MoneyMasters submits:
Sometimes, I look at a stock’s valuations and think, “This is too good to be true.”
At $19.50 a share, GameStop (GME) is trading at 8.6 times fiscal 2010 earnings and around 7.5 times fiscal 2011 expected earnings. According to Ford Equity Research, GME’s normal P/E ratio is around 10.8, which is less than half of its own five year average normal P/E.
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The consensus estimate projects 12% average annual earnings growth over the next five years. Considering it is trading at 7.5 times forward earnings, GME has a price-to-earnings-to-growth ((PEG)) ratio of just 0.6.
Its balance sheet is also healthy. At the end of Q3, it had just $447 million in debt, which is just 8.8% of total assets.
GameStop is the world’s largest videogame retail chain with 6,457 stores in 17 countries. It sells gaming hardware including Xbox 360, PlayStation 3, and Nintendo’s (NTDOY.PK) Wii and DS; videogames; and related accessories and peripherals. It also allows consumers to trade in their old videogames and systems for newer products.
There are some significant risk considerations including deterioration in discretionary spending. This was partly to blame when management cut fiscal 2009 earnings per share guidance to $2.23-2.27, down from prior guidance calling for $2.45-2.63. GME also faces intensifying competition from the likes of Wal-Mart (WMT), Best Buy (BBY), and Amazon.com (AMZN). In fact, last month GME announced the sudden departure of their Chief Financial Officer, who took a job at Wal-Mart. You can bet she wasn’t hired as a greeter.
Despite these risks, low valuations make for an extremely attractive risk/reward tradeoff. This tradeoff must be attractive if speculators were willing to believe rumors that GME was the subject of a takeover bid.
Is this too good to be true? Maybe we’ll find out tomorrow. GME announces its fiscal Q4 2010 financial results tomorrow morning (see transcript
here upon availability).
Disclosure: No positions
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Saj Karsan submits:
Nu Horizons (NUHC) is a distributor of hi-tech electronic components. The stock dropped 25% in one day last week when a key supplier, Xilinx (XLNX), cut Nu Horizons as a distributor in order to streamline Xilinx’s distribution network. Xilinx’s products accounted for over 30% of Nu Horizons’ sales over the last three quarters, so this will have a material impact on Nu Horizons’ operations and will hurt Nu Horizons’ revenue if Xilinx’s products cannot be quickly replaced. However, the current market price of Nu Horizons is such that this seemingly negative announcement may actually be good news for the stock!
Before writing off the preceding statement as preposterous, consider the following: Nu Horizons trades for just over $60 million, while its net current asset value is over $100 million. Most of its current assets (approximately $225 million worth) are in the form of inventory and receivables, and so this negative announcement may actually be a catalyst for cash generation.
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Zacks.com submits:
Mylan Inc. (MYL) has entered into an agreement with Takeda Pharmaceutical for two type II diabetes drugs – Actoplus Met and Actos, which recorded 2009 sales of $459 million and $3.4 billion, respectively. 
Following the agreement, Mylan will be able to launch the generic versions of Actoplus Met on Dec 14, 2012 and Actos on Aug 17, 2012 or earlier under certain circumstances. The company expects to be eligible for 180 days of marketing exclusivity for both the drugs on approval.
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Gary Tanashian submits:
So, under the guise of bullishness, with respect to the risk/reward ratio, we look at a current NFTRH holding, Japan Smaller Capitalization Fund (JOF). After an initial false start on this one, I bought the retest of the weekly breakout as shown on the chart.
If the bullish scenario is to unfold, it might be unrealistic to expect another test of the weekly downtrend line. However, lateral support is shown and if that holds, we lock in a target of 9.5+.
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I learned about JOF from some research I received from my broker, Fidelity. They had a pretty neat segment where several of their fund managers gave their ideas for 2010. I read what a global fund manager had to say about Japanese small caps and decided to stalk JOF technically. It is a nice low risk bull play in a high risk bull world.
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Derek Kent submits:
As the old adage goes, you pay a dear price for a cheery consensus. Well call me cheap, but that is not the price I care to pay. Of course, that naturally implies that one has to recognize situations before there is enough information available for it to become consensus thought — easier said than done. But once in a while you discover something that is about to emerge from relative obscurity. And while all of the information is not yet available, you know enough to make a decision.
I am referring to a company called Occam Networks (OCNW). They make what is called a Multi Service Access Platform (MSAP). These are the platforms that provide broadband, VoIP and Video to end subscribers over fibre or copper. MSAPs have been largely embraced by smaller US telcos in more rural areas and Occam has toiled in relative obscurity for the last decade to take a roughly 20-25% share of that market, which is roughly $400-$450 million in size. However, that market is about to get a whole lot bigger, quite possibly multiples of its current size, and it will sustain at a very high level. Occam is the purest play to this Tier-3 broadband market about to experience very high secular growth.
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Dan Pritch submits:
Over the years, there has been much debate in the investment community over an equal-weighted index vs. weighting by market cap or share price. There are pros and cons to each method of weighting. For instance, while the S&P500 is comprised of 500 stocks representing a broad swath of sectors in the US, the top 10 holdings represent 19% of the total index weighting (2% of stocks represent 19% weighting for an almost 10X “over-representation”).
Case in point: ExxonMobil (XOM) comprises over 3% of the weighting alone due to its market capitalization. Therefore, if ExxonMobil experiences an undue calamity (Valdez II?), the S&P500 index may be unfairly maligned by a single holding that isn’t representative of the over 3% of the US Stock Market as a whole. The Dow Jones Industrial Average actually weights its components by share price, which is even more archaic.
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Dobromir Stoyanov submits:
With the market getting overextended for several months now, and my unwillingness to chase many dividends stocks, it is time to reflect on whether I am doing the right thing or not. Some stocks such as Emerson Electric (EMR) and Realty Income (O) which I was going to add to either in March or in April are trading at valuations that seem richer than what I am willing to pay for at the time.
After writing dividend growth investor blog for over two years now, I have been able to observe investor reaction to my posts. My main source of ideas for improvement has always been with comments which offer some sort of criticism, be it constructive or not. It is understandable however that one cannot please everyone, and as a result I have pretty much kept at my ideas that dividend growth investing is a superior investing strategy for investors at all stages in their life. One of the largest criticisms that I often receive is from investors with a short-term vision in mind. Back in early 2008, the problem for owning US stocks was the weakening of the US dollar and the rise in oil prices. Somehow all commodity rich developing countries which were selling natural resources at inflated prices were being touted as the next big thing. Of course once the bubble collapsed in 2008, many countries such as Russia were hit hard and the lack of diversification in their economies was much evident.
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Brian Harper submits:
Recent reports that Lehman Brothers (LEHMQ.PK) is close to exiting bankruptcy have implications for a lot of companies, not least of which is OfficeMax (OMX).
Here are the gritty details. Officemax retains asset-backed debt on its balance sheet of $1.46 bilion, half of which was guaranteed by Lehman prior to the investment bank’s bankrputcy. This debt showed up after Officemax sold its Boise Cascade timber operations to private equity in 2005. The debt is entirely non-recourse, and restricted to the timber note assets which also stayed on OMX’s balance sheet.
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Vincent Fernando submits:
Read the news about Bangkok protests these days and you’d think all hell was breaking loose.
Reports tell of protesters literally pouring their own donated blood onto the streets in a vivid display of anger. Some protesters say they’d give their life for a return of the former ousted prime minister Thaksin Shinawatra.
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Peter Mycroft Psaras submits:
Growth Investing is very difficult to practice as one piece of bad news can send your stock crashing down in price. This happens mainly because expectations are always so high and perfection is expected. Thus as a growth investor you are forced to have just a limited number of holdings in your portfolio. This is done as one needs to be a hawk at all times and watch what is happening in one’s portfolio for a potential negative events. It’s a matter of time and not a lack of opportunity that forces one to have such a non-diversified portfolio. There are many wonderful growth stocks out there, but there is just not enough time to watch over more than let’s say 20 holdings at a time.
A perfect example of a negative event was when Blockbuster’s (BBI) management issued a warning to its investors Tuesday night of a potential bankruptcy happening a lot sooner than the investing community has expected. Here is the link for the Blockbuster news that caused the stock to crash 25% in after hours trading.
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George Spritzer submits:
Montgomery Street Income Securities (MTS) is a closed-end bond fund that 
appears to a be a reasonable value now for conservative income-oriented investors. It invests in a diversified bond portfolio across the spectrum- about 50% in U.S. Governments and Agencies, about 40% in corporates and the remainder in mortgage bonds.
In the next rebalancing (March 21), MTS is being added to the CEFX closed-end fund index that is used by the PCEF exchange-traded fund.
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Gary Gordon submits:
Many prognosticators describe the dire jobless recovery, then follows it up with bearish outlooks on the S&P 500. Similarly, you’ll read how increases in business confidence are a precursor to hiring, ergo, the cyclical bull for stocks has further to stampede.
When did stock market analysts become so one-dimensional? At one point did jobs or even the broader economy receive an award for outstanding achievement in the field of market directionality. (Yes, there’s a Simpsons reference in there for animation enthusiasts.)
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Shlomi Cohen submits:
Small investment bank Roth Capital has invited no less than 12 Israeli firms to its Growth Stock Conference this week on the west coast of the US, as most of the companies have plans to hold secondary offerings or to be bought this year, if the market’s current positive conditions continue.
One of the Israeli firms at the conference is Nova Measuring Instruments Ltd. (Nasdaq:NVMI; TASE:NVMI), which I hold in my portfolio tracked by "Globes". Nova already completed a follow-on offering, after its share price jumped 15-fold since February of 2009. About a month ago, another small investment bank, Needham, successfully raised a net $17 million for the firm, and Roth Capital was a co-manager of the offering. The amount was double the company’s entire market value at the bottom of the market crisis last year.
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Tom Konrad (AltEnergyStocks) submits:
World oil supplies are stagnant, and in the not-so-distant future will begin to decline. If economic growth continues, demand for oil will increase as well. This will lead to a long term rise in oil prices, which will only stop if 1) high oil prices or other factors stop or reverse economic growth, or 2) we find some way to use much less oil for the same amount of economic activity. Each of these scenarios will have winners and losers. In other words, investment opportunities.
Substitution
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James Shaw submits:
In our February 11, 2010 featured article, we gave our view on the near term trend for Chinese solar stocks:
The near future is not bright for the sector as a whole and we are not placing any of Chinese solar stocks in our long term buy-and-hold list.
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Investing, Long Term Investment, stock market | admin March 17, 2010 | 
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