Cisco Systems [CSCO: 26.26, +0.11 (+0.42%)] Recent Price $17.04 Value Range 21.86 – $38.41
Cisco Systems, Inc. designs, manufactures and sells Internet protocol (IP)-based networking and other products related to the communications and information technology (IT) industry, and provides services associated with these products and their use. The Company provides a line of products for transporting data, voice, and video within buildings, across campuses, and around the world. Its products are designed to transform how people connect, communicate and collaborate. Cisco Systems, Inc.’s products, which include primarily routers, switches, and products that the Company refers to as its technologies, are installed at enterprises, public institutions, telecommunications companies, commercial businesses and personal residences. In November 2008, the Company acquired Jabber Inc. In January 2009, the Company acquired Richards-Zeta Building Intelligence, Inc

CSG Systems International [CSGS: 21.93, +0.14 (+0.64%)] Recent Price $15.47 Value Range $21.39 – $28

CSG Systems International, Inc. (CSG) is a provider of outsourced solutions that facilitate customer interaction management on the behalf of its clients, generating approximately 95% of its revenues during the year ended December 31, 2007, from the North American cable and Direct Broadcast satellite (DBS) communications markets. The Company’s solutions also support a number of other industries, such as financial services, utilities, telecommunications, and home security. CSG’s solutions manage customer interactions, such as set-up and activation of customer accounts, sales support and marketing, order processing, invoice calculation (customer billing), production and mailing of monthly customer invoices, management reporting, electronic presentment and payment of invoices, automated and interactive messaging, and deployment and management of the client’s field technicians to the customer’s home. In May 2008, CSG completed the acquisition of DataProse, Inc.

Forest Laboratories [FRX: 31.67, +0.30 (+0.96%)] Recent Price$26.21 Value Range$51.57 – $64.09

Forest Laboratories, Inc. and its subsidiaries develop, manufacture and sell both branded and generic forms of ethical drug products, which require a physician’s prescription, as well as non-prescription pharmaceutical products sold over the counter. The Company’s products in the United States consist of branded ethical drug specialties marketed directly or detailed to physicians by its sales forces, Forest Pharmaceuticals, Forest Therapeutics, Forest Healthcare, Forest Ethicare and Forest Specialty Sales. Forest Laboratories, Inc.’s products include Lexapro, the Company’s selective serotonin reuptake inhibitor (SSRI) for the treatment of major depression and generalized anxiety disorder (GAD); Namenda, its N-methyl-D-aspartate (NMDA) antagonist for the treatment of moderate to severe Alzheimer’s disease; Bystolic, its novel beta-blocker for the treatment of hypertension, and Campral, for the maintenance of alcohol abstinence.

Robert Half International [RHI: 31.40, +0.57 (+1.85%)] Recent Price $18.22 Value Range $26.27 – $30.14

Robert Half International Inc. provides specialized staffing and risk consulting services through such divisions as Accountemps, Robert Half Finance & Accounting, OfficeTeam, Robert Half Technology, Robert Half Management Resources, Robert Half Legal, The Creative Group and Protiviti. The Company, through its Accountemps, Robert Half Finance & Accounting, and Robert Half Management Resources divisions, is a specialized provider of temporary, full-time project professionals in the fields of accounting and finance. OfficeTeam specializes in skilled temporary administrative support personnel. Robert Half Technology provides information technology professionals. Robert Half Legal provides temporary, project and full-time staffing of attorneys and specialized support personnel within law firms and corporate legal departments. The Creative Group provides project staffing in the advertising, marketing, and Web design fields

Advance Auto Parts [AAP: 42.35, +0.05 (+0.12%)] Recent Price 33.63 Value Range 10.02 – 12.07

Advance Auto Parts, Inc. (Advance) operates within the United States automotive aftermarket industry, which includes replacement parts (excluding tires), accessories, maintenance items, batteries and automotive chemicals for cars and light trucks (pickup trucks, vans, minivans and sport utility vehicles). The Company is a specialty retailer of automotive parts, accessories and maintenance items to do-it-yourself (DIY) and do-it-for-me (DIFM) customers in the United States, based on store count and sales. Advance operates in two business segments: Advance Auto Parts (AAP) and Autopart International (AI). The AAP segment consists of its store operations within the United States, Puerto Rico and the Virgin Islands, which operates under the trade names Advance Auto Parts, Advance Discount Auto Parts and Western Auto. The AI segment consists solely of the operations of Autopart International, which operates as an independent, wholly owned subsidiary.

American Eagle Outfitters [AEO: 19.00, -0.02 (-0.11%)] Recent Price 9.64 Value Range 0.63 – $0.75

American Eagle Outfitters, Inc. is a retailer that operates under the American Eagle Outfitters, aerie by American Eagle and MARTIN + OSA brands. The Company designs, markets and sells its own brand of clothing targeting 15 to 25 year-olds. American Eagle also operates ae.com, which offers additional sizes, colors and styles of AE merchandise and ships to 41 countries worldwide. AE’s original collection includes standards, such as jeans and graphic Ts, as well as essentials like accessories, outerwear, footwear, basics and swimwear under its American Eagle Outfitters, American Eagle and AE brand names. The aerie collection is available in aerie stores, predominantly all American Eagle stores and at aerie.com. The collection includes bras, undies, camis, hoodies, robes, boxers, sweats, leggings, fitness apparel and personal care for the AE girl. MARTIN + OSA is a concept targeting 28 to 40 year-old women and men, which offers refined casual clothing and accessories.

Bed Bath & Beyond [BBBY: 43.12, -0.04 (-0.09%)] Recent Price$24.00 Value Range $ 8.03 – $9.73

Bed Bath & Beyond Inc. and subsidiaries is a chain of retail stores, operating under the names Bed Bath & Beyond (BBB), Christmas Tree Shops (CTS), Harmon and Harmon Face Values (Harmon) and buybuy BABY. The Company sells a range of merchandise principally, including domestics merchandise and home furnishings as well as food, giftware, health and beauty care items and infant and toddler merchandise. In March 2007, the Company acquired buybuy BABY. In May 2008, the Company announced the formation of a joint venture with Home & More, S.A. de C.V., a privately held home products retailer operating in Mexico

Brown-Forman Corporations [[BF-B]] Recent Price $48.18 Value Range $8.17 – $10.28

Brown-Forman Corporation manufactures, bottles, imports, exports and markets a variety of alcoholic beverage brands. Its principal beverage brands are Jack Daniel’s Tennessee Whiskey, Southern Comfort, Finlandia Vodka, Herradura Tequila, Gentleman Jack, Jekel Vineyards Wines, Jack Daniel’s Single Barrel, Jack Daniel’s Ready-to-Drinks, Bel Arbor Wines, Bolla Wines, Bonterra Vineyards Wines, Old Forester Bourbon, Canadian Mist Blended Canadian Whisky, Pepe Lopez Tequilas, Chambord Liqueur, Sanctuary Wines, Don Eduardo Tequila, Sonoma-Cutrer Wines, Early Times Kentucky Whisky, Tuaca Liqueur, el Jimador Tequila, Stellar Gin, Five Rivers Wines and Woodford Reserve Bourbon. The Company’s core brand in its portfolio is Jack Daniel’s, which is a spirits brand and American whiskey brand. Its other brands are Southern Comfort and Canadian Mist. Its largest wine brands are Fetzer, Korbel and Bollab.

CLARCOR [CLC: 34.59, +0.45 (+1.32%)] Recent Price $32.82 Value Range $12.18 -$17.86

CLARCOR Inc. conducts business in three segments: Engine/Mobile Filtration, Industrial/Environmental Filtration and Packaging. The Company’s Engine/Mobile Filtration Segment sells filtration products used on engines and in mobile equipment applications, including trucks, automobiles, buses and locomotives, and marine, construction, industrial, mining and agricultural equipment.. The Company’s Industrial/Environmental Filtration Segment centers on the manufacturing and marketing of filtration products used in industrial and commercial processes and in buildings, and infrastructures of various types. The Company’s consumer and industrial packaging products business is conducted, through a wholly-owned subsidiary, J.L. Clark, Inc. (J.L. Clark). In May 2008, the Company acquired a 30% share in BioProcess H2O LLC (BPT), a Rhode Island-based manufacturer of industrial waste water and water reuse filtration systems. The Company acquired 100% of the Keddeg Company on December 29, 2008

Cree [CREE: 71.66, +0.73 (+1.03%)] Recent Price $21.84 Value Range $4.51 – $6.20

Cree, Inc. develops and manufactures semiconductor materials and devices based on silicon carbide (SiC), gallium nitride (GaN) and related compounds. The Company focuses its expertise in SiC and GaN on light emitting diodes (LEDs), which consist of LED chips, LED components and LED lighting solutions. It also develops power and radio frequency (RF) products, including power switching and RF devices. The majority of Cree, Inc. products are manufactured at its main production facility in Durham, North Carolina, in a six-part process, which includes SiC crystal growth, wafering, polishing, epitaxial deposition, fabrication and testing Additionally, it packages certain LED components and power and RF products at its North Carolina facilities, its facility in Huizhou, China and in other foreign countries through the use of subcontractors. It also operates research and development facilities in Goleta, California and Hong Kong. In February 2008, it acquired LED Lighting Fixtures, Inc.

Edwards Lifesciences [EW: 98.43, -0.30 (-0.30%)] Recent Price $61.10 Value Range $16.74 – $21.24

Edwards Lifesciences Corporation (Edwards Lifesciences) is a global player in products and technologies designed to treat cardiovascular disease. The Company focuses on specific cardiovascular opportunities, including heart valve disease, critical care technologies and peripheral vascular disease. The products and technologies provided by Edwards Lifesciences to treat cardiovascular disease are categorized into five areas: Heart Valve Therapy; Critical Care; Cardiac Surgery Systems; Vascular, and through 2007, Other Distributed Products

Interactive Data Corp [IDC: 31.88, +0.03 (+0.09%)] Recent Price$24.42 Value Range $4.90 – $6.34

Interactive Data Corporation is a global provider of financial market data, analytics and related services to financial institutions, active traders and individual investors. The Company’s customers use its offerings to support their portfolio management and valuation, research and analysis, trading, sales and marketing, and client service activities. It markets and sells its services either by direct subscriptions or through third-party business alliances. Its offerings are developed and delivered to customers through four businesses that consist of its two operating segments: Institutional Services and Active Trader Services. In May 2007, the Company completed the acquisition of the assets comprising the market data division of Xcitek LLC, as well as the market data assets of its affiliate Xcitax LLC. In August 2008, announced the closing of its acquisition of Kler’s Financial Data Service S.r.l. In December 2008, the Company acquired a 79% interest in NTT DATA Financial Corporation

ITT Educational Services [ESI: 114.79, +0.27 (+0.24%)] Recent Price $128.87 Value Range$23.33 – $33.99

ITT Educational Services, Inc. (ITT/ESI) is a provider of postsecondary degree programs in the United States based on revenue and student enrollment. As of December 31, 2007, the Company offered diploma, associate, bachelor and master degree programs to approximately 53,000 students. All of its institutes are authorized by the applicable education authorities of the states, in which they operate and recruit, and are accredited by an accrediting commission recognized by the United States Department of Education (ED). All of its programs were degree programs, except for a few diploma programs offered at six institutes that are being converted to degree programs. As of December 31, 2007, it offered 29 degree programs in various fields schools of study: information technology (IT); electronics technology; drafting and design; business; criminal justice, and health sciences. In October 2008, the Company announced that it has opened its first ITT Technical Institute in Mississippi.

Makita Corporation [MKTAY: 33.72, +0.2699 (+0.81%)] Recent Price $22.81 Value Range $1.71 – $2.00

Makita Corporation (Makita), incorporated on December 10, 1938, is principally engaged in manufacturing and sale of a range of power tools for professional users worldwide. Makita’s power tools consist of drills, grinders and sanders and portable woodworking tools, primarily saws and planers. The Company also produces gardening and household products and provides parts, repairs and accessories. During the fiscal year ended March 31, 2008 (fiscal 2008), approximately 85% of Makita’s sales were outside of Japan. The Company specializes in power tools manufacturing and sales, as a single line of business, and conducts its business globally. As of March 31, 2008, Makita had over 100 service depots outside of Japan. As of fiscal 2008, 28 of these service depots were located in the United States, and 19 of these service depots were located in China.

NIKE Incorporated [NKE: 70.88, +0.50 (+0.71%)] Recent Price $48.68 Value Range $15.83 – $21.46

NIKE, Inc. (NIKE) is engaged in the design, development and worldwide marketing of footwear, apparel, equipment, and accessory products. NIKE sells athletic footwear and athletic apparel. It sells its products to retail accounts, through NIKE-owned retail, including stores and Internet sales, and through a mix of independent distributors and licensees, in over 180 countries around the world. Its products include running, training, basketball, soccer, sport-inspired urban shoes, and childrens shoes. It also markets shoes designed for aquatic activities, baseball, bicycling, cheerleading, football, golf, lacrosse, outdoor activities, skateboarding, tennis, volleyball, walking, wrestling, and other athletic and recreational uses. On March 3, 2008, the Company acquired Umbro Ltd. (Umbro). On April 17, 2008, it completed the sale of its Bauer Hockey subsidiary.

Paychex [PAYX: 32.43, +0.14 (+0.43%)] Recent Price $26.93 Value Range$4.55 – $6.26

Paychex, Inc. (Paychex) is a provider of payroll and integrated human resource and employee benefits outsourcing solutions for small to medium-sized businesses in the United States. The Company’s Payroll and Human Resource Services product lines offer a portfolio of products and services that help clients to meet their payroll and human resource needs. Its Payroll services are provided through either its Core Payroll or Major Market Services, and include payroll processing, payroll tax administration services, employee payment services, and other payroll-related services, including regulatory compliance. Paychex’s Human Resource Services primarily include human resource outsourcing services, which include Paychex Premier Human Resources and its Professional Employer Organization; retirement services administration; workers’ compensation insurance services; health and benefits services; time and attendance solutions, and other human resource services and products.

Raytheon [RTN: 56.84, +0.03 (+0.05%)] Recent Price $47.80 Value Range 12.68 – $19.58

Raytheon Company designs, develops, manufactures, integrates, supports and provides a range of technologically advanced products, services and solutions for governmental customers in the United States and worldwide. The Company operates through six business segments: Integrated Defense Systems (IDS), Intelligence and Information Systems (IIS), Missile Systems (MS), Network Centric Systems (NCS), Space and Airborne Systems (SAS) and Technical Services (TS). During the year ended December 31, 2007, the Company completed the sale of Raytheon Aircraft Company (Raytheon Aircraft) and Flight Options LLC (Flight Options), two former operating commercial aviation businesses. In October 2007, the Company acquired Oakley Networks, Inc., a privately held technology company based in Salt Lake City, Utah, which provides cyber security and data leakage prevention systems. In April 2008, the Company acquired SI Government Solutions. In July 2008, the Company acquired Telemus Solutions, Inc

Rockwell Collins [COL: 60.69, +0.17 (+0.28%)] Recent Price $38.90 Value Range $12.94 – $15.93

Rockwell Collins, Inc. (Rockwell Collins) is a player in providing design, production and support of communications and aviation electronics for military and commercial customers worldwide. The Company’s products and systems are primarily focused on aviation applications. Its Government Systems business also offers products and systems for ground and shipboard applications. Rockwell Collins also provides a range of services and support to its customers through its network of service centers worldwide, including equipment repair and overhaul, service parts, field service engineering, training, technical information services and aftermarket used equipment sales. Rockwell Collins operates in multiple countries. Rockwell Collins serves its worldwide customer base through its Commercial Systems and Government Systems business segments. On November 24, 2008, Rockwell Collins acquired SEOS Group Limited. In April 2008, the Company completed the acquisition of Athena Technologies, Inc.

Strayer Education [STRA: 244.07, -2.49 (-1.01%)] Recent Price $222.04 Value Range $15.89 – $23.60

Strayer Education, Inc. is a post-secondary education services corporation. The Company offers academic programs through its wholly owned subsidiary, Strayer University, Inc., both in traditional classroom courses and through Strayer University Online. The Strayer University is an institution of higher learning that offers undergraduate and graduate degree programs in business administration, accounting, information technology, education, and public administration at 47 campuses in Alabama, Delaware, Florida, Georgia, Kentucky, Maryland, New Jersey, North Carolina, Pennsylvania, South Carolina, Tennessee, Virginia, Washington, D.C., via the Internet through Strayer University Online, providing its working adult students a program offering over the Internet. It also owns Education Loan Processing, Inc. (ELP), which was organized to administer the Company’s student loan portfolio. As of December 31, 2007, the Company had more than 32,087 students enrolled in its programs.

- Ronald Sommer

Disclosure: This article was taken from the website Measured Approach with the permission of the original author.  Please refer to the original author for disclosure information. We hold a position in FRX.

I’m sure quite a few eyes rolled when reading the title of this article. “Green Shoot” has been thrown around the financial media incessantly over the past few months, to the dismay of many. The thought that a new menu item at McDonald’s [MCD: 66.38, +0.31 (+0.47%)] is a glimmer of hope for the economy is, admittedly, a little preposterous. While I don’t believe the the 1/3 pound premium sandwich signals a recovery, it does say something about the future of consumer spending. If there is one company that knows a little something about the everyday consumer, it is McDonald’s.

Now, the most obvious argument against the idea of using this big burger as an economic indicator will be brought up by anyone that saw the CNBC special on Mickey D’s back in July or 2007, entitled Big Mac: Inside the McDonald’s Empire. While focusing on McDonald’s menu R&D efforts, the program touched on a new premium offering they are closing in on: the Angus Third Pounder. This would leave some to assume the Golden Arches are only coming out with a new premium item because they made the decision to start developing it way before the meltdown of the markets, and concurrent meltdown of consumer spending. While it is true the ‘chefs’ at McDonald’s began working on the burger before the recession, they had complete control as to when to release it. While they were still hammering out some kinks, namely concerning their suppliers, the impression was that the sandwich was near completion. That fact that they chose not to release the new menu item throughout 2008, and even through Q1 2009 is very telling.

Does it mean the executives at McDonald’s think the recession is over? I don’t believe so. As the economic tumult, or at least the public’s perception of it, was at its worst, people were cutting back on everything. Within whatever store or restaraunt they would patronize, they would gravitate toward the least expensive option. This was not so much out of neccesity, but out of a feeling that they should be cutting back in every part of life. This makes sense when looking at McDonald’s release of the McDouble several months ago, which is essentially a cheaper version of the double cheese burger (double the meat, not the double the cheese.) Even within an extremely cheap establishment such as McDonald’s, consumers wanted the lowest possible prices. If McDonald’s simply increased the price of a double cheeseburger without finding a still-cheap (although many would consider $1.19 to still be cheap) alternative, McDonald’s appeal would most likely suffer, at least to some extent.

Going forward, it is my view, and I believe the view of McDonald’s management’s, that a long-term trend is developing in a world of deleveraging consumers: Luxury within frugality. This means choosing McDonald’s over Panera Bread, but ’splurging’ therein. In this case, shelling out $4 for a ‘high-quality’ burger. Of course some customers will still choose the cheaper options, but McDonald’s is making sure to capture a key sub-demographic – one that is seeking some middle-ground amidst the new Penny-Pincher Era.

-Harry Lacheen

Disclosure: The Fund the author is associated with is long MCD.

I am recommending immediate purchase of shares in Rick’s stock at or around $6-7 per share, and in fact I added to my position at $6.90 on May 13th.

Readers of my Twitter feed were able to take advantage of my real-time buy alert as well as a weak stock market to grab shares of Rick’s at a fantastic price, as the company’s results while not stellar, show marked improvement and portend greater things ahead.

As I wrote in my recent buy recommendation for Rick’s shares, I feel that the company has reached an inflection point

While the economy still shows signs of weakness, it appears that as a result of Rick’s best-in-breed status, rebranding efforts at under performing clubs, as well as several marketing campaigns, the company is expanding market share and wisely spending now to reap the benefits later.

In this post I’ll be breaking down Rick’s full earnings release, as well as its analyst conference call, and round out my post with what you should do with Rick’s stock whether you do or don’t own it yet.

New to the Rick’s story?

Rick’s Cabaret International, Inc., owns and operates upscale adult nightclubs serving primarily businessmen and professionals.

Rick’s differentiates themselves by providing an atmosphere where they can offer a unique quality entertainment environment that includes highly experienced and well screened entertainers, high quality managers hired from within the adult entertainment industry, and finally, providing an atmosphere and ambiance, including exclusive VIP rooms, that appeal to upscale clientele.

Rick’s also owns and operates several online and offline media properties that produce adult websites as well as cater to owners and operators of intimate apparel and adult retail stores.

Rick’s nightclubs offer live adult entertainment, restaurant, and bar operations in Houston, Austin, San Antonio, Dallas and Fort Worth, Texas; Charlotte, North Carolina; Minneapolis, Minnesota; New York, New York; Miami Gardens, Florida; Philadelphia, Pennsylvania and Las Vegas, Nevada.

As of March 31st 2009, Rick’s operated 18 adult nightclubs.

Want more?

• Read: my update on Rick’s last earnings release and conference call
• OR: read my recent buy recommendation

–> Get updates and real-time stock trades you WON’T find on PeakStocks.com by following me on Twitter.

I’ll break down this report into 4 parts:

• Hit Me With The Numbers: Sales Increase, Beat Estimates
• Other Business Highlights: Cash Flow Back, Company Sells 2 Underperforming Clubs, Renegotiates All Debt
• Conference Call Highlights: CEO Discusses Turnaround in Vegas, Other Clubs
• Bottom Line: Bought More Rick’s, You Should Too

Hit Me With Some Numbers

Sales higher, same-club sales decline

(Growth from previous year’s Q2/analyst’s estimates where applicable [only 2 analysts cover Rick’s]):

• Q2/09 sales of $18.4 million (up 21.6% from $15.09 million prior year/vs. $17.46 million projected by analysts)
• Q2/09 operating income of $3.24 million (down 31.4% from $4.73 million prior year)
• Q2/09 net income of $.84 million (includes discontinued operations) (down 67.8% from $2.6 million prior year)
• Q2/09 earnings per share of $0.09 (includes discontinued operations (down 73.5% from $.34 per share prior year/vs. $.11 per share projected by analysts)
• Q2/09 operating margin of 17.7% (down from 31.3% in the prior year)
• Q2/09 net income margin of 4.57% (down from 17.3% in the prior year, flat from 4.56% in Q1/09, and down from 8.4% in Q4/08)
• Same-club sales: down 6.9%

My Take: Rick’s preannounced earnings on April 7th, and said that its top line would be $18.07 million, so it looks like after tallying the numbers, it actually came in quite a bit higher, topping analyst’s estimates.

In addition, it looks like Rick’s was quick with the trigger as well when calculating its same-club sales which were initially reported in the same release as having declined 7.6% to $14.05 million in the quarter, while actual results came in a little better at a decline of 6.9% to $13.9 million.

I believe the discrepancy has to do with the 2 clubs that Rick’s closed and excluding the discontinued operations of those clubs, so we’ll call that a wash in actuality.

Rick’s recently preannounced April sales and same-club sales, and while sales were up 44.6% over April of last year, same-club sales declined by 4.8% showing a slowdown in the rate of decline for same-club sales.

In addition, you’ll notice that the results are inclusive of results from discontinued operations.

In the quarter, Rick’s sold or was in the process of selling, 2 clubs, and had to write down the value of those clubs as a result of selling them for a loss. That is reflected in the totals for operating income and net income.

Excluding these one-time charges, Rick’s would have come in ahead of estimates for EPS to the tune of $.16 per share.

My only real problem with the overall results would be that Rick’s ramped up advertising expenses from about $600,000 last year in this same period to over $1.5 million this time around, with the bulk of that going towards their lagging Las Vegas location.

Other Business Highlights

Cash flow back in a big way, renegotiated debt, bailing on 2 clubs

• Cash flow from operations for Q2/09: $3.612 up from -$.57 million in Q1/09.
• Free cash flow for Q2/09: $3.35 million up from -$1.19 million in Q1/09
• Cash flow from operations 6 months ended Q2/09: $3.04 million
• Free cash flow 6 months ended Q2/09: $2.16 million
• Stock repurchase program update: Rick’s bought back 162,041 shares of stock so far in the last six months at an average price buyback of about $3.615 a share, and have thus lowered their overall share count.
• Forward guidance: None given, but Q3 results are already on track to exceed Q2 based on turnaround efforts at current clubs.
• Forward operating cash flow projections: $1 million cash flow per month run rate as of now projection.
• Cash/Debt on hand: $5.33 million/$29.7 million vs. ($2.98 million/$32.48 million in Q1/09) vs. ($5.6 million/$33.6 million in Q4/08): due over the next 5+ years, with $1.3 million due in 2009.
• Sold 2 underperforming clubs in the quarter
• Renegotiated all debt to later maturity
  

My Take: Rick’s really took care of its cash this quarter, and became cash flow and free cash flow positive for the 6 months ended in Q2/09 in a big way.

This money was well spent in a combination of stock buybacks at a low price in the stock near its all time lows, and paying off debt to the tune of about $4 million since the end of 2008.

Rick’s is on the hook for about $1.3 million more this year, which they will be able to handle easily out of existing cash, as well as the free cash flow that it will be generating to the tune of about $1 million per month from here on out.

I’ll discuss below in the conference call section in more detail about Rick’s put option obligations and debt for this year, as it pushed back all current debt into later this year, and into future years, saving valuable liquidity for possible acquisitions.

Finally, for my tastes, the best news was that Rick’s dumped a couple of their under performing clubs.

The company sold one of its nightclubs, Encounters in San Antonio, on March 1, 2009 for $40,000, including $5,000 in cash and a $35,000 note payable monthly for one year.  Rick’s recognized an impairment of $221,563 for this club during the quarter ended December 31, 2008 and the actual loss at date of sale was $226,175.

The company also has put its Rick’s Cabaret nightclub in Austin, Texas up for sale and currently has a contract for sale of the club for $2,000,000, including $700,000 in cash and a ten-year $1.3 million note.  The sale has not closed as of the filing of Rick’s 10-Q.   The company recognized an impairment of the net assets of the club of $823,090 as of March 31, 2009, recognized in the consolidated statement of income as loss from sale of discontinued operations, which affected operating income, as well as net income.

Add it all up, and it was a good quarter all things considered.

Now let’s take a look at the conference call highlights…

- Chris Fernandez

Disclosure: The author is long RICK. This article was taken with permission from http://peakstocks.com. Please direct further questions regarding disclosure to the original author.

I still feel strongly that this entire sector at the very best, is going to trade sideways for awhile, and at average to worse, is going to decline significantly for at least the next few weeks to months. Let’s get right into each name.

Chipotle Mexican Grill:

Insiders selling shares like there’s no tomorrow

Chipotle Mexican Grill owns and operates 860 “fast-casual” Mexican restaurants and offers a focused menu of burritos, tacos, burrito bowls (a burrito without the tortilla) and salads made from fresh, high-quality raw ingredients, prepared using classic cooking methods and served in a distinctive atmosphere.

Chipotle adheres to what they call Food With Integrity [FWI: 0.00, N/A (N/A)], whereby Chipotle seeks better food not only from using fresh ingredients, but ingredients that are sustainably grown and naturally raised with respect for animals, the land, and the farmers who produce the food.

Chipotle’s ultimate goal is to be able to serve only organically raised and grown food in all its restaurants.

Why I liked the stock in the past:

• Stock price was at historically low levels in relative and absolute terms
• Same-store sales growth still positive
• Opening restaurants at a break-neck pace, even in recession
• No debt, strong cash flows, and strong working capital for funding new openings
• New locations become break even in about 3 years or less
• Best in breed company, restaurant and management team
• Continued operational excellence in trying times

Why I recommended selling/shorting the stock at $80 for “A” shares, and $67 for “B” shares:

• Stock has doubled in a few month’s time from around $40 to $80 per share, while nothing has fundamentally changed within the company, in fact margins have declined and are expected to do so again as costs increase later this year for marketing
• Valuation is higher than any other restaurant company within this space (Trailing P/E: 33, Forward (2009) P/E: 30.6 vs. 15.9 for restaurant industry , P/S 1.91 vs .4 for restaurant industry, etc.)
• Same-store sales increase was due mainly to increases in prices
• Stock price is significantly higher (45%) than average price target of $55 per share (way higher than any other restaurant I am covering in this article), meaning expectations are going to be extremely high, and even if analyst’s raise their price targets they are unlikely to raise their stock rating, don’t look for any upgrades even on an earnings beat.
• Insiders have almost sold more shares in the last couple of weeks than they had in the entire previous time that Chipotle has been a public company!
• Don’t be greedy.

Bottom Line: The insider selling is alarming, and I think we are in for a formal correction here in Chipotle’s stock rather soon.

Earnings were spectacular, with Chipotle smoking analyst’s estimates, but this was as a result of mostly higher prices on their menu as well as higher margins due to lower advertising expenses.

In fact, traffic levels DECLINED in the quarter! Hmmm…declining traffic, but increased profits? If you ask me, this was all smoke and mirrors.

Look for comps to come in considerably lower as we move through the rest of the year, and despite Chipotle’s operational excellence and best in breed status, we are simply in a bad place and time to be an investor in the stock. It looks like insiders agree!

Performance Since Sell/Short Recommendation:

• S&P 500:+6.85%
• Nasdaq:+3.95%
• Russell 2000:+6.77%
• CMG-A: -2.39%
• CMG-B: -.80%
• Profit/Loss vs. shorting the Russell 2000: +9.16% (CMG-A), +7.57% (CMG-A)

Buffalo Wild Wings:

Typical sell on the news for high flying stock

Buffalo Wild Wings, Inc., [BWLD: 48.44, +0.29 (+0.60%)] engages in the ownership, operation, and franchising of restaurants in the United States that cater to mainly a sports bar audience serving mainly chicken wings with 14 signature sauces, while providing an atmosphere geared towards watching sports on large screen televisions while enjoying the company of others. The company provides quick casual and casual dining service, as well as serves bottled beers, wines, and liquor.

As of December 28, 2008, the company owned or franchised 560 Buffalo Wild Wings restaurants in 38 states, of which 197 were company-owned and 363 were franchised.

Why I liked the stock:

• Stock price was at historically low levels in relative and absolute terms
• Same-store sales growth hugely positive even without the influence of higher menu prices
• Still opening new locations
• No debt, strong cash flows, and strong working capital for funding new openings
• Fantastic management team, strong execution, always staying on the cutting edge
• Continued operational excellence in trying times, in fact thriving because of it

BWLD has performed amazingly in this economic environment because of the perceived value proposition that the company provides.

You get a reasonably priced meal, a festive atmosphere where you can watch the Super Bowl, March Madness and other sporting events, and a good return on your investment of both time and money.

Why I recommended selling/shorting the stock at $37.80:

• Stock has more than doubled in a few month’s time from around $15-18 to $40 per share
• Valuation is higher than many other restaurant companies within this space (Trailing P/E: 28, Forward (2009) P/E: 22.52 vs. 15.9 for restaurant industry , P/S 1.57 vs. .4 for restaurant industry, etc.)
• Cash reserves have been dwindling
• Simple concept that has no real moat, consumers might trade up as soon as things improve, or the perception of improvement spurs more refined tastes
• Chicken wing prices are on the rise
• Has been written about in Investor’s Business Daily, means the good times are near finished
• Stock price is slightly higher than average price target of $35 per share, meaning expectations are going to be extremely high, and even if analysts raise their price targets they are unlikely to raise their stock rating, don’t look for many upgrades even on an earnings beat.
• Don’t be greedy.

I will admit that BWLD has rightfully deserved its rapid ascent up the charts.

Management has continued to excel, and the downtrodden economy has seemed to actually help the company’s results.

But buyer beware…expectations are now higher.

Bottom Line: BWLD reported results in-line with expectations, which had been primed to the max as a result of continued execution by the company as well as higher guidance.

The company did announce that costs would be higher in the second quarter of this year however due to higher store openings and higher stock based compensation expenses.

Guidance was in-line with what the company traditionally has espoused: 25 percent growth in revenue, and 20 percent to 25 percent growth in net earnings.

The only blemish on the quarter was a marked slowdown in the company’s same-store sales.

Again, BWLD is a great company, and has excellent management, but the valuation and stock price are not justifiable.

That being said, this stock is one of the stronger ones in the group that I am reviewing today, so make sure your short position if you have one, is tight, and look to get out on any strength to the upside.

Performance Since Sell/Short Recommendation:

• S&P 500:+6.85%
• Nasdaq:+3.95%
• Russell 2000:+6.77%
• BWLD: -6.08%
• Profit/Loss vs. shorting the Russell 2000: +12.85%

BJ’s Restaurants:

Purveyor of famous beer and Pizookie still too pricey

BJ’s Restaurants, Inc. [BJRI: 24.09, -0.02 (-0.08%)] owns and operates casual dining restaurants in the United States.

It operates restaurants under the BJ’s Restaurant & Brewery brand name, which includes a brewery within the restaurant; BJ’s Restaurant & Brewhouse, which receives the beer it sells from its breweries or an approved third party craft brewer of proprietary recipe beers; and BJ’s Pizza & Grill, which is a smaller format, full service restaurant.

BJ’s offers an innovative and broad menu featuring award-winning, signature deep-dish pizza complemented with generously portioned salads, appetizers, sandwiches, soups, pastas, entrees and desserts including its famous Pizookie dessert.

In addition, at most locations, BJ’s features award-winning handcrafted beer to go along with highly detailed, contemporary decor and usually includes a bank of TV’s, including several high definition flat panel televisions for patrons to enjoy while they eat.

BJ’s Restaurants owns and operates 84 casual dining restaurants.

Why I liked the stock:

• Stock price was at historically low levels in relative and absolute terms
• Same-store sales growth down only moderately, in fact one of the better performing restaurant chains in hard hit California marketplace
• Still opening new locations, albeit at at much slower pace
• Very good balance sheet with minimal debt
• Insider buying at lowest levels late last year
• Great niche player in crowded sit down restaurant space

BJ’s is very similar to Buffalo Wild Wings, albeit a little more diversified in menu offerings, and a little less expansive in the “sports bar” arena.

BJ’s is a refined balance between a pseudo-sports bar, with a nice casual sit-down dinner space with unique menu offerings as well as the aforementioned handcrafted beer.

In California, BJ’s largest market, the chain was holding up surprisingly well, even where it had overbuilt restaurant capacity in the hardest hit areas where job losses and the home construction collapse has been the worst.

I was looking to play BJ’s as a forward-thinking rebound play in the California housing market/job market…oops…looks like I was a little too late.

Why I recommended selling/shorting the stock at $15.45:

• Stock has more than doubled in a few month’s time from around $7-8 to $16 per share
• Valuation is high (Trailing P/E: 40, Forward (2009) P/E: 30.92 vs. 15.9 for restaurant industry , P/S 1.05 vs. .4 for restaurant industry, etc.)
• Cash reserves have been dwindling, debt has been increasing
• Simple concept that has no real moat, consumers might trade up as soon as things improve, or the perception of improvement spurs more refined tastes
• Not a best in breed player, but a very good restaurant chain. Does not deserve the higher multiples put forth on competitors like Chipotle, Panera, or Buffalo Wild Wings
• Stock price is 20% higher than average price target of $13.20 per share, meaning expectations are going to be extremely high, and even if analyst’s raise their price targets they are unlikely to raise their stock rating, don’t look for many upgrades even on an earnings beat.
• Don’t be greedy.

When BJ’s was trading around $8 per share, I was ready to get at least a 1/4 position, but waited to long obviously.

There were some compelling things going for BJ’s including insider buying, and the fact that same-store sales were decreasing but on a much lower level than other similar chains in this space, and it was looking like people just didn’t want to give up their BJ’s Pizookies, and for good reason.

But, as with all the stocks in this sector, greed has gotten the best of this stock as well. It is certainly not worth the premium being bestowed upon it now, and might fall harder than others if it slips at all because it is one notch below other best-in-breed players in the restaurant space.

Bottom Line: BJ’s reported solid earnings that were in-line to slightly higher than analyst’s had expected.

However, just as the smoke and mirrors earnings announcement by Chipotle, BJ’s also had a little trickery involved due to lower costs across the board as well as higher menu prices.

There is a limit to how low you can cut costs and raise prices, before the truth of your operations rears its ugly head.

Zacks had an interesting look at BJ’s Restaurants post earnings.

There are some worrisome trends within the company such as lower margins, low return on invested capital (ROIC), and return on equity (ROE), as well as management’s assertion that there will be fewer store openings this year as a result of continued consumer weakness.

Out of all the restaurants that I am featuring here, BJ’s is by far the weakest of the bunch and the one that can fall the furthest.

Performance Since Sell/Short Recommendation:

• S&P 500:+6.85%
• Nasdaq:+3.95%
• Russell 2000:+6.77%
• BJRI: -.2%
• Profit/Loss vs. shorting the Russell 2000: +6.97%

Panera Bread:

Company can’t keep hiding behind smell of bread, higher menu costs

Panera Bread Company [PNRA: 78.27, -0.13 (-0.17%)] owns and franchises 1,252 bakery-cafes under the Panera Bread and Saint Louis Bread Co. names as of December 30, 2008.

With its identity rooted in handcrafted, fresh-baked, artisan bread, Panera Bread is committed to providing great tasting, quality food that people can trust, highlighted by antibiotic free chicken, whole grain bread, select organic and all-natural ingredients and a menu with zero grams added trans fat.

Panera’s bakery-cafe selection offers flavorful, wholesome offerings, which include a wide variety of year-round favorites, complemented by new items introduced seasonally with the goal of creating new standards in everyday food choices.

Guests enjoy Panera’s warm and welcoming environment featuring comfortable gathering areas, relaxing decor, and free internet access provided through a managed WiFi network.

Why I liked the stock:

• None: I never liked Panera Bread as a stock. Great company, bad stock. I will say that Panera exhibits some of the characteristics that the other companies highlighted in this article have for advocating purchasing shares at lower levels, such as: no debt, high margins, continued execution in a tough environment, etc.

Unlike the other names on this list, there was never a compelling reason to own shares of Panera Bread in my eyes over the last year or so, and it has been on my “Stocks to short” list for quite some time, although I have yet to pull the trigger because the time hasn’t been right.

I won’t sit here and say Panera is a bad company in any way, but just a very bad stock.

Why I recommended selling/shorting the stock at $60:

• Stock has been overvalued for about a year now, and even with the recent run up in stocks, and the restaurant sector in particular, Panera has lagged those gains, indicating the stock is getting a little tired.
• Valuation is high (Trailing P/E: 27, Forward (2009) P/E: 22.81 vs. 15.9 for restaurant industry , P/S 1.40 vs. .4 for restaurant industry, etc.)
• Same-store sales increases have been as a result of increased prices, and a reshuffling of the menu to highlight higher margin, higher cost items.
• Company’s profitability has been boosted by several cost-cutting measures, including raw materials hedging for ingredients, this will not last
• Tons of competition in this space, and again once customers regain their financial footing, they’ll be trading in a nice lunch sandwich for a nice dinner somewhere else
• Stock price is 14% higher than average price target of $52.50 per share, meaning expectations are going to be extremely high, and even if analyst’s raise their price targets they are unlikely to raise their stock rating, don’t look for many upgrades even on an earnings beat.
• Has been reported in Investor’s Business Daily and Barron’s, means the good times are near finished
• 31% of the shares held short, people are betting Panera will fall
• Don’t be greedy.

Panera is a great company that is a favorite to many.

It’s just not a good stock, and hasn’t been for quite some time, but merely offered a safe haven in the restaurant industry while the rest of the industry was cratering.

The fact that Panera has lagged the market’s gains as well as those of its peers should be a troubling sign to you if you are long, as well as the 31% of the shares that are held short.

Bottom Line: The same story transpired at Panera that happened at the aforementioned restaurant chains. Namely, the company beat or met estimates, but on a little trickery via higher menu prices in the face of slowing traffic.

The trickery, along with Panera’s recent stock price run up, didn’t wow investors, as the stock has sold off dramatically since that earnings announcement took place.

I still think there is way more downside to come in this baby, as it was a high flier and will be one of the first to fall if it ever revises estimates, or “misses” in any way, shape or form.

If you’ve enjoyed the run up, now’s the time to get out and enjoy your gains.

If you’re thinking about shorting, join the crowd.

Performance Since Sell/Short Recommendation:

• S&P 500:+6.85%
• Nasdaq:+3.95%
• Russell 2000:+6.77%
• PNRA: -11.8%
• Profit/Loss vs. shorting the Russell 2000: +18.57%

Still More Restaurant Correction Coming?

In summary, if you would have shorted any of these stocks, or all of them, you would be sitting on some nice gains right now, averaging over 100% annual returns!

I still think that we have more of a correction coming, and that this is just the first leg, especially when you review all the results of the companies in this article, and notice a uniquely disturbing trend among most of them: their results are being propped up by artificial means.

Same-store sales are declining in absolute terms if you exclude menu price increases.

Margins are shrinking for the most part.

Foot traffic is declining.

Costs that were easily shrunk in the first round of “cuts” now become harder to manipulate, and thus margins will contract further, and same-store sales and profits will come under fire.

I would not be long restaurant stocks right now, unless and until, there is a significant improvement in the economy that is NOT already reflected in the stock prices.

As of now, they all seem to be predicting the end of the recession, and more than that, that happy eating out days are here again for all Americans.

I believe that may be true for a few of these names, but definitely not for all of them, and not for the sector overall.

This was an overreaction to the upside just as we had an overreaction to the downside when things were looking grim.

The truth is somewhere in the middle, and we’re not there yet.

-Chris Fernandez

Disclosure: This article was taken with permission from PeakStocks.com. At the time of the post, the author was neutral on the restaurant industry stocks mentioned above.

Why:

As I recently wrote, I think that the stock has gotten way ahead of itself, and has now shown extreme weakness, good fundamentals or no fundamentals.  This was always meant to be a short term trade, but with the bull market that we are in, whether or not you think that it is a long sustainable bull market or a bear market rally, it’s here now, and fighting that is a hard thing to do.

I will point out that Netflix has thus far shown extreme weakness even in the face of this tremendous rally in the market, and has thus underperformed the market since its March lows by about 15% usually on higher volume to the downside, and rising only on lighter than normal volume.

Even last week when arch-rival Blockbuster [BBI: 0.284, -0.117 (-29.18%)] reported horrible earnings and a revenue shortfall, NFLX rose modestly on light volume.  Today was the same story.  This doesn’t even include my macro and micro reasoning for shorting NFLX.  Reasons that include:

• increased competition by rival kiosks by Coinstar’s [[CSTR]] Redbox machines and Blockbuster
• rising postal rates (which will continue to rise as the post office is losing gobs of money, even thinking about scaling back to 5 days a week delivery vs. 6)
• increasing costs for their streaming service
• the eventual burnout of the DVD
• testy upcoming negotiations with movie studios for streaming content
• an improving economy with consumers looking to “trade up” to actual movies, dinners out, etc., and dropping their NFLX accounts, and many, many more.

In addition, if you look at the volume/price action, as well as noticing that Netflix has breached some major support levels (10 day, 25 day, and 50 day SMA) on HEAVY volume, I still think we are in a favorable position longer term for shares to trade lower, and at the very least to underperform the market, but because shorting stocks can be dangerous, I wanted to ensure no worse than breakeven.

click to enlarge

There’s a cardinal sin in stock trading that separates that truly great from everyone else: never turn a winning position into a losing one.  I’ll look to re-enter the short if conditions warrant.  Right now, I’m going to hang back a bit, and see how it plays out.  Finally, if you are interested in following my real time trade advice on this or any other stock, please be sure and subscribe to my Twitter feed.

Warning: If you are unfamiliar with shorting and how it works, please read my explanation and disclaimer about shorting before taking any action. Shorting stocks can be very dangerous if you don’t know what you are doing, and goes against the usual long-only bias of my website, but I will not hesitate to short stocks when the risk/reward favors us greatly.

- Chris Fernandez

Disclosure: This article was taken from www.peakstocks.com with permission from the original author.  All further disclosure questions should be referred to the original author.

It is common knowledge the national unemployment rate is expected to reach 10% or higher in the foreseeable future.  This is well known, and priced in to most retail stocks.  When you break unemployment down by age, however, a very grim signal for teenage spending in particular emerges.  According to the U.S. Bureau of Labor Statistics, the current unemployment rate for men and women between the ages of 16 and 19 is 21.5%, over 141% higher than the current overall national unemployment rate of 8.9%.

Teen employment has many factors going against it.  Rising minimum wage, as many of us learned in Econ 101, increases the price of labor for firms, who therefore hire fewer employees.  Teens are much more likely to be working minimum wage jobs, and therefore disproportionately affected by this change. This compounds with the layoffs among unskilled laborers, factory jobs, construction, and other types of jobs which are also entering the competition for these minimum wage jobs.

“The weak economy is combining with high mandated wage levels to create the perfect storm of unemployment for less experienced and less educated groups like teenagers and adults without a high school degree,” said Kristen Lopez Eastlick, Senior Research Analyst for the Employment Policies Institute.

Higher unemployment for teens means less sales for the likes of Abercrombie & Fitch [ANF: 44.47, +0.56 (+1.28%)], American Eagle [AEO: 19.00, -0.02 (-0.11%)], Urban Outfitters [URBN: 36.04, -0.38 (-1.04%)], Aeropostale [ARO: 28.66, +0.22 (+0.77%)], and others that cater to this fashion fickle demographic.  Abercrombie has been the worst performer in the lot over the past year, falling over 64% while the Consumer Discretionary SPDR [XLY: 32.57, +0.16 (+0.49%)] fell approximately 34%.  ANF believed its stores should continue to charge teenage girls $70 for a cotton shirt during the downturn, in order to not dilute the brand’s “image.”  The company announced it would reverse this strategy after its first quarter earnings (or, in this case, loss) report last Friday.  After CEO Mike Jeffries vowed not to lower prices last year, he is now saying we can expect “meaningful reductions” in prices due to a “headwind where the consumer is reluctant to spend on premium brands.”  A little late, Mr. Jeffries?  Revenue for the retailer fell 24% in the quarter, and same-store sales plummeted an astonishing 30%.

There is large concern that mid/high-end teen apparel may face longer-term turmoil, even post-recession, as frugality and austerity become the new trend.  The cultural shift toward bargain-hunting, and the appeal of self-sacrifice is here to stay, even for those not significantly affected by the recession.  It’s what makes eating at McDonald’s no longer looked down upon, and what makes $4 lattes at Starbucks lose their luster.

Certain teen retailers will do well of course, but it will certainly be tougher.  Expect retailers like H&M, which has been touting its “Cheap Chic” theme for years, to continue to thrive.  Up and comer The Buckle [BKE: 35.58, -0.16 (-0.45%)] has managed to grow sales strongly even through this recession, with its differentiating styles, allowing it to set itself apart from the preppy onslaught of ANF, ARO and AEO.  It’s technically a regional play, but its expansion into the Northeast market could prove to be very lucrative.  Teen tastes are impossibly difficult to predict, of course, which is why I am hesitant to recommend even the most resilient teen retailers.  After the recent run-up in most of these stocks, I’d suggest abiding by the old Wall Street adage: “Sell in May, and Go Away.”  Go far, far away.

-Harry Lacheen

Disclosure: None.

AutoZone is a specialty retailer that sells automotive replacement parts and accessories. It is one of the leading retailers in this segment and has 4,092 stores in the U.S. and Puerto Rico and 148 stores in Mexico. Its products include maintenance items, accessories, new and remanufactured automotive hard parts and non-automotive products. The company also provides commercial sales to garages, dealerships, service stations, and government agencies.

AutoZone continues to out shine the pack with the highest sales-to-square foot ratio, along with higher gross, net, and operating margins than any of its peers. The company had an ROIC of 28.4% in 2008, beating the sub-industry, which had an average ROIC of 8.6% and the S&P Consumer Discretionary sector which had an average ROIC of 2.5%. Another reason why AutoZone has had success is because of its same-store sales. In its second quarter, it recorded an increase in same-store sales of 6%, up from its first quarter which had a decrease of 1.5%. AutoZone is also seeing a healthy store increase of 4% in the U.S. in 2009, along with a solid buy-back program that should support a share-net increase of nearly 16%.

Many consumers have turned to the internet to do their purchases, and AutoZone has seen increased traffic in online purchases through its website, www.autozone.com. From 2006 to 2008, AutoZone’s online sales grew at a rate of 17%, and by 2010 the website is expected to have sales of nearly $329 billion. Another helpful factor to its online use is its program called Z-net, which is its electronic catalog that can be accessed in its stores and also online. This program allows customers to find the exact parts that they need and also tells them which store has it available in stock so they can purchase the part as soon as possible. By using Z-net, AutoZone provides efficient and prompt services to its customers, a good reason for them to keep coming back to the stores.

Today’s economy has seen a steady decline in new car sales, especially gas-guzzling trucks and SUVs. Standard and Poor’s reports show that there should be a decrease in sales around 18% for 2009 to 10.8 million purchased in the year. One reason why these sales have fallen dramatically is because of the difficulty for Americans to receive loans for these vehicles. Another reason why people are not buying new vehicles is because of the insurance rates that are being currently offered and the expenses of taking out another policy. Although dealerships are offering plenty of cash back on new vehicles, Americans are continuing to hold back on purchasing new vehicles, and this trend will continue until the economy becomes healthier.

One factor that will play a role in the stock price of AutoZone is oil prices. As the summer months come, gas prices are expected to rise slightly, which will cut into the discretionary spending of Americans. If and when gas prices increase through Memorial Day, AutoZone might see a slight decrease in sales, but nothing that will amount to the company missing earnings when it reports later in May. As far as earnings go, analysts are expecting that AutoZone will have earnings per share of $2.90, while they reported earnings of $2.49 one year ago. AutoZone is expected to report earnings on May 27th before the bell.

The one big question that everyone is asking themselves is whether or not AutoZone is oversold. It has had a tremendous run in the past six months, and some may believe that this trend will not continue going into the summer. I believe that after AutoZone reports its earnings later this month, it will be the beginning of a productive summer as the company will continue to defy the decline in new automobile purchases with its increased internet sales.

- Brad Lightner

Disclosure: None.

One sub-sector poised to take advantage of an economic recovery is cruise lines. While offering a bigger-ticket product line than those mentioned above, cruise lines benefit as a cheaper alternative to other vacation destinations and maintain attractive valuation levels. Carnival Corporation [CCL: 37.60, +0.48 (+1.29%)]  has outperformed the index by 10% since March lows, demonstrating its upside potential, but has not seen the +60% appreciation of most of the casual dining and apparel retailers.

Carnival Corporation is the world’s largest owner and operator of cruise ships. It holds 50% market share in the cruise industry. Revenues are 60% North American, 34% European and 6% from Asian/South American.

Carnival reported Q1FY09 earnings of $0.25/share, beating the census by $0.06. The upside to expectations was driven by expense control and better than expected yield declines. Guidance for 2009 was reported with much more visibility, based on more stable booking trends and lower cancellations. Likewise, management’s estimates were based on fuel costs of $287/ton for Q2FY09, well above analyst consensus of ~$275/ton. CCL’s balance sheet is in great shape, with available liquidity of $4.2 billion, a debt/equity of 0.5x and no long term debt coming due until 2012 ($3 bil). CCL currently trades at a P/E of ~12x, with a historical 5-year average of ~16x.

From a longer term perspective, CCL operates in an industry with high barriers to entry and is a natural beneficiary of the baby boom retirement. Likewise, Carnival is domiciled in Panama City and therefore not subject to U.S. tax code (Section 883 exemption). With the future of U.S. corporate tax rates unknown (but more than likely headed much higher), its tax status will play a major role in earnings.

Carnival is poised to jump given a sustained economic recovery. However, it is important to approach any discretionary investment with caution. Given the very real possibility we are in the midst of a bear market rally, CCL has significant downside risks. The unexpected drop in March retail sales reminded the market the consumer continues to suffer. Likewise, the investment banks’ recent earnings releases demonstrated the credit market continues to struggle, all of the commercial banking, credit-card, and mortgage businesses posting major losses. That being said, a long-term time horizon on this investment is likely to pay generous dividends.

The rest of this free research report “Stocks For An Economic Recovery” which includes commentary on all sectors is available for download at the following link.

- Adam Brown

Disclosure: None.

Enter the (Red) Dragon

Back in November, as GM and Chrysler tottered on the bring of complete collapse – and after Japan’s Toyota Motor Co. [TM: 79.30, -0.13 (-0.16%)] had reportedly considered, and ruled out, the purchase of one, or both, of these carmakers – China’s SAIC Motor Co. Ltd. and Dongfeng Automobile Co. Ltd. – were reportedly working on a play to buy the two embattled U.S. firms, Huliq News and the 21st Century Business Herald both reported. Said one China auto-industry executive (who requested anonymity): “We really want to acquire some of our global counterparts’ core technologies now, because prices are so low.” His sentiment was echoed by Xu Liuping, chairman of Chongqing Changan Automobile Co. Ltd., Mainland China’s fourth-largest automaker, who recently said that “the longer the [global financial] crisis lasts, the bigger the chance of [a] failure or [of] a scale-down of some American and European carmakers.” For the most part, Chinese companies are still learning to do business overseas. They are not yet comfortable leading the charge in overseas markets, which is why so much of their overseas expansion efforts and shopping sprees remain largely confined to natural-resource sectors and, in the auto sector, auto-parts players. Top-tier managers of China-based companies recognize that the acquisition of overseas assets can strengthen their company’s domestic competitiveness. And with a market as big as Mainland China, that’s logical. But what might not occur to Western business leaders is that Chinese executives don’t yet view themselves has having global-branding expertise, particularly when it comes to the so-called “design elements.”

For instance, as my friend, Kishore K. Sakhrani, director of Hong Kong-based ICS Trust (Asia) Ltd., noted during a presentation to our investment group: “In the past, when a Westerner wanted a product in sea green, you often got something that was lime green. But many Chinese companies are now establishing Western design shops and closely consult [with] Western marketing experts, and the results will be obvious.” Indeed, in a sentiment that closely echoes my own philosophy, Sakhrani said that “there isn’t an industry on the planet that the Chinese won’t dominate – or at least materially affect – in the next 20 years.” My experience suggests that the biggest changes and the most dramatic expansion will occur when Chinese executives become comfortable in assuming leadership roles that push them far beyond the manufacturing stage of the value chain and into product development. And while 10 years ago I thought that process might take another two decades, the financial crisis has dramatically accelerated the timeline. And we’re seeing that now – particularly with China’s automaking industry.

China’s Shopping List

Just this March, Geely Automobile Holdings Ltd. [GELYF: 0.00, N/A (N/A)] bought Australia-based Drivetrain System International – a supplier for Ford, Chrysler and Ssangyong Motor Co. Ltd. – for $42.55 million (HK$329.79 million). More recently, the company has denied rumors that it’s ready to purchase Ford’s Volvo passenger car unit for between $1.3 billion and $2 billion, which would represent a catastrophic loss for beleaguered Ford, which paid $6.45 billion to buy Volvo in 1999. Three of the most prominent Chinese car makers – Geely, Dongfeng and Chongqing – are reportedly in the hunt for GM’s Saab and Opel units in deals that could be worth as much as $200 million. Clearly, the Fiat SpA [FIATY: 0.00, N/A (N/A)] transaction complicates things a bit, but there’s still plenty of room for surprises. Said another Chinese executive, who also chose to speak anonymously: “We view [buying parts-makers, for now] as a viable alternative to acquiring good brands that have suffered from terrible management. We don’t know enough – yet. We have to build our competency in the meantime.” And you can bet that they’ll do just that – build a world-class “competency” that just adds more muscle to the growing China business juggernaut. My contacts tell me that transmission systems, hybrid technologies and power-gearing systems are at the top of the list in the immediate future. Actual manufacturing plants and assembly lines are running a distant second until Beijing gets comfortable with the suitability of overseas manufacturing as part of China’s business value chain. Many Westerners who recall the Japanese acquisition spree of the 1980s will not react favorably to this. But it’s not a one-way Street. As troubled as Detroit is, it’s clear that their representatives have been working quietly in China for months now, which is entirely logical. Chinese companies remain some of the healthiest on the planet in financial terms, and most continue to demonstrate strong domestic growth despite the softness of the overall global economy. It also doesn’t hurt that the Chinese government is backing many of these initiatives. China has a world record $2 trillion in foreign reserves, which gives it a lot of financial credibility with any deals that country’s companies may wish to pursue. In an interview with the South China Morning Post, Geely Automobile Holdings Executive Director Lawrence Ang said that “we’re constantly approached by bankers about the possibility of mergers and acquisitions [with international auto makers].”

A Long List of Deals

The auto sector has already been bustling with deals. Here are just a few that have transpired in recent years:

• 2004 – SAIC Motor Co. spends $500 million to buy an initial 48.92% stake in South Korea’s Ssangyong Motor Co., and then boosts its stake to a 51.33%.
• 2005 – SAIC purchases the design rights to the super-looking MG Rover 25 and 75 models for $99.97 million (HK$775.33 million) from kaput British carmaker MG Rover.
• 2005 – Competitor Nanjing Automobile Group buys the rest of MG Rover’s assets for $87 million.
• 2007 – Working together, SAIC, Chery Automobile Co. Ltd., and First Automotive Group Corp. (FAW) band together in preliminary buy out talks with Chrysler. No deal.
• 2009 – January – SAIC learns the hard way not to buy brands when Ssangyong goes belly up and files for bankruptcy.
• 2009 – February – Beijing says it will slow down global acquisitions and concentrate on competencies that boost local strength.
• 2009 – March – Geely purchases Australian parts-maker Drivetrain System International for $42.55 million (HK$329.79 million).
• 2009 – April – Chongqing Changan Automobile Co., Geely Automobile Holdings, Dongfeng and Guangzhou Automobile Industry Group Co., Ltd. (GAIG) announce their desire to purchase global assets from international brands in trouble. Geely’s chairman also notes at the much publicized Auto Shanghai 2009 auto show that he sees Geely being a major global brand by 2015.

At the end of the day, many Americans will fear the acceleration in China’s pace of global acquisitions. But there are two key reasons that I’m glad to see this happening. First, history shows that the markets continually weed out the financially weak in a form of financial Darwinism that is as inevitable as the dawn of a new day. And with the financial crisis serving as an extinction-level event, the imminent arrival of Chinese companies on the global scene is an opportunity. It’s also part of the solution however reluctantly people might want to view that. And second, while there will be short-term pain and probably more than a few dented egos in Detroit, I will be glad to see the era of greedy, incompetent and overcompensated executives who summarily fleeced the last of America’s once proud automotive industrial complex for all its worth is coming to an end. It will be nice to see the industry return to doing what it does best – making great cars and great parts even if it ultimately takes on a form that we cannot imagine today. If that happens, we may look back and see that China was, in fact, Detroit’s lifeline. [Editor's Note: Money Morning Investment Director Keith Fitz-Gerald has just completed his investing tour of China. His conclusion: Every investor has to have a China strategy. As this essay shows, the global financial crisis has re-written the rules for global investing. It’s also generating a whole host of new profit plays, having created what Fitz-Gerald likes to call "The Golden Age of Wealth Creation." Investors who ignore this "New Reality" will get left behind. But those with the courage and conviction to press ahead could well find this to be the greatest profit opportunity of their lifetime. China’s just one such opportunity. To find out about the others, click here. ]

- Marc Courtenay (Written by Keith Fitz-Gerald, Investment Director, Money Morning/The Money Map Repo)

Disclosure: This article was taken with permission from Check the Markets. All disclosure questions should be referred to the original author.

Both Visa and MasterCard [MA: 248.65, -0.69 (-0.28%)] have performed relatively well this year (each up over 10% YTD), as investors have rewarded their no-credit exposure business models. Rather than profiting from both the credit card loan portfolios and transaction fees from consumers using their transaction networks like Discover Financial Services [DFS: 15.24, -0.06 (-0.39%)] or American Express [AXP: 41.01, +0.09 (+0.22%)], Visa and MasterCard mainly profit from consumers using their networks and hold no credit exposure.

Throughout the onset and expansion of this economic downturn, Visa has continued to invest in new products and IT initiatives. This has sustained revenue growth for the period and will drive it moving forward. For 2009, many analysts are estimating that Visa will increase its revenues in the range of 7.5-8%. In comparison, most estimates for MasterCard are flat to negative revenue growth rate.

One reason for the large difference in revenue growth between Visa and MasterCard is their relative currency exposure. Compared to MasterCard, Visa has limited exposure to the Euro because Visa and Visa Europe operate as separately owned entities. MasterCard, on the other hand, has significant exposure to the Euro, which may affect its bottom line this year.

Visa also has a larger market share of debit cards than MasterCard. In 2008, Visa had roughly 75% of the U.S. debit card volume. Debit card exposure is a direct play on non-discretionary items like food products, gas, and household products. Typically consumers rein in spending on their credit cards when they feel a pinch in their wallets. Bigger ticket items fueled the credit card transaction growth over the past 5 years, but spending has fallen dramatically during this recession.

When making a bet on the economic recovery, it is important to note that the consumer will guide the economy once confidence is restored in the system. Higher confidence results in increased spending. Increased spending will result in higher card volumes, which will lead to higher profits in the form of fees for Visa.

It is extremely important to watch a few economic indicators and reports when timing your investment in Visa. Consumer spending will have a direct affect on the fees Visa generates. To track consumer spending, follow the U.S. Retail Sales figures as well as the U.S. Personal Consumption Expenditures. International air-line traffic is also an important statistic to watch, as Visa receives high margins for cross-border transactions.

Visa has proven itself to be a solid company that is able to increase its revenues through fees on both debit and credit card transaction growth. Even with a pro-longed recovery, Visa will benefit from its debit card exposure and consumers switching to electronic forms of payments.

The rest of this free research report “Stocks For An Economic Recovery” which includes commentary on all sectors is available for download at the following link.

- Steve Murray

Disclosure: None.