THE ALEXANDER PARIS REPORT
161 N. Clark St., Suite 2950, Chicago, IL 60621.
Monthly, 1 year, $195.

Walgreens: Expanding
margins and market share

       Derek Leckow: "Walgreen Company (NYSE WAG) is the nation's largest retail drugstore operator, based on annual sales. Walgreen's drugstores are engaged in the retail sale of prescription and nonprescription drugs and carry additional product lines such as general merchandise, cosmetics, toiletries, and convenience food and beverages. Customer prescription purchases can be made at the drugstores as well as through the mail, telephone and the Internet.
       Following a meeting with Rick Hans, Walgreens' Director of Finance, we remain confident the company can maintain strong revenues and margin trends. The outlook for market share gains remains positive as WAG invests to maintain its customer service and convenience superiority.
       Walgreens recently reported a strong finish to its 2004 fiscal year, with Q4/04 earnings of $0.32 per share, a penny better than both our estimate and the Street consensus of $0.31. 2004 EPS grew 17% to $1.31, from $1.12 in 2003. 2004 revenue growth accelerated to 15.4%, with same-store sales growth up an impressive 10.9% compared to the 2003 growth rates of 13.3% and 9% respectively.
       2004 operating margins rebounded 27 basis points to exceed 5.7% for the first time since fiscal 2000. With a higher level of profitable generic drug penetration expected during 2006, the near term operating margin outlook is strong.
       For fiscal 2005, we are increasing our EPS forecast to $1.50 from $1.49, which represents a 15% increase from $1.31 in 2004. We are also introducing a 2006 estimate of $1.71 per share. Despite the recent improvement in revenue and operating margin trends, WAG continues to trade at a discount to its historical P/E multiple. We reiterate on Outperform rating with a 12-month price target of $50, based on a target multiple of 33x our fiscal 2005 estimate of $1.50."

(Back to Index)

THE CHARTIST
P.O. Box 758, Seal Beach, CA 90740.
1 year, 17 issues, $175. www.TheChartist.com.

16 stocks for long term investors or traders

        Dan Sullivan recently recommended the following 16 stocks for both long term investors and traders: Apple Computer (AAPL), Autodesk (ADSK), American Eagle Outfitters (AEOS), Cree Inc. (CREE), Infospace (INSP), Kmart Holding Corp. (KMRT), Noble Corp. (NE), Network Appliance (NTAP), Nucor Corp. (NUE), Phelps Dodge (PD), Transocean (RIG), Symantec (SYMC), Taser Int'l (TASR), Valero Energy (VLO), US Steel (X) and XTO Energy (XTO).
       Below is the recommended stock of Autodesk, Inc: Autodesk, Inc. (ADSK) Another big winner in the third quarter 2004 was Autodesk, which reported tripled third quarter earnings, thanks to a tax benefit. The company also announced a two-for-one stock split for shareholders of record on Dec. 20.
       Specifically, Autodesk's quarterly earnings rose to $74.1 million, or $0.60 per share from $20.6 million, or $0.20 per share the prior year. The results also included a tax benefit of $29 million and a $3 million restructuring charge. Removing the tax benefit, the company earned $47.7 million, or $0.38 per share.
       Autodesk is a design software and digital content company that creates products that are used across a variety of industries as well as in the home. The company has two divisions: Design Solutions and Discreet. The Design Solutions division encompasses its manufacturing solutions, building solutions, infrastructure solutions and platform technology segments. Its principal products include AutoCAD and AutoCAD LT products, as well as software. The division also offers a range of services that include consulting support and training."

(Back to Index)

HENDERSHOT INVESTMENTS
11321 Trenton CT, Bristow, VA 20136.
1 year, 4 issues, $45.

