1 divided by 5.5, based on the “Fed” model which suggests that over time, fair value of the S&P 500 has been the inverse of the risk-free rate), we might assume Google’s five-year-hence P/E will be 22.75.

Times Changin’ for Jukebox Musicals?

Nov 17, 2006 19:19 UTC

Another one bites the dust.

“The Times They Are a Changin’,” a jukebox musical based on the music of folk superstar Bob Dylan, will close this weekend after a miserable run of just 28 performances.

Reviews for the show were scathing. Ben Brantley in The New York Times called the show “the latest heart-rending episode in Broadway’s own reality soap opera, ‘When bad shows happen to great songwriters.’”

Jim Farber in the New York Daily News called the show “the worst jukebox musical in hisotry, thanks to Twyla Tharp’s clueless staging and her cast’s over-enunciated singing.” Time Out New York says the show “takes Dylans oracular, bitterly soulful songs of love and protest and forces them to jump through hoops of humorless, aerobic flimflammery,” saying, “Tharps storytelling is incoherent and laughable.”

No surrender: Marching with consumer stocks

Nov 17, 2006 18:51 UTC

For a long time now the consumer has had good reason to surrender: higher interest rates, higher oil prices, sluggish economic activity, the psychological and financial impact of the housing slowdown, and so forth. Yet for some reason, that hasn’t been happening. And now, it looks like the cavalry is on the horizon.

Wal-Mart Stores, Inc. (WMT) is lending a helping hand with redcued pricing, a move that may be replicated by some rivals. Whether Sony Corp.’s (6758.T) high-priced, high-feature Playstation 3 will succeed is an open question, but it seems likely at least that its release will help generate a reasonable level of consumer buzz. Oil prices have fallen sharply from recent peaks. And if economic activity remains lackluster, interest rates may soften. Bottom line: the U.S. consumer looks set to keep marching ahead.

It’s not all great news. Starbucks Corp. (SBUX), for example, came out with lower profits. But there’s good news elsewhere, such as at Nike Inc. (N), which sharply boosted its dividend.

Show us the money

Nov 15, 2006 20:08 UTC

Reuters reports that Wal-Mart Stores Inc.’s (WMT) annual holiday price-cutting may pressure rivals more than usual this year. Undoubtedly, this will be good news for shoppers and will make great theater for observers of the retail scene.

It’s likely just a sideshow for equity investors.

There are two broad strategies retailers use to bring in the money. One approach involves low-margins and, presumably, high turnover; in other words, sell cheaply but make up for it by moving stock quickly. The opposing strategy involves living with slower turnover in an effort to make more on each sale.

Financial theory is neutral on which strategy is better. Return on capital is what matters and one way or another that’s calculated with reference to margin and turnover. Companies can excel through either strategy. The weight of anecdotal experience seems neutral too. A stock can just as easily get hammered by news of excessive markdowns as it can by news of overstocked shelves.

Tuning into TiVo’s cash burn

Nov 14, 2006 18:50 UTC

TiVo Inc. (TIVO) hit Wall-Street paydirt today. Its announcement that it would expand a service that brings Web video to regular televisions sent its stock up nearly 5 percent as we approached mid-day. Perhaps this might be what the company needs to distinguish itself from the proliferating digital cable-boxes that include TiVo-like programming features. But it not not be enough to be right; it may have to be right quickly. Just as real estate is about location, location and location, emerging technology may depend on cash burn, cash burn and cash burn.

Table A shows trends in major cash-flow categories since the fiscal year that ended Jan. 31, 2001.

Table A Key cash flow trends ($ mill.)   cash flow from . . . net change
in cash
operations investing financing 6 mo. ending 7/31/06 -32.8 0.5 7.5 -24.8 12 mo. ending . . . 1/31/06 3.4 -10.8 5.4 -1.9 1/31/05 -37.2 -18.1 4.3 -51.0 1/31/04 -7.7 -3.7 109.1 97.8 1/31/03 -33.2 -1.4 26.4 -8.1 1/31/02 -120.8 -3.3 52.0 -72.1 1/31/01 -23.6 -0.8 42.8 18.4

Note: First three columns may not add to net change in cash due to decimal rounding.

The Oscar curse on romance

Nov 10, 2006 17:30 UTC

There are two supposed “Oscar curses,” and one of them has struck again.

The first theory goes that if you win an Oscar too early in your career, your career is cursed — proponents of this one point to post-Oscar doldrums for performers such as Luise Rainer (named the Best Actress of 1936 and 1937), Mira Sorvino (Best Supporting Actress of 1995)reese.jpg and Timothy Hutton (1980′s Best Supporting Actor).

The other Oscar curse concerns romantic entanglements. When an actress takes home an Academy Award, she’ll sometimes see her relationship go kaput. Sally Field was named Best Actress of 1979 then lost boyfriend Burt Reynolds. Soon after Marlee Matlin won Best Actress of 1986 her relationship with William Hurt ended. Julia Roberts and Benjamin Bratt ended their relationship soon after she was named 2000′s Best Actress. Halle Berry and Eric Benet ended their marriage soon after she was named the Best Actress of 2001. Hilary Swank split with husband Rob Lowe soon after she was named 2004′s Best Actress. And both actresses who won in the 1997 awards lost their husbands after taking home statues: Best Actress Helen Hunt split from Hank Azaria while Best Supporting Actress Kim Basinger split from Alec Baldwin.

Bears turning chicken

Nov 10, 2006 15:47 UTC

Bears turning chicken Short interest data is an interesting double-edge sword. On the one hand, its disconcerting to see high numbers, evidence that many investors expect a decline in stock you may own or in which you have an interest. On the other hand, your share ownership could be that much more profitable if things go well for the company and the short sellers need to close positions. The list below identifies companies appearing in at least one Reuters Select screen which have also experienced a meaningful decline in short interest. Bears turning chicken

Short interest data is an interesting double-edge sword. On the one hand, it’s disconcerting to see high numbers, evidence that many investors expect a decline in stock you may own or in which you have an interest. On the other hand, your share ownership could be that much more profitable if things go well for the company and the short sellers need to close positions. The list below identifies companies appearing in at least one Reuters Select screen which have also experienced a meaningful decline in short interest.

This is not to be taken as a set of Buy recommendations. There’s no assurance that those who are covering short positions are right. Perhaps the first decision to go short in the first place was correct and that they’d be better off being patient. Ultimately, though, stock selection is a balancing of probabilities.

A small world? Not for GigaMedia

Nov 9, 2006 18:01 UTC

In his classic “One Up On Wall Street” Peter Lynch describes the perfect stock, as something “that makes people shrug, retch, or turn away in disgust is ideal.”

Gaming stocks wouldn’t qualify for the most part. Where some see vice, others see good recreation and good business. But if the “casino” is virtual, the U.S. now considers it a felony. The development may bring on-line gaming software company GigaMedia Ltd. (GIGM) into a Lynch orbit. Yet as far as the company is concerned, the world is big place, enough so that it has long avoided the U.S. and confined operations to countries where the activity is legal. The stock has landed on the Reuters Select Lesser Known Stocks screen. We use the screens to filter for stocks using financial, market, and estimate data. We dont tell you what to buy (or sell), but show you what stocks pop up based on whatever criteria we’ve set.

Here’s the full list of data tests that must be satisfied on the Lesser Known Stock screen: