Shooting a Hole in the Outlook for Gun Stocks

When the Democrats swept into Washington in November, gun fanciers scrambled for 15-round pistols and tactical rifles equipped with grenade launchers, flash suppressors and bayonets -- in fear the new administration would reinstate a ban on the sale of such weapons. Gun makers Smith & Wesson Holding (SWHC: 5.15, -0.27, -4.98%) and Sturm, Ruger (RGR: 11.52, -0.04, -0.34%) have shown great sales gains the past couple of quarters. Their stocks have shot up as much as fourfold. But now the gun industry's leading indicator -- the Federal Bureau of Investigation's monthly count of the instant background checks it runs for gun dealers -- is settling back toward pre-election levels. While November background checks were 42% above the year-earlier level, last month's were up just 15%.

Gun shops corroborate the slowdown. "It was really big around the first of the year," said a Georgia gun dealer (who, like all we found, wanted to remain unnamed). "Now, it's starting to taper back off. It's not near like it was. Everyone is starting to relax."

If the recent sales burst turns out to be just a one-time pop, it won't be the first time...or even the second. Firearm sales spurted in 1993, before the federal assault-weapons ban. Yet within a few years, gun sales returned to the pre-ban trendline. Another rush for guns after 9/11 lasted only about three months.

MOST OF THE TIME, guns are a pretty flat business, with moribund sales and mediocre margins. You might not know it, however, from the recent trajectories of Smith & Wesson or Sturm, Ruger. Shares of the Southport, Conn.-based Ruger arced from 6.50 to near 14, before settling back to a recent 12.75. Smith & Wesson has shot from a pre-election 1.60 to as high as 7.50. Thursday, the Springfield, Mass., company reported a 20% jump in the latest quarter's revenue, and Smith & Wesson shares ended the week at 6. That's about 20-times Wall Street's estimate for current year earnings, more than double the outfit's typical multiple. Both companies are likely to disappoint investors who expect a continuation of post-election business levels. A return to normal for these companies could easily cut their earnings -- and stocks -- by half.

Firearms are a fragmented, competitive industry in which Smith & Wesson and Ruger square off against privately owned rivals like Remington, Sig Sauer and Colt, as well as European names like Heckler & Koch, Beretta and Glock.

Both of the publicly held U.S. companies have endured decades of highs and lows. Smith & Wesson was the lead supplier of handguns to America's police departments until the mid-1980s, when Glock got the drop on it with a line of light and powerful semi-automatics. In recent years, Smith & Wesson has been regaining share among law-enforcement agencies with its own new "military and police" models, and has further extended its brand into "long guns" -- that is, hunting rifles, tactical rifles and shotguns. Revenue grew about 50% in the fiscal year ended April 2007, then another 25% in the April '08 year to reach $296 million. But earnings in the April '08 year amounted to just $9 million, or 22 cents. That was a net margin of only 3.1%. Meanwhile, at Ruger, revenue fell 7%, to $157 million for the year ended December 2007, while profits on operations were all of $2.4 million, or 10 cents a share.

Before Obama's election, 2008 was shaping up to be a pretty lousy year for gun sales. Inventories piled up at gun dealers. The funky economy hurt demand for hunting rifles -- discretionary purchases, these days. Then voters elected a Democratic majority in Congress and a president who was partial to gun control. Bad news for the gun industry, right?

That's not how it's played out. After months of desultory activity at the FBI's National Instant Criminal Background Check System, or NICS, inquiries jumped 42% year-over-year in November, to 1.5 million transactions (which are dealer inquiries, and not necessarily firearm sales). December sales continued to roar, as purchasers grabbed for the kind of semi-automatics whose sale had been forbidden from 1994 to 2004 under the federal assault-weapons ban. These included pistols whose magazines held more than 10 rounds and rifles with two or more military-style features, such as a telescoping stock, pistol grip or flash suppressor. The post-election rush for AR-15 assault rifles was followed in 2009's first months by a run on semi-automatic ammunition. For most of this year, ammo was on back order. Says a Houston gun dealer: "Sales were blowing and going!"

The National Rifle Association reports a 30% rise in membership since November. About 65,000 folks showed up at its conference in Phoenix last month.

Sure enough, the gun-store activity indicated by the FBI's background checks for November and December presaged good quarterly results from Ruger and Smith & Wesson. Ruger's sales in its December 2008 quarter spiked 72% year-over-year to $58 million, and the company exhausted its finished-goods inventory. March period sales came to $64 million, and earnings quadrupled to about $6 million, or 30 cents a share.

At Smith & Wesson, sales for the January 2009 quarter jumped 26%, to $84 million, producing profits of $2.4 million, or five cents a share. The company will detail its results for the April 2009 fiscal year on Monday, but advised investors last week that April quarter sales had risen 20%, to $100 million.

Back in November, investors didn't seem to notice what the NICS background checks were prophesying; gun stocks didn't start moving until late February. By April, Ruger's stock-market value had reached $275 million, while Smith & Wesson's topped $350 million. The companies themselves seemed ambushed by the sudden demand. Ruger's last-reported backlog was more than $136 million, while Smith & Wesson's was $200 million. Those extraordinary levels reinforce the impression made by the NICS numbers charted above, which seem to be tracing the downside of a demand bubble that is reminiscent of the NICS numbers after 9/11.

Neither Smith & Wesson nor Ruger answered our inquiries. But the Houston-area gun dealer corroborated what the FBI numbers suggest: Sales started cooling in May. "It's just not as big as it was a month and a half ago," he says. And that shoots a big hole in the outlook for the stocks.

The Bottom Line
Gun shops and FBI numbers indicate that a post-election rush is subsiding for Smith & Wesson and Sturm, Ruger. Their earnings and stocks could fall back to last year's levels.

5 Stocks Analysts Have Overlooked

Stock opinions are suddenly scarcer on Wall Street. With Bear Stearns and Lehman Brothers laid to rest and remaining investment banks withered, fewer analysts are left to forecast company earnings and issue recommendations on whether to buy shares. The Wall Street Journal reports an epidemic of dropped coverage since September. Since most analyst coverage is favorable ― the number of "buy" calls consistently dwarfs the number of "sells" ― corporate managers worry that dropped coverage could lessen investors' enthusiasm for their shares.

For investors shopping for stocks, the news is mostly good. Screening software can help identify plenty of young companies that are growing nicely through the current recession, but which are largely being ignored by analysts -- at least, for now. Such companies might be among the first to benefit when investment banks replenish their research staffs and go hunting for new stocks to recommend.

The five companies listed below are covered by fewer than five analysts even though they have increased their sales and earnings per share by at least 10% apiece over the past year, and their shares are up nicely year to date.

Global Cash Access Holdings (GCA: 7.33, +0.44, +6.38%) earns generous fees helping casino gamblers get their hands on more cash after they've emptied their wallets. How generous are those fees? While casino partners like MGM Mirage (MGM: 6.69, +0.85, +14.55%) and Las Vegas Sands (LVS: 7.74, +0.37, +5.02%) are watching profits evaporate this year amid a travel downturn, Global Cash is expected to increase its sales by 8% and its profits by 11%. For now, the company makes most of its money operating its patented "3-in-1" cash machines. These prod customers who are denied bank withdrawals the opportunity to try their debit cards and then go for credit card advances, all in one seamless transaction (which, presumably, doesn't feel the least bit like a Central Park mugging). Global Cash also earns smaller amounts by helping casinos determine which gamblers to lend house money to, and by telling casinos which rivals their customers have withdrawn cash from in the past. Eventually, the company hopes to replace cash machines and teller windows with a cashless system whereby gamblers simply enroll their bank accounts and credit cards. Its shares trade at just nine times earnings.

Retail has taken a beating over the past year and clothing stores are among the hardest hit. One relatively small chain that operates out of strip malls in low-income neighborhoods is prospering, though. Citi Trends (CTRN: 23.45, +0.48, +2.08%) has just over 350 stores in 22 states and explains in its financial filings that it competes against fellow discounters like TJX (TJX: 30.23, -0.05, -0.16%) and Ross Stores (ROST: 37.93, -0.11, -0.28%) by "appealing to African-American consumers and offering urban apparel products." According to Oppenheimer & Company, its customers demonstrate a "high propensity to purchase apparel." The chain enjoys one of the fastest payback periods in the industry ― new stores earn back their upfront investment in about a year. Citi Trends' growth potential isn't lost on investors. Shares go for 18 times forward earnings. But the company has made a mockery of quarterly earnings estimates of late, topping them by double-digit percentages. It's also debt-free with $3 a share in cash.

America's Car-Mart (CRMT: 20.86, +1.18, +5.99%) sounds like just the sort of company for investors to avoid. However, it's benefitting from the dismal car sales seen at large dealerships over the past year. The company specializes in the low end of the used-car trade in states like Arkansas, Oklahoma and Kentucky. In the company's most recent quarter, sales at longstanding dealerships improved nearly 3% and company profits rose 8%. Management used strong cash flow to pay down debt, which stands at a modest 24% of equity. In addition, stores are requiring higher down payments on car loans vs. a year ago, and late payments and defaults are down. Shares fetch 12 times earnings.

Have a look if you like at the details on these and the other two screen survivors below.

Screen Survivors

Company	Ticker	Industry	Share Price	Price Change YTD (%)	Sales Growth Past Year (%)	Forward P/E
Citi Trends	CTRN	Clothing stores	$23.62	60	13	17.5
AZZ	AZZ	Industrial equipment	32.24	28	29	11.3
America's Car-Mart	CRMT	Used car dealerships	17.66	28	16	12.0
Global Cash Access Holdings	GCA	Credit services	6.71	202	20	9.0
Milti-Fineline Electronix	MFLX	Citcuit board manufacturing	19.94	71	25	13.0

 

Does Carol Bartz Have What Yahoo Needs?

CAROL BARTZ COULD BE YAHOO!'S last, best hope.

After her two predecessors failed in recent years to counter Google 's conquest of Yahoo! 's once-dominant position in Internet search, or to win over investors, new CEO Bartz brings strong software-engineering and management skills to the job. At her previous post atop Autodesk , she remade the business, sharply boosting margins, earnings and revenues and increasing the share price nearly tenfold.

Bartz, 60, is a sharp operator with a sharp tongue. She's famous for dropping the f-word during conference calls with analysts and investors. (She brought down the house at a recent conference with her opening: "Do you want me to say something naughty now?") More important, however, her first major initiatives at Yahoo! suggest where she's headed. She's recruited Timothy Morse, a proven cost-cutter from chip designer Altera, as her chief financial officer. That followed Bartz's slashing Yahoo!'s workforce by about 675 people, or 5%, in April. Coupled with the 1,450 jobs eliminated just before her arrival in January, the total reductions could save $400 million or more a year, by one estimate.

Although she declined to speak one-on-one with Barron's and isn't expected to detail her strategy until her first analyst session in the fall, Bartz is likely to try to improve Yahoo!'s operating efficiency and profitability.

Says John Chambers, chief executive of Cisco Systems, who's known Bartz for about 15 years (she's a member of his board): "She is remarkably direct. She listens and brings an ability to outline a vision and instills confidence and trust and a sense of the future." Chambers recommended her for the spot. "She has a tough hand to play out [at Yahoo!], and if I were to bet on a person to play that hand it would be Carol. She always gets results," he says.

If she does play her hand right, Yahoo! (YHOO: 15.45, +0.77, +5.24%) will be a more tightly focused, profitable and faster-growing business that can either go it alone or sell itself, most likely to previous suitor Microsoft (MSFT: 23.47, +0.13, +0.55%), which has lagged behind both Google (GOOG: 409.29, +3.61, +0.88%) and Yahoo! in its Internet search business.

For investors willing to put down an early bet, Yahoo! shares are cheap. They have the lowest multiple among their large-capitalization peers. The company's enterprise value (market value plus debt) is just 5.7 times its 2009 Ebitda (earnings before interest, taxes, depreciation and amortization), compared with Google at 10.9 times and Amazon (AMZN) at 20.6 times. Citicorp analyst Mark Mahaney, who upgraded his rating of Yahoo! to Buy last week, thinks the shares are worth 21 each, versus 15.61 now, a 35% premium.

As Chambers suggests, Bartz has been dealt a tough hand. Yahoo! has steadily lost market share to Google, whose model of so-called paid search -- or sponsored links to Websites that appear when users type words in the search engine -- has outstripped Yahoo!'s, which relies more on banner ads and video. Repeated attempts to change this operating model haven't helped much.

In February of last year, Microsoft offered 31 a share and later reportedly raised the bid to 33. Yahoo! co-founder and CEO Jerry Yang and his board rejected the bids. That, coupled with the stock market's swoon and Google's continued strength, took the stock down below 10 in November 2008. At about the same time, sharp-elbowed shareholder-activist Carl Icahn started buying shares and began to pressure the company to do something about the stock price.

Yahoo! reported 2008 earnings of $424.3 million, or 29 cents a share, down from $660 million, or 47 cents a share, a year earlier. Last year's revenue hit $7.2 billion, up from $6.97 billion. Analysts expect Yahoo! to earn $498 million in 2009, or 35 cents a share on revenues of about $4.73 billion. Amid all this, Internet advertising has gone very soft as key markets -- such as automotive, financial and real estate -- got hammered. Yahoo! posted a $303.4 million loss in the December quarter of 2008 on revenues of $1.8 billion.

The Street will learn more about Yahoo!'s financial state this Thursday, when Bartz oversees her first annual meeting.

Stocks End Mixed After Fed Holds Steady

The Lowdown

A less-than-stellar economic prognosis from the Federal Reserve left Wall Street nonplussed Tuesday.

Stocks gave up early gains and finished mixed Wednesday after the Federal Reserve held the federal funds rate steady and cited slow but palpable improvements in the economy. The Dow Jones Industrial Average dropped 23 points to 8300. The Nasdaq picked up 27 at 1792, and the S&P 500 climbed 6 to 901.

The Fed surprised few traders when it left the benchmark interest rate at 0.00% to 0.25%. The move was widely expected, as recent economic data have signaled neither a recovery nor heavy price pressures. Still, the Fed was optimistic about the future.

"Information received since the Federal Open Market Committee met in April suggests that the pace of economic contraction is slowing," the Fed wrote in its statement. "Conditions in financial markets have generally improved in recent months."

The Fed said the housing recovery remains unstable and that rising unemployment is still a concern. The Fed added that it expects inflation "will remain subdued for some time."

The latest housing data supported the Fed's statement. The annual rate of new home sales dipped slightly in May to 342,000, according to a federal report released Wednesday. Economists had been expecting an increase.

In other economic news, demand looks a bit stronger after new data from the Commerce Department showed durable goods orders rose in May. Economists had projected a decline.

Tech stocks were the market's bright spot, as traders cheered fourth-quarter results from Oracle (ORCL: 21.26, +1.39, +6.99%). The software firm topped analysts' estimates and reported record margins.

In finance, Citigroup (C: 3.04, +0.03, +0.99%) said it would lift base pay for some of its employees by as much as 50%, CNBC reported. The change is designed not to increase overall compensation but to shift the model away from bonuses, which critics say promote risky behavior.

On the Nymex, oil prices were lower after the Energy Department said crude inventories dipped slightly last week. By 5:05 p.m., crude traded at $68.45 a barrel.

World markets were broadly higher. In Asia, Japan's Nikkei picked up 0.4%, and Hong Kong's Hang Seng rose 2.0%. In Europe, the U.K.'s FTSE picked up 1.2%.

Corporate News

• Oracle (ORCL: 21.26, +1.39, +6.99%) posted a 7% drop in fourth-quarter profit, but the firm still topped analysts' estimates on support contract sales. The firm earned $1.89 billion, or 38 cents a share, up from $2.04 billion, or 39 cents a share, in the year-ago period. Excluding one-time charges, the firm earn 46 cents a share, two cents above Wall Street estimates.
• JPMorgan Chase (JPM: 33.46, -0.11, -0.32%) was named the strongest bank in a ranking of financial firms published in The Banker magazine. JPMorgan had ranked fourth strongest last year. Meanwhile, Royal Bank of Scotland (RBS: 11.69, -0.03, -0.25%) posted the largest loss ($59.3 billion) of any bank last year.
• IBM (IBM: 104.15, -0.29, -0.27%) tapped Elias Mendoza to be its new head of mergers and acquisitions, the firm said. Mendoza, who had overseen M&A for IBM in Asia, takes over for David Johnson, who had been wooed away by Dell (DELL: 13.28, +0.30, +2.31%).

The Economy

• The Federal Open Market Committee of the Federal Reserve left  the federal funds rate unchanged at 0.00% to 0.25%. The Fed said the pace of the contraction had slowed and that financial markets had showed signs of improvement since the last policy statement. The Fed also said core inflation appeared likely to remain in check for the foreseeable future. STATEMENT
• Durable goods orders, a measure of demand, rose 1.8% in May, up from a revised April increase of 1.8%, the Commerce Department said. Economists had expected a May decline of 0.9%. REPORT
• The annual rate of new home sales fell to 342,000 in May, down from a revised annual rate of 344,000 in April, the Commerce Department said. For May, economists had expected an increase to an annual rate of 360,000 sales. REPORT
• Crude inventories fell by 3.8 million barrels last week, but they remained above the upper limit of the average range for this point in the year, the Energy Department said

US HOT STOCKS: Jabil, Oracle, Sonic Active In Late Trading

U.S. stocks closed mixed Tuesday. The Dow Jones Industrial Average slipped 16 points to 8323 and the Nasdaq Composite slid 1.3 points to 1765. However, the Standard & Poor's 500 rose 2 points to 895. Among the companies whose shares are trading in the after-hours session are Jabil Circuit Inc. (JBL), Oracle Corp. (ORCL) and Sonic Corp. (SONC).

Jabil Circuit swung to a fiscal third-quarter loss - its fourth in the past six quarters - on lower sales and restructuring charges. But Chief Executive Timothy Main said "end-markets began to stabilize during the quarter." Shares fell 3% to $6.90 in after-hours trading.

Oracle's fiscal fourth-quarter profit declined 7.2% as the stronger dollar continued to weigh on results, but margins improved and revenue, while falling, came in above analysts' estimates. Shares were up as much as 2.8% in recent after-hours trading, but are now trading up 1.9% at $20.24.

Sonic's fiscal third-quarter earnings fell 2.7% as the economic downturn continued to hurt sales, but the restaurant company picked up the pace with its key effort to refranchise its majority-owned stores. In after-hours trading, Sonic shares were up 4.2% at $9.17 as results topped Wall Street estimates.

AeroVironment Inc.'s (AVAV) fiscal fourth-quarter profit fell 9%, as the aircraft manufacturer reported higher revenue offset by lower margins. Shares were up 5.6% to $28.90 in after-hours trading, as the results came in above analyst estimates and AeroVironment - which makes small, pilotless drones for the military - issued a fiscal-year revenue target in line with Wall Street expectations.

Tech Target Inc. (TTGT) said it anticipates its first-quarter revenue will hit the high end of its previous view, which now puts its forecast inline with analysts' latest estimates. The company had previously forecast revenue in the range of $17 million to $18 million. Shares jumped 26% to $5.

   Regular Session Movers:   

Acura Pharmaceuticals Inc. (ACUR, $5.89, -$1.68, -22.19%) said its new drug application for Acurox immediate-release pain tablets is unlikely to be approved by the U.S. Food and Drug Administration's June 30 deadline, raising the possibility Acurox could ultimately be rejected.

Halozyme Therapeutics Inc. (HALO, $6.48, -$1.05, -13.94%) priced 6.2 million shares of common stock at $6.50 a share, a 14% discount from Monday's close. The biopharmaceutical company raised a total of about $40 million after selling one million more shares than anticipated. Halozyme had about 83 million shares outstanding prior to the offering.

Boeing Co. (BA, $43.87, -$3.03, -6.46%) delayed the first flight - and initial delivery - of its new 787 Dreamliner, saying an area within the side-of-body section of the aircraft needs to be reinforced. The Chicago company indicated it will take second-quarter charges related to the delay and said it will be several weeks before the plane maker releases a new flight and delivery schedule. The plane is already two years behind schedule on five schedule delays. Shares of Precision Castparts Corp. (PCP, $75.51, -$1.74, -2.25%) and Spirit AeroSystems Holding Corp. (SPR, $14.13, -$0.88, -5.86%), two companies that make parts for Boeing, dropped as well.

Memory-chip maker Rambus Inc. (RMBS, $14.85, -$2.98, -16.71%) slightly cut its guidance on second-quarter revenue and said it will offer $150 million of convertible senior notes due 2014.

Actuant Corp. (ATU, $12.53, -$1.98, -13.65%) announced plans to offer 9 million shares of Class A stock as the industrial company tries to reduce its debt. The offering will dilute shares outstanding by 16%.

Cytec Industries Inc. (CYT, $16.48, -$1.62, -8.95%) slashed its guidance on 2009 earnings, and continued weak demand led the specialty chemicals and materials company to also predict a "modest" second-quarter loss.

Alvarion Ltd. (ALVR, $4.44, +$0.49, +12.41%) will supply the technology for Aria SpA's nationwide mobile WiMAX broadband wireless network in Italy. Under the deal, Aria, the only telecommunications operator in Italy with a national WiMAX license, will build a network at the 3.5-gigahertz frequency to provide broadband services to all 21 Italian regions using Alvarion equipment.

Shares of Pacific Capital Bancorp (PCBC, $2.65, -$0.66, -19.94%) hit a 17-year intraday low Tuesday amid concerns about the California-based regional bank's ability to raise capital now that it has deferred the interest payments on its trust preferred securities and suspended the dividends on its common and preferred stock.

Republic Airways Holdings Inc. (RJET, $6.00, +$1.90, +46.34%) agreed to acquire fellow regional carrier Midwest Airlines from TPG Capital for $31 million, just 17 months after the private-equity giant paid $452 million. Since then, the airline industry has suffered from record-high fuel prices and now the ongoing slump in ticket demand.

Laboratory Corp. of America Holdings (LH, $65.45, -$0.26, -0.40%) agreed to acquire Monogram Biosciences Inc. (MGRM, $4.52, +$2.84, +169.05%), a maker of products to help guide and improve the treatment of serious diseases, for about $106.7 million, continuing LabCorp's acquisition spree. Under the agreement, expected to close in the third quarter, LabCorp will pay $4.55 for each Monogram share, more than double Monday's closing price of $1.68.

The top executive at Agrium Inc. (AGU, $40.74, +$1.85, +4.76%) said Tuesday he expected the board of takeover target CF Industries Holdings Inc. (CF, $72.88, +$3.56, +5.14%) to engage in talks after CF shareholders tendered 62% of their holdings in support of Agrium's $3.89 billion offer. The four-month battle among three North American fertilizer makers showed no signs of weakening, however, as CF maintained its shareholders do not back the price of an offer from Agrium it claims may be blocked by regulators.

Boston Scientific Corp. (BSX, $9.51, +$0.27, +2.92%) said its highly anticipated study, called Madit-CRT, met its main goal by showing devices for heart failure called CRT defibrillators were associated with significant reduction in death or heart-failure interventions among patients with milder symptoms, compared with cheaper defibrillators. This could shift more business toward pricier devices while helping a defibrillator market slowed by product troubles in recent years. Rival St. Jude Medical Inc. (STJ, $40.55, +$1.01, +2.55%), which analysts say may benefit more, also climbed on the news.

Used-car retailer America's Car-Mart Inc.'s (CRMT, $19.68, +$2.02, +11.44%) fiscal fourth-quarter profit fell 15% due to a slight decrease in vehicles sold and to falling margins. But shares rose as the earnings topped analysts' expectations.

Credit Suisse cut its stock-investment rating on Bridgepoint Education Inc. (BPI, $14.84, -$1.11, -6.96%) to neutral from outperform, saying although its thesis on the for-profit educator's business prospects and risks hasn't changed, the shares have hit the firm's price target of $15.

CapitalSource Inc. (CSE, $4.30, +$0.27, +6.70%) is on an improving road to recovery, UBS said as it upgraded its investment rating on the shares to buy from neutral. The firm said the specialized commercial finance company has several options to improve balance sheet strength, via further extensions to its debt maturities or equity raising with an IPO of its health-care real estate or a dilutive secondary offering. The firm added a debt extension or pay-down via equity raising should remove bankruptcy risk priced into the stock.

Shares of CardioNet Inc. (BEAT, $15.01, -$0.97, -6.07%) set an all-time low for a second consecutive day - a slump analysts pinned on a lack of near-term catalysts for the maker of outpatient heart-monitoring devices. Analysts said investors are likely moving to the sidelines on uncertainty over the rate that Medicare will reimburse the CardioNet for its lead product, a mobile cardiovascular telemetry system, in 2010.

Commercial Metals Co. (CMC, $14.81, +$0.60, +4.22%) swung to a fiscal third-quarter loss as weak demand and falling prices contributed to the second-straight quarterly loss for the steel manufacturer and recycler. The loss wasn't as bad as analysts were expecting and the company said the fourth quarter looks like it will be similar.

UBS upgraded its investment rating on the shares of ConAgra Foods Inc. (CAG, $19.78, +$0.84, +4.44%) to buy from neutral, noting that heavy input inflation is moderating, as are private-label share gains. The firm said improved product positioning via improvements and greater promotional activity are helping sales.

BMO Capital Markets raised its stock-investment ratings on DCT Industrial Trust (DCT, $3.99, +$0.17, +4.45%) and Duke Realty (DRE, $8.31, +$0.28, +3.49%) to outperform, citing improving balance-sheet prospects for both real estate investment trusts.

Equity LifeStyle Properties Inc. (ELS, $33.74, -$2.83, -7.74%) - operator of manufactured-home communities and properties for vacationers driving recreational vehicles - said it plans to offer four million shares of common stock, which caused shares to slide on fears of dilution. The company currently has about 25.3 million shares outstanding.

Matrixx Initiatives Inc. (MTXX, $4.83, -$0.42, -8.00%) received an informal inquiry from the Securities and Exchange Commission on Friday, according to a document filed Tuesday with the SEC. The SEC is requesting certain documents and information relating to the previously reported warning letter issued to the company by the U.S. Food and Drug Administration. As reported, the FDA said last week that consumers need to stop using certain Zicam cold and allergy products because they can cause permanent loss of smell. Matrixx is the maker of Zicam.

Moody's Investors Service lowered its credit ratings on Mercer International Inc. (MERC, $0.87, -$0.03, -3.33%) to highly speculative territory, and concurrently placed the ratings on watch for additional downgrades, citing upcoming debt obligations and deteriorating results. The Canadian-based pulp and paper manufacturing company faces near-term maturity of two revolvers, due in February and May, but only had $28 million of cash as of March 31, according to Moody's. The credit agency also expects the company to experience negative free cash flow over the next four quarters despite working capital and input cost improvements.

Shipping and logistics company Navios Maritime Holdings Inc. (NM, $4.13, +$0.49, +13.46%) said it agreed to acquire four capesize vessels for about $324.5 million. It also amended the terms of its existing agreements for three new-build capesize vessels. Funding for part of the purchase of all seven vessels will come from an issuance of $165.22 million in mandatory convertible preferred stock, which Chief Executive Angeliki Frangou said will help the company conserve cash while protecting shareholders from "undue dilution."

Office Depot Inc. (ODP, $3.89, +$0.10, +2.64%) said it has received a $350 million investment from private equity firm BC Partners, giving the struggling retailer a cash infusion to help it weather the economic downturn.

Citigroup upgraded its investment rating on the shares of Portugal telephone company Portugal Telecom SGPS S/A (PT, $9.38, +$0.65, +7.45%) to buy from hold to reflect an attractive 9% dividend yield, support from domestic operations, growth in Brazil and easier refinancing.

Smith & Wesson Holding Corp.'s (SWHC, $5.42, -$0.33, -5.74%) fiscal fourth-quarter profit more than doubled, as demand for military and police pistols drove growth in revenue and margins. But shares fell after the company issued a conservative near-term revenue forecast. That provided fodder to investor worries that the 2009 firearms boom may have peaked, Merriman Curhan Ford analyst Eric Wold said.

Shares of Starbucks Corp. (SBUX, $14.16, +$0.45, +3.28%) got an extra shot from Baird, which upgraded its investment rating on the stock to outperform and raised its price target to $17. The firm said its "field research" showed an improvement in category traffic as marketing campaigns go into high gear to fight off new competitors. Coupled with cost savings at the coffee retailer, the risk/reward in shares is improving, Baird added.

Steelcase Inc. (SCS, $5.33, +$0.27, +5.34%) posted break-even results for its fiscal first quarter on an $18 million gain on the value of company-owned life insurance policies, as sales continued to slump at the office-furniture maker. The company also said it will trim a further 200 white-collar jobs and consolidate smaller manufacturing facilities to save about $30 million a year.

Shares of Stratasys Inc. (SSYS, $11.52, -$1.48, -11.38%) - which makes additive fabrication machines for prototyping and manufacturing plastic parts - fell after Piper Jaffray said its research showed that the second quarter remains challenging, as some of the U.S. and European companies that sell its products are seeing weakness. The firm cut its investment rating on the stock to neutral from buy.

Standard & Poor's will replace Tyco Electronics Ltd. (TEL, $18.59, -$0.50, -2.62%) with MetroPCS Communications Inc. (PCS, $14.33, +$0.71, +5.21%) in the S&P 500 index, as the electronic-components maker is in the process of redomesticating to Switzerland. The move abroad makes the company ineligible for continued inclusion in the S&P 500 index, S&P said.

Airlines generally traded lower as the Air Transport Association reported passenger revenue on U.S. airlines declined 26% in May compared with a year ago, the seventh consecutive monthly decline. Revenue dropped due to the recession and impact of the swine flue outbreak. UAL Corp. (UAUA, $3.20, -$0.37, -10.36%), US Airways Group Inc. (LCC, $2.17, -$0.30, -12.15%) and AMR Corp. (AMR, $3.96, -$0.14, -3.41%) all traded lower.

VeriFone Holdings Inc.'s (PAY, $7.21, +$0.31, +4.49%) risks appear to be well understood, Wedbush Morgan said. The firm raised its investment rating on the shares to hold, saying it believes investors "are now more aware of the unique risks from VeriFone's financial reporting, SEC investigation and debt load," and have priced in threats. The firm added VeriFone's large inventory write-downs in the last few periods "have reduced the cost of inventory to an extent that could help boost gross margins for a few quarters." Wedbush also anticipates more non-recurring charges.

5 Stocks Analysts Have Overlooked

Stock opinions are suddenly scarcer on Wall Street. With Bear Stearns and Lehman Brothers laid to rest and remaining investment banks withered, fewer analysts are left to forecast company earnings and issue recommendations on whether to buy shares. The Wall Street Journal reports an epidemic of dropped coverage since September. Since most analyst coverage is favorable ― the number of "buy" calls consistently dwarfs the number of "sells" ― corporate managers worry that dropped coverage could lessen investors' enthusiasm for their shares.

For investors shopping for stocks, the news is mostly good. Screening software can help identify plenty of young companies that are growing nicely through the current recession, but which are largely being ignored by analysts -- at least, for now. Such companies might be among the first to benefit when investment banks replenish their research staffs and go hunting for new stocks to recommend.

The five companies listed below are covered by fewer than five analysts even though they have increased their sales and earnings per share by at least 10% apiece over the past year, and their shares are up nicely year to date.

Global Cash Access Holdings (GCA: 6.89, +0.18, +2.68%) earns generous fees helping casino gamblers get their hands on more cash after they've emptied their wallets. How generous are those fees? While casino partners like MGM Mirage (MGM: 5.84, -0.08, -1.35%) and Las Vegas Sands (LVS: 7.37, +0.04, +0.54%) are watching profits evaporate this year amid a travel downturn, Global Cash is expected to increase its sales by 8% and its profits by 11%. For now, the company makes most of its money operating its patented "3-in-1" cash machines. These prod customers who are denied bank withdrawals the opportunity to try their debit cards and then go for credit card advances, all in one seamless transaction (which, presumably, doesn't feel the least bit like a Central Park mugging). Global Cash also earns smaller amounts by helping casinos determine which gamblers to lend house money to, and by telling casinos which rivals their customers have withdrawn cash from in the past. Eventually, the company hopes to replace cash machines and teller windows with a cashless system whereby gamblers simply enroll their bank accounts and credit cards. Its shares trade at just nine times earnings.

Retail has taken a beating over the past year and clothing stores are among the hardest hit. One relatively small chain that operates out of strip malls in low-income neighborhoods is prospering, though. Citi Trends (CTRN: 22.97, -0.65, -2.75%) has just over 350 stores in 22 states and explains in its financial filings that it competes against fellow discounters like TJX (TJX: 30.28, -0.50, -1.62%) and Ross Stores (ROST: 38.04, -0.97, -2.48%) by "appealing to African-American consumers and offering urban apparel products." According to Oppenheimer & Company, its customers demonstrate a "high propensity to purchase apparel." The chain enjoys one of the fastest payback periods in the industry ― new stores earn back their upfront investment in about a year. Citi Trends' growth potential isn't lost on investors. Shares go for 18 times forward earnings. But the company has made a mockery of quarterly earnings estimates of late, topping them by double-digit percentages. It's also debt-free with $3 a share in cash.

America's Car-Mart (CRMT: 19.68, +2.02, +11.43%) sounds like just the sort of company for investors to avoid. However, it's benefitting from the dismal car sales seen at large dealerships over the past year. The company specializes in the low end of the used-car trade in states like Arkansas, Oklahoma and Kentucky. In the company's most recent quarter, sales at longstanding dealerships improved nearly 3% and company profits rose 8%. Management used strong cash flow to pay down debt, which stands at a modest 24% of equity. In addition, stores are requiring higher down payments on car loans vs. a year ago, and late payments and defaults are down. Shares fetch 12 times earnings.

Gold Stock Investing Made Simple

Finding the Top 10 Gold Stocks Gold Stock Analyst (GSA) is a newsletter which makes it simple for investors to own a portfolio of the best gold stocks. Published twice a month since 1994 by a former Professor of Economics and Finance (Bentley College in Waltham, MA), GSA focuses on the 60 gold and 15 silver miners that have ounces that meet the US Security and Exchange Commission's strict reporting standard for Proven and Probable Reserves. From those meeting this standard, GSA crunches numbers, dissects SEC filings, visits mines, talks and visits with management. All this searching for the Top 10 Stocks... those that are undervalued and have the potential to double in the next 18 to 24 months, assuming no change in gold price. In today's era of $10 internet trades, the transaction cost to hold 10 stocks is trivial... even if gold is only 10% of your total portfolio. Ten stocks is the right number for this volatile sector. It's a small enough so a big gain in one will have major impact on the total portfolio... one stock doubling boosts the portfolio 10%. Yet ten is large enough that even if one fell 50%, it would cut the portfolio's total value by just 5%. The discipline of 10 stocks means an addition must be seen having better upside than the current members of the Top 10. Since we seek undervalued stocks that can double at the current gold price, the "better upside" is a high hurdle and gives the discipline needed to achieve superior results. Top 10 Results GSA's track record proves the approach works. No gold mutual fund or advisory can match the Top 10 Stocks' performance! For the 9 years of this Millennium, 2000 through 2008, here are the Top 10's results compared to other investment benchmarks: New Paradigm The current financial crisis and its solution, soaring government budget deficits and central banks running printing presses overtime, has shifted investment fundamentals back to those of the 1970s and 1980s era. In the years ahead, we believe the general stock market, as evidenced by the S&P500, will again be outperformed by Gold. We expect Gold stocks to be one of very few market sectors to outperform. And if history repeats, GSA's Top 10 stocks should do even better. Professional Grade Gold Stock Analyst is Professional Grade research, as evidenced by 25% of subscribers being employed in investment related businesses. From Fleckenstein to Tocqueville to US Global to Fidelity, the pros see GSA as a must-have tool. And frankly, writing for this audience can make our work a little too complicated for some individual investors. But all investors really should care about is results, and that's where GSA's Top 10 delivers! In every issue, the Top 10 Stocks portfolio, it's year-to-date performance, and any changes made (we make about six trades a year) are found on Page 2. We give very clear alerts and all you have to do is follow our changes. Here's a sample from June 2006... not the current Top 10: And, if you're like the professionals and want more information on the Top 10, it's all there in the first-of-month Issues, the mid-month Updates, and the Company Reports which we fully update twice a year. For your convenience, the last three years of Issues and Updates are posted in the Subscribers' Area so you can review our past articles, reports, and comments. Getting Started To get started, we suggest putting half of your gold investment, in equal amounts, in each of the Top 10. Invest another 25% in around 30 days and add the balance as opportunities arise. After invested, simply follow our guidance; Buy/sell as we suggest in the monthly Issue or mid-month Update. If you want more information it's all there in the Top 10 Updates and Comments every issue. If you already own other gold stocks that report Reserve ounces to the SEC's standards, you'll get our opinion and on-going coverage of them too. GSA follows the entire industry as that's the only way to know if a stock is undervalued, and we can like any stock at a certain price. If a big fund changes its managers and dumps a position, we might like the stock at the new lower price and since we already know it, we can immediately react to make it Top 10 if justified. Subscribing to Gold Stock Analyst We invite you to explore our website. Check out the free Sample Issue, GSA User Guide and Recent Issue Covers. Read About the Editor and Common Investor Mistakes. If you like what you see and read, then click the Order Form button, complete the order form, and you'll get immediate access to current and past Issues and Updates.

Xstrata Dealmaker Davis Moves on Anglo to Compete With BHP, Rio

June 22 (Bloomberg) -- Xstrata Plc, the Swiss metals company that sold shares in London seven years ago, is seeking a merger with Anglo American Plc to create a mining group that would rival BHP Billiton Ltd., the world's largest.

Xstrata said yesterday it proposed to London-based Anglo a "merger of equals" that would lead to "substantial" cost savings. The combined company would have sales of more than $54 billion, based on 2008 figures, and produce commodities including copper, coal, iron ore and zinc.

Combining with Anglo would also be the largest deal yet for Xstrata Chief Executive Officer Mick Davis, who has spent more than $27 billion in six years to add copper production in Chile, nickel mines in Canada, coal in Australia and platinum in South Africa.

"Xstrata cannot go six months without doing a deal," said John Meyer, head of natural resources at investment bank Fairfax I.S. Plc in London. "The credit crunch put the brakes on them a bit, but here they are back again. This would be Mick Davis's biggest deal by far."

Talks are "at a very preliminary stage, and there is no certainty that any transaction will be forthcoming," Anglo said in a statement yesterday. Marc Ocskay, a spokesman for Glencore International AG, Xstrata's largest shareholder, declined to comment.

Anglo closed at 1,623 pence on the London Stock Exchange on June 19, giving it a market value of 21.4 billion pounds ($35.2 billion). Xstrata, which is based in Zug, closed at 681 pence, valuing it at 20.1 billion pounds. While Anglo has gained 5 percent this year, the worst-performing stock in the 14-member FTSE 350 Mining Index, Xstrata has advanced 88 percent.

Growth Potential

Founded by Ernest Oppenheimer in 1917 in Johannesburg, Anglo grew to become South Africa's biggest company during white rule as sanctions against apartheid limited its ability to expand outside the country. Anglo moved its headquarters to London in 1999.

"Anglo has high-quality, long-life assets, significant growth potential and a substantial opportunity to increase profit," said Anwar Wagner, a fund manager in Cape Town at Old Mutual Investment Group, which holds Anglo shares. "We think Anglo is very attractive, and it's cheap."

Anglo mines copper, coal and zinc in countries including Brazil, Venezuela and Australia. It controls Anglo Platinum Ltd., the world's biggest producer of the metal, and owns a 45 percent stake in De Beers, the largest diamond company.

The combined sales of Xstrata and Anglo would almost match those of London-based Rio Tinto Group, the world's third-largest mining company. Melbourne-based BHP had sales of $63.7 billion in the year to Dec. 31.

Cost Savings

The merger may save as much as $700 million a year by combining copper operations in Chile and coal mines in South Africa, Paul Cliff, an analyst at Nomura Securities Co. Ltd. in London, wrote in a May report.

"A more aggressive approach to production discipline at Anglo Platinum could effectively rebalance the platinum market and help drive higher prices." he wrote. Iron ore and platinum are "top of Xstrata's wish list," he added.

Davis, 51, a South African, worked as an accountant before joining Eskom Holdings Ltd., Africa's largest power supplier, in 1986 as executive director. In 1994, Davis was hired as finance director of South African miner Gencor Ltd., which later became Billiton Plc. He joined Xstrata after Billiton agreed to be acquired by Australia's BHP Ltd. to create BHP Billiton.

Xstrata sold shares to investors in London in 2002. It paid A$5.1 billion ($4.1 billion) for Australian copper and zinc producer M.I.M. Holdings Ltd. in 2003. Three years later, it bought Canadian nickel producer Falconbridge Ltd. for $18.1 billion.

Coal Acquisitions

Other deals include the acquisition of a third of the Cerrejon coal mine in Colombia for $1.71 billion in 2006 and the Tintaya copper mine in Peru for $750 billion in 2006. Its last acquisition was in March, when it paid $2 billion for Colombian coal assets from Glencore.

Still, not every transaction proposed by Davis has worked out. Xstrata broke off talks to be bought by Brazil's Vale SA, the world's biggest iron-ore exporter, in April last year after the companies couldn't agree on terms.

Xstrata abandoned a hostile bid for platinum producer Lonmin Plc in October after metal prices plunged. The company raised 4.1 billion pounds in a 2-for-1 rights offer in March to help it reduce net debt to $12.6 billion.

Dividend Suspended

Cynthia Carroll, who took over as Anglo's CEO in 2007, has continued with the reorganization started in 2005 by her predecessor Tony Trahar, selling stakes in units including AngloGold Ashanti Ltd., to focus on metals used by growing economies such as China. She suspended Anglo's dividend in February for the first time since World War II and announced plans to cut 19,000 jobs after metal prices fell.

"Cynthia Carroll is having a difficult time so she may consider a deal that would shake things up a bit," Fairfax's Meyer said. "For Xstrata, they get access to Anglo's premier assets."

Goldman Sachs Group Inc. and UBS AG are advising Anglo, while Deutsche Bank AG and JPMorgan Cazenove are advising Xstrata.

5 Stocks Worth Searching For

What stocks are people searching for? Here's one that might surprise you.

Is the sour economy causing more people to cook at home? If so, maybe that's what's fueling the demand for cookware from Newell Rubbermaid (NYSE: NWL). The company reports that sales for its Calphalon line of pots and pans, kitchen tools, and small electrics has risen so much that it's suspending employee discounts on the products. According to an analyst's report, Calphalon sales have exceeded Newell's expectations over the first six months and now account for some 3% of the company's sales.

Although it's perhaps best known for its plastic storage bins and containers, Newell Rubbermaid also owns such popular brands as Rolodex, Sharpie pens, Graco car seats, and, of course, Calphalon. Thus, it competes against the likes of Fortune Brands (NYSE: FO) and Jarden (NYSE: JAH) in the household-goods market.

Shares trade for about half of where they were a year ago, or less than 10 times next year's earnings. Net sales increased 7.8% last quarter, and with full-year earnings guidance of $1.40 to $1.60 per share and analysts forecasting a $1.49-per-share consensus, Newell has a chance to beat when it reports earnings at the end of the month.

What's hot, what's not
Newell Rubbermaid is just one of several stocks investors have been prowling the Internet for recently. Below are a few more hot stocks we've found by watching Google's search trends, which we then pair up with the ratings from the Motley Fool CAPS community. Over the first 20 months since we began tracking the collective intelligence, the data shows that newly minted five-star stocks offer the best opportunities for investors, while the lowest-rated companies fared the worst. A five-star rating is the highest a company can get in CAPS.

By adding in some performance measures for the past year, we can get a handle on how they're expected to do in the future. Here are a few topping the search engine.

Stock	CAPS Rating	Return on Capital, Past 12 Months	Long-Term Growth Estimate
Newell Rubbermaid	*****	10.4%	8.8%
Petroleo Brasileiro (NYSE: PBR)	*****	17.9%	11.7%
PMI Group (NYSE: PMI)	*	(22.2%)	10.0%
ReneSola (NYSE: SOL)	*****	10.0%	28.0%
Transocean (NYSE: RIG)	*****	13.9%	26.7%

Sources: Google Finance, Capital IQ (a division of Standard & Poor's).

Quick shots
Whether it's irrationality over the nation's financial situation or fears that high oil prices are ruining the economy, the markets have beaten down a whole host of stocks. CAPS member SHavill thinks superior companies such as Transocean will have to wait for a while until it can rebound. "With oil stocks being hammered so badly the oil related companies have been pulled back beyond all reason. RIG has gone to 2003 levels and I can only think that when rational investing returns this stock will shine."

That seems to be the consensus view of the bulls on CAPS regarding Motley Fool Income Investor recommendation Petrobras, whose involvement with the Tupi oil-field discoveries off the coast of Brazil causes tingles of anticipation. The finds hold somewhere between 50 billion and 80 billion barrels of oil between them -- valued by some analysts in the trillions of dollars -- and could make Brazil, not to mention the companies tapping the oil, very rich.

That's why the separation of the markets from reality has CAPS member sumbawa viewing Petrobras' potential greedily.

Oil's been on some wild swings these last weeks. Probably a lot of speculative money coming out of the market. The fundamentals are still in place though and many oil company stocks have fallen too far. [Petrobras] has some of the best prospects in the business.

Seek and ye shall find
It takes more than a brief glimpse and a few All-Stars searching amongst the ruins of the market to make buy or sell decisions. So start your own research on these stocks on Motley Fool CAPS, where your opinion can sway others. While you're there, you can read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made -- all from a stock's CAPS page.

This Week's 5 Smartest Stock Moves

If you're feeling good about the market, you're not alone. Take my hand as we go over some of this week's more uplifting headlines.

1. An Apple a day keeps the Palm away
It has been a big week for Apple (Nasdaq: AAPL), which once again unleashed a new fleet of updated iPhones to the market. It also updated its operating system for all iPhone owners, giving the popular smartphone new features like the ability to copy and paste as well as a built-in voice recorder app.

However, Apple's slickest move may have come earlier in the week, when it issued a warning on its site about iTunes syncing through third-party smartphones.

"Apple does not provide support for, or test for compatibility with, non-Apple digital media players and, because software changes over time, newer versions of Apple's iTunes software may no longer provide syncing functionality with non-Apple digital media players," the statement says.

It's an obvious statement, and the timing is no coincidence. Earlier this month, Palm (Nasdaq: PALM) launched its Pre, promoting its ability to sync with iTunes. Apple's move helps steal some of the Pre's thunder, even if the Palm developers are unlikely to let any iTunes tweak go unmatched.

2. Big screens, big countries, big potential
IMAX (Nasdaq: IMAX) knows how to live large, with its gigantic movie screens and cranked-up cinematic experiences. It's also thinking big in announcing deals involving the world's two most populous nations.

One deal doesn't seem like much at first. The company will replace an existing IMAX screen in Mumbai with a digital projection system. It's bigger than you think. As India's first digital IMAX, the exhibitor will be able to take advantage of the digital delivery of features. This results in materially lower film distribution costs and greater flexibility to switch out content.

The second deal is in China, where a studio will put out as many as three theatrical releases in IMAX, along with the more conventional multiplex version. It's the first time that a studio is making this investment for a non-English film. If it's successful, one can expect even more Chinese exhibitors lining up for IMAX installations -- ideally, digital upgrades.  

3. Cool beans for Mr. Coffee
Jarden's (NYSE: JAH) Mr. Coffee is running with the cool crowd. It is teaming up with Green Mountain Coffee Roasters (Nasdaq: GMCR) to develop single-cup coffeemakers that are fueled by Green Mountain's Keurig K-Cup portion packs.

This is the second deal this month for Green Mountain. It struck a licensing and distribution deal with Cuisinart two weeks ago. Green Mountain may have sold nearly 1.2 million brewers during the first half of fiscal 2009, but it doesn't mark them up. The company makes its profit from the K-Cup refills. In other words, the company is letting other kitchen appliance giants do its grunt work, giving it greater opportunities to sell more K-Cups for flavored coffee, tea, and hot cocoa.

4. Cooler beans for Mr. Softy
Can I have a slice of crow pie? I poked fun at Microsoft's (Nasdaq: MSFT) launch of its Bing.com search engine last month. I liked what the world's largest software company did with the site, but was wondering why Microsoft goes through search platform brands like Spinal Tap goes through exploding drummers.

Well, it appears as if the fifth time is the charm. Bing is a hit. Instead of fading after the initial popularity, traffic to Bing continues to grow, according to marketing research specialist comScore. Its stateside penetration of users has gone from 13.7% to 16.7% since its launch in late May.

This wouldn't be happening if the ad campaign wasn't working or if users weren't recommending Bing to their friends and families. As long as Microsoft's next step isn't to rebrand this as Bing Vista or Bing-a-Zune, the company finally has the ticket it always wanted to matter in paid search.

5. P.S.: I love you
Aeropostale (NYSE: ARO) is zigging while the other mall rats are zagging. The teen apparel retailer is rolling out a new concept called P.S. from Aeropostale, hoping to outfit kids between the ages of 7 and 12 with trendy and comfortable clothing.

I have no idea if tweeners -- or the parents of tweeners -- will take to the new concept. What I do know is that many specialty retailers are closing stores and eliminating mall concepts so quickly that it would make Paul Blart's head spin. This is going to lead to some serious voids in suburbia, with hungry landlords making some serious concessions to woo potential tenants. Aeropostale's timing couldn't be any better.