Thirsty long-term investors
should take a sip of PepsiCo

       Ingrid Hendershot: "PepsiCo (PEP $51.27) is one of the world's largest food and beverage companies selling more than 500 products to consumers in nearly 200 countries. Its principal businesses include Frito-Lay Snacks, Pepsi-Cola beverages, Gatorade sports drinks, Tropicana juices and Quaker foods. Frito-Lay North American accounts for approximately 33% of total sales and 38% of operating profits; PepsiCo Beverages North America represents 29% of sales and 33% of operating profits; PepsiCo International accounts for 33% of sales and 22% of operating profits; and Quaker Foods makes up 5% of sales and 7% of profits.

Strong Brands

       In the late 1800's Caleb Bradham, a North Carolina pharmacist, created Pepsi-Cola. Several decades later in the 1930's, Fritos brand corn chips and Lay's brand potato chips started appearing in chip bowls. What goes better with a Pepsi than salty snack foods? In a tasty merger in 1965, Pepsi-Cola and Frito-Lay joined forces to form PepsiCo.
       Hundreds of other great brands have since been launched and acquired. PepsiCo's product portfolio today consists of a panoply of strong brands which appeal to consumers of all ages. Sixteen of PepsiCo's brands generate retail sales of more than a billion dollars each. PepsiCo has more top food and beverage brands in U.S. supermarkets than any other company. Six PepsiCo brands rank among the 15 best-selling supermarket brands, including Pepsi-Cola, Tropicana Pure Premium Juice, Lay's Potato Chips, Diet Pepsi, Doritos Tortilla Chips, and Mountain Dew.
       As beverage tastes shifted to non-carbonated drinks, PepsiCo in 1997 rolled out Aquafina - today's leading bottled water brand. The acquisition of Quaker Oats in 2001 brought PepsiCo two additional powerful brands: Quaker and Gatorade. Gatorade was created in the 1960's to help the performance of the Florida gators football team and is now the number one sports drink. Quaker Oatmeal has been around for more than 125 years and is the top hot cereal brand.

Superb Profitability

       For major retailers, PepsiCo's brands drive nearly as much sales and profit growth and cash flow as all five of their next largest competitors combined. This provides PepsiCo with a powerful competitive advantage which contributes to the high profitability of the business. Over the past five years, PepsiCo has generated a superb 30% or better return on equity each year.
       Profit margins have been expanding over the last four years due to higher effective net pricing, favorable product mix, volume gains and purchasing efficiencies. PepsiCo's international operating profits jumped 29% in the latest quarter as margins expanded strongly due to a solid volume growth and positive product mix. International revenues currently account for the largest percentage of total sales and are expected to grow at double the rate of domestic sales in the years ahead. Further profit margin expansion is expected as leading brands a strong distribution system and innovative new products drive future global growth.

Excellent Free Cash Flow

       Sustainable growth over the years has provided excellent free cash flow for PepsiCo. Cash flow from operations should approach $5 billion this year with free cash flow exceeding $3 billion. PepsiCo returns most of the free cash flow to shareholders through dividends and share buybacks - which combined have totaled nearly $12 billion over the last four years. PepsiCo's policy has been to return one-third of prior year earnings to shareholders through dividend payments. The current dividend yields 1.8%.
       Management recently repeated their confidence in achieving mid-single digit sales and volume growth and low double-digit earnings per share growth both in 2004 and 2005. At current price levels. PepsiCo is trading at about 20 times expected 2005 EPS of $2.55. This is a reasonable valuation for a HI-quality company with strong brands, superb profitability, double-digit EPS growth and excellent free cash flow. Thirsty long-term investors should take a sip of PepsiCo!"

(Back to Index)

PERSONAL FINANCE
P.O. Box 3808, McLean VA 22103.
1 year, 24 issues, $97.

Economic Nirvana

       Neil George: "What do you get when you combine one of the world's biggest raw material suppliers with one of the biggest manufactured goods producers? Economic Nirvana. This is what China and Brazil have created in their major trade and investment deal. Presidents Hu Jintao and Lula da Silva cut the deal just last month. Representing tens of billions of dollars, both nations committed to develop trade of oil, gas, industrial minerals and agricultural goods. Brazil has lots of these, while China needs them and the cash to pay for them. This is more good news for Brazil Fund (NYSE BZF) as well as our big plays on shipping and Chinese economic growth (i.e., Hutchison Whampoa).
       You can't even discuss trade, commerce and growth without being able to move and ship all of the stuff that's behind those numbers and statistics. While not a household name for most investors, nearly nothing moves in or through the shipping ports without paying the Hutchison Whampoa (OTC HUWHY), the world's gatekeeper of ports.
       That, along with its retail and real estate operations in the most promising markets around the world as well as its energy and telecommunications businesses, makes Hutchison a buy up to 45."

(Back to Index)

INVESTMENT QUALITY TRENDS
7440 Girard Ave, Ste #4, La Jolla, CA 92037.
1 year, 24 issues, $310.

Bristol-Myers Squibb:
Newer products hold promise

       Joseph McKittrick: "Just over two decades after the end of the Civil War, William Bristol and John Myers purchased a failing pharmaceutical company for $5,000. The pair soon saw profits mushroom with the successful introduction of a mineral salt laxative and the first commercially available toothpaste to include a disinfectant. Since its founding, Bristol has added extensively to its business and now divides its operations among Pharmaceuticals, Oncology Therapeutics Network, Nutritionals, and Other Healthcare.
       Bristol-Myers Squibb Pharmaceuticals (BMY) segment represents nearly 71% of the company's net sales and is the major focus of operations worldwide. Though the company has numerous successful products, Pravachol is its best selling. Pravachol is used to lower risk of heart attack for certain patients with elevated cholesterol levels. Exclusivity rights are set to expire in the United States in 2006. The company's second best selling medication Plavix is used to protect against heart-attack, with exclusivity not expiring in the U.S. until 2011. Other pharmaceuticals include Taxol, sometimes used in ovarian cancer treatment and Paraplatin, used for ovarian cancer chemotherapy.
       BMY's Oncology Therapeutics Network (OTN) is a distributor for oncology drugs and related materials. Last year, OTN represented approximately 11% of total company net sales. Changing trends in the medical industry are leading many Doctors to move their oncology treatments from the hospital, back to their private offices. OTN focuses on supplementing services traditionally supplied to these physicians by in-house hospital pharmacies. OTN's catalog has an exhaustive list of over 2,700 items which come from over 190 manufacturers.
       Nutritionals operations are run by a BMY subsidiary known as Mead Johnson. During 2003, Mead Johnson's activities represented 10% of total net sales. Mead's products include a line of baby formula known as Enfamil. Nearly half of the company's formula sales are eligible for WIC rebates, a government program to provide nutrition to infants and children of low income families. According to WIC, it serves 45% of all infants born in the United States. Mead also markets and manufactures adult nutritionals under the name Boost. BMY's Knidercal is a nutritionally complete canned beverage line targeted towards children.
       The Other Healthcare segment accounts for the remaining 8% of 2003 company sales. Within this segment, BMY operates ConvaTec, a manufacturer of wound and skin care products. Convatec also makes ostomy (as in colostomy) care and related products. BMY's Medical Imaging operations were acquired through the purchase of DuPont pharmaceuticals in 2001. Consumer medicines include Excedrin, Bufferin, Comtrex, and Keri. The company also manufactures a line of diabetic care products launched in August of '03, known as ChoiceDM.
       Interesting Qualities To Note: BMY has a market capitalization of $46 billion, the company is a member of the S&P 500 index, BMY has approximately $7 billion in cash, and the company has committed $115 million to support women and children affected by HIV in Africa.
       At a recent price of $24, BMY remains Undervalued. From current levels the company has a 136% upside potential to an Overvalue price of $56, low yield of 2.0%. a lawsuit challenging the patent for Plavix is expected to have a legal timeline settled during the first weeks of December. Should the trial rule unfavorably, BMY would likely see generic competition as early as 2005. Despite this downside, several of the company's newer products hold promise. Among these are a new AIDS treatment and a medication used to help schizophrenics. Based on the current dividend, shares will remain Undervalued up to a price of $25."

(Back to Index)

Russ Kaplan's HEARTLAND ADVISER
1016 N 47th Ave., Ste. 11, Omaha, NE 68132.
Monthly, 1 year, $150.

Lawsuit Investing

       Over the years Russ Kaplan has made considerable money for his clients by carefully examining and then investing in companies facing lawsuits while the mass of investors were bailing out at any price.
       At the top of his buy list is Merck (MRK). "This is a company in which we cannot predict the final outcome. The company may end up bankrupt but the chances of this happening are slim to none.
       Merck is down about 50% from its high of the year. Russ Kaplan is willing to bet money (his own as always) that this is pricing in much more damage to the company than any type of lawsuit scenario will do to Merck.
       In addition, Merck is paying you a very high dividend while we all wait to see what the possible outcome will be. Again, the outcome will be much better than the "Nervous Nellies" on Wall Street think it will be."

(Back to Index)

UPSIDE
7412 Calumet Ave., Hammond, IN 46324.
Monthly, 1 year, $239. Includes Hotline. www.UpsideStocks.com.

Doors opening for Griffon

       Richard Moroney: "Growth in home remodeling, coupled with strong demand for defense and aerospace products, has spurred impressive profit growth at Griffon (NYSE GFF $25). Per-share profits jumped 34% in fiscal 2004 ended September and 32% in fiscal 2003. Looking ahead, the conglomerate should benefit from market-share gains, product launches, and continued robust demand for its building products. Griffon has rallied to a five-year high but has further upside potential, given its strong market position and healthy cash flow. Griffon is rated Best Buy.

Company Profile

       Griffon is leading maker and installer of residential, commercial, and industrial garage doors. The division's largest customers are Home Depot and Menards. In addition, the company installs garage-door openers, fireplaces, and cabinets for the new-construction market. Griffon also makes plastic films used in baby diapers, adult-incontinence products, and surgical gowns and drapes. Finally, the company makes and sells communications gear for government and commercial applications. Below is a breakdown of revenue and operating profits for fiscal 2004 ended September:

       For fiscal 2004, revenue rose 11% to $1.39 billion, the largest increase since 1999. Per-share earnings jumped 34% to $1.71. Cash flow from operations reached $106 million, with a healthy portion of that invested in expanding the plastic films division. During the year, Griffon spent $28 million to repurchase 1.3 million shares of stock.
       Wall Street expects fiscal 2005 per-share earnings of $1.87, implying 9% growth. One month ago, the consensus estimate was $1.83. The single analyst estimate for sales implies 3% growth on revenue approaching $1.44 billion. Considering the company's operating momentum and favorable industry outlook, those estimates could prove conservative. Per-share profits have topped the consensus estimate in each of the last four quarters, by an average of $0.05.
       At 15 times trailing earnings, the stock trades in line with its three-year average valuation. During that time, the P/E ratio ranged from nine to 20. Using projected 12-month per-share earnings of $1.87 puts the forward multiple at 13, compared to a three year average of 12. In contrast, the average stock in the S&P SmallCap 600 Index has a trailing P/E of 25 and a forward P/E of 20.

Conclusion

       Griffon posted per-share earnings of $0.61 for the September quarter, up 22% form the year-earlier period and well above the three-analyst consensus estimate of $0.52. Total revenue rose 2%, with better pricing and volume gains keying 10% growth in the garage-door division. Operating profit margin climbed one percentage point to 11%. Net profit margin reached 5.1%, up from 4.5%. The stock earns a 92 in our Quadrix( stock-rating system, with 89 in Value, 82 in Quality, and 70 in Earnings Estimates. Stock repurchases should bolster-per-share earnings in coming quarters. In early November, Griffon authorized a 1-million-share increase in its buyback program, bringing the total authorization to 1.9 million shares. An annual report for Griffon Corp. is available at 100 Jericho Quadrangle, Jericho, NY 11753; (516) 938-5544."

(Back to Index)

GROWTH STOCK OUTLOOK
P.O. Box 15381, Chevy Chase, MD 20825.
1 year, 24 issues, $235.

Bright investment outlook

       Charles Allmon: "Election euphoria or bright investment outlook for the next several years? Which contributed most to the November market splurge? Probably the former, what with a huge tax increase no longer viable. The 15% capital gains tax rate also looks safe for a few years more, plus the 15% tax on cash dividends. And maybe elimination of the death tax will become reality. This month our portfolio hit a new high in net assets.
       Altria (MO) announced that it may split into two or three separate entities after resolution of all tobacco litigation. Kraft no doubt will be cut loose. The non-U.S. tobacco business, which is growing rapidly, could become a separate off-shore entity, beyond the reach of tort tentacles. With U.S. tobacco sales shrinking about 2% annually, sooner or later torts will kill the golden tax goose. It would not surprise me if Altria paid out a huge cash dividend from U.S. operations before the split-up, money that might otherwise flow to the tort mafia.
       Bristol-Myers (BMY) still dawdles from all the talk about possible price controls on drugs. That could be the kiss of death for the U.S. drug industry. Genuine Parts continues to rack up new highs. The yield is around 3% and 2005 could be shaping up as an excellent year. New Plan Excel Realty, as you know, boosted the cash payout not long ago. I doubt that the dividend would have expanded if future prospects were less than promising.
       Newmont Mining (NEM) rose in concert with the gold price, not to mention the prospect of higher earnings in 2004 and beyond. NEM probably has the most upside potential of any stock in this service over the next five year. You should hold NEM in your portfolio. Strattec Securities turned in a so-so first quarter, yet the share price continues to hang in there, perhaps indicative of much better profits ahead.
       I have stated for several years, without equivocation, that the wild excesses of the 1990s market bubble have yet to be wrung out of the equities market. We're still looking at a major rally in a secular bear market, contrary to many who forget that the Dow stood under 800 in 1964. . . and under 800 in 1982.
       Jeremy Grantham, who oversees $70 billion for some 800 institutions, said recently in a Fortune interview: "We're nowhere near finished working off the excesses of the '90s." Grantham believes the S&P 500 will eventually revert to its historic P/E multiple, which could imply a decline to around 725. Let me add that Grantham owns a commendable long term track record. When you run $70 billion, you must be on the right side of the market moves. Otherwise you're dead meat.
       What should you look for? If U.S. citizens suddenly decide to expand their minuscule savings rate (currently around 0.9%, lowest in the world) to 4% to 6%, a deep recession is virtually certain. If that happens, my guess is that we could see the S&P 500 in the 600 - 750 area. And the great real estate bubble could go poof! Already cracks are appearing."

(Back to Index)

BOTTOM LINE PERSONAL
281 Tresser Blvd., Stamford, CT 06901.
1 year, 24 issues, $59.90.

Market up in 2005, but not
by more than 5% to 10%

       Sam Stovall: "I see the stock market going up in 2005 - but not by more than 5% to 10%. There's a 25% chance of a new bear market developing toward the latter part of 2005. If energy prices stay high or climb higher, a recession also could be at hand. Usually the stock market anticipates recessions by about six months, so a bear market late in 2005 would point to a recession early in 2006.
       Time-tested strategy: To improve my risk-adjusted return over time, I keep small-cap stocks in my IRA. I believe every investor should have 5% to 15% allocated to this category.

My personal portfolio...

       My overall allocation in my investment accounts is 60% stocks and 40% bonds. Among my holdings...
       Energy Select Sector SPDR Fund (AMEX XLE $35.90). This ETF includes the 27 energy companies within the S&P 500.
       Hennessy Cornerstone Growth Fund (HFCGX), which purchases small-cap stocks based on a disciplined screening process. 800-966-4354. Performance: 15.25%.
       Materials Select Sector SPDR Fund (AMEX XLB $29.18). This ETF includes the 33 materials companies - aluminum, paper, etc. - within the S&P 500.
       Vanguard STAR Fund (VGSTX). This asset allocation fund invests about two-thirds in US and foreign stocks and one-third in a range of bonds. It is about half as volatile as the S&P 500. 800-523-7731. Performance: 5.95%.
       I also am watching the health-care sector. I don't think investors have digested all of the industry's problems, so it's early to buy. I will consider buying once I see the momentum shifting to health-care stocks. My choice would be...
       Health Care Select Sector SPDR Fund (AMEX XLV $28.84). This ETF includes the 55 healthcare companies in the S&P 500.
       My 401(k): Given the record high deficits, rising interest rates and decelerating corporate earnings, I believe a well-diversified, balanced approach is warranted for 2005. The fixed-income portion of my 401 (k) is in guaranteed investment contracts (GICs). These give me the stable income of bonds without the risk of falling prices if interest rates go higher, as I expect them to.
       Editor's Note: Sam Stovall is chief investment strategist for Standard & Poor's Corp. in New York City and a leading authority on analyzing stock market sectors for investment opportunities. www.sandp.com.

(Back to Index)

BI RESEARCH
P.O. Box 133, Redding, CT 06875.
Every 6 weeks, 1 year, $110.

Eon Labs: Rated Strong Buy

       Thomas Bishop: "Eon Labs (ELAB $23.02) is a leading generic drug company with 63 product in 123 dosage strengths. When I say leading I don't mean biggest in size, though it is probably in the top 10. I mean especially leading in stats. One thing that really helped to tip the scale here was an analysis of some of the Company's impressive numbers. Over the past 5 years Eon Lab's average revenue growth has been 43% vs. the industry average of 28%. EPS growth over this period has been even more impressive, weighing in at annualized rate of 74% vs. the industry average of 26%. At 23% Eon's operating profit margins are several times better than the industry average, and for the past 12 months they are 38%. Net profit margins, which at 13% for the past 5 years are double the industry average, are running at 26% for the past 12 months. And thumbing its nose at the recession, Eon's profits have climbed steadily from $5 million in 1999 to an expected $107 million for 2004. All of which is to say- the Company certainly seems to have capable management and a good formula for success... you could do a lot worse than to throw your lot in with Eon Labs. I like the generic drug industry because it saves healthcare dollars and $10's of billions of dollars of branded drugs will be losing patent protection over the next few years. Indeed we follow two generic companies already, but have sold half of Able Labs for a 77% profit and 35% of American Pharma for an 86% profit. So the fighting has been good in the generic pond and we have room for another in our frying pan. The BI Rank is a solid 8.8 and I do own/control 4,400 shares of this one.
       Eon Labs (ELAB $23.02) has been plying its trade since 1992, engaged in developing licensing, manufacturing, selling and distributing a broad range of generic versions of prescription pharmaceutical products. The Company focuses primarily on solid oral dosage forms, both immediate and sustained release delivery, in tablet, multiple layer tablet, film coated and capsule forms. Through its relationship with Hexal AG, whose parent Santo Holding of Germany owns a majority interest in Eon, the Company has also begun introducing products with a transdermal patch delivery mechanism. This is a great relationship because Hexal is Germany's second largest generic pharmaceutical company and Eon has right of first refusal on US marketing and distribution rights for any generics Hexal develops. Hexal also has certain technology that gives Eon competitive advantage including previously mentioned transdermal patch delivery technology as well as sustained release and other technology enabling it to enter more exclusive markets with more limited competition. In addition, Eon consults with Hexall AG regarding available sources of active pharmaceutical ingredients, which can be another way of gaining advantage in the highly competitive generic market place. Eon has also submitted some ophthalmic and injectable products. Nearly two-thirds of Eon's generics are ranked either first (41%) or second (23%) in the market.
       Eon has received 8 ANDA approvals so far this year targeting brand markets totaling over $3 billion and it has 29 ANDAs pending approval before the FDA. These 29 pending applications target branded markets totaling $15 billion dollars, up from 22 applications pending at the beginning of the year. On average it takes about 12 to 18 months to gain approval- bigger drugs often seem to take longer than the smaller generics. In addition, Eon has over 40 generic products in its development pipeline. To fuel this the Company increased R&D spending 70% in 2003 and so far 2004 is running about 15% above that, equating to a $25 million run rate, or about 6% of sales. In addition the Company spent $9 million in the past year on legal expenses, primarily for Paragraph IV patent challenges. A Paragraph IV filing means an ANDA is being filed for a branded drug whose patent is not due to expire, but which patent the company feels is invalid. Branded companies come up with all sorts of smoke and mirror ways to try to extend patent protection on their branded drugs. If you win the challenge and are the first to file you get 180 days of market exclusivity before other generics can come in, at which time the price erodes more dramatically, depending on the number of competitors. Nonetheless, that head start leaves you at significant competitive advantage in the after market. About half of the ANDAs currently pending are Paragraph IV filings. However, the Company has not been sued, and does not expect to be sued, on several of these.
       The Company figures it can grow its business by about 15-20% with non-Paragraph IV filings, and perhaps there by grow EPS by 17 - 23%. These filings target opportunities with several barriers to entry to limit competition and thus price erosion in the generic market. High-tech products like transdermal patches and sustained release formulations help in this regard. You can also work the active ingredient side of the equation when supply is limited. And it definitely helps to get your product application in there early so that you are ready to launch on the first day as Eon almost always does. Coming from the other angle, Paragraph IV success on any of the other half of these applications is additive to that 20% base EPS growth rate, often dramatically. Because these are generally resolved in court and the branded company almost always appeals the court's decision (to stall the day of generic competition... and price erosion), this can take years. However, during the appeal process Eon may get a good sense of whether there are any new arguments likely to convince a Judge, and can launch the drug "at risk" even while the appeal process continues. This part of the business can be tough, but sizeable rewards (bigger fish to fry) make it worth the time and energy, especially when supported by base income growth of 20% from the uncontested filings.
       So far this year earnings are up about 60% sure enough juiced by the launch of Bupropion (its generic Wellbutrin sustained release). The branded market was about $1 billion and part way through the appeal process Eon felt comfortable launching at risk. In April the appeal ruling came down in Eon's favor. This has helped turbo-charge results throughout 2004. Now there is a $1.6 billion drug, Duragesic, coming off patent 1/24/05 with only 3 other competitors that could get 2005 off to a similarly good start, depending on how some citizen petitions, that don't seem to be applicable to Eon's Fentanyl patch, play out. Approval is anticipated by 1/24. And Eon may decide to go ahead and launch Itraconazole at risk into its $135 million branded market in Q1. it is currently in the appeal phase. Here Eon Labs has 180 days of exclusivity and is the only one to file so far. This would cause estimates for 2005 to climb above the current level of $1.45. Weakness in the shares from arguably overheated levels to recent attractive levels seemed to have been kicked off by an analyst's concern (7/12) about a 4th generic competitor gaining market approval for Bupropion. None has surfaced yet, nor is one more competitor expected to be that damaging to the generic price. Plus new drivers are now on the horizon to fuel Eon. Also on 7/22 (with stock just over $30) majority owner Santo Holding filed a shelf offering to sell off 16.6% of its holdings to a level of 51% in order to diversify its investments. The stock did not take that well either. Enough so that Santo hasn't sold any shares and has no intention on doing so at these prices. These issues have created a very enticing entry point for us. Meanwhile Eon Labs has never had a stronger pipeline of applications before the FDA (29) which has never been more targeted at drugs with higher barriers to entry overall(less competitors/price erosion likely). With the shares trading at a PE of 16 times 2005 EPS, ELAB rates a Strong Buy to $26. www.eonlabs.com."

(Back to Index)

COMMON CENTS
P.O. Box 126354, Benbrook, TX 76126.
1 year, 6 issues, $48.

Colgate Palmolive:
One of the world's great ones

       Roland Carter's features 4 Buy recommendations for December: Colgate Palmolive Co. (CL $46.90, Nokia Corp. (NOK $16.39), Jefferson Pilot (JP $51.04), and Gannett Co. (GCI $81.68).
       "Colgate Palmolive Co. (CL) a $10+ billion annual sales blue chip is a global powerhouse serving people in over 200 countries with consumer products for personal care, fabric and household care, and pet nutrition. Their brands include: Colgate, Ajax, Fab, Palmolive, Irish Spring, Mennen, Hills Pet Food, etc. Their 35% market share gives them the #1 place in the U.S. toothpaste market. Last presented in CC II, 1/04 @ 49+with a trader's sell @ 61. It only made it up to 59, then dropped as low as 42+ when it appeared 3rd and 4th quarter EPS would be down about 10% due to increased advertising and higher tax rates. This will give a slightly down earnings year for CL, but most believe things will return to normal in 2005. This was CL's first such surprise to Wall Street analysts in 10 years, and the drop gives us the chance to own a great one now on a price pullback. Third quarter global sales and unit volume were still up 8.5%. Sales growth for 2004 should still exceed their past 10 year rate of 5% (11% EPS growth). We see CL as a 10%-12% grower with a 2% growing yield. Dividends paid since 1895. This is one of the world's great ones-buy and hold, and, yes forever if you're still a believer.
       Nokia Corp. (NOK), this Finland powerhouse is the world's leading maker of cell phones (80% of sales, 100% of profits). They also furnish other communication products, both fixed-line and wireless. NOK was one of the high flyers, 1996-2000, rising from $2 to a peak of $62+ in 2000. That was a P/E of 100+, and way too high, so the tech wreck sent them to the penalty box, and sent the shares from 62 to 10, 2000 to 2002. NOK is still the gorilla in its space. Their world cell phone market share peaked near 40%, fell to about 29%, and is now climbing again. NOK shares rebounded, 10+ to 23+, 2002 to 2004, then fell hard to 11 in mid-2004 on an EPS shortfall. Their recent quarter showed renewed strength, the stock is rebounding strongly, and we'd still be a buyer. The short-term trade (3 months?) we'll try to capture in the P/A is back up to 21+ from where it gapped downward in April. This is a powerful company with incredibly strong finances ($15++ billion in net cash). We own it to hold in many accounts. We believe the cell phone is the communication device that will continue to flourish in the years ahead.
       Jefferson Pilot (JP) is a major life insurance company. They also offer annuities and own 3 TV and 17 radio stations. This good, master-list company has stuck to its knitting and grown nicely for decades. Dividends have been paid since 1913. JP has been a 10% grower. We feel this rate can continue. As we said in August, 2003 when JP was 43, it's one of the cheapest 10%-growing blue chips we can find (P/E of 13, 3% yield). We've bought a lot for clients on this pullback from 2004's record high of 56+. Expect another dividend increase in about six months.
       We last presented Gannett Co. (GCI) a leading U.S. media company in February 2004 @ 85.71. The shares did subsequently touch 91+ (a record high) but have pulled back. GCI publishes 101 daily newspapers in 38 states and the U.K. Publishes USA Today and owns 22 network-affiliated TV stations. This is a slow mover, but a great company with a tremendous franchise anchored by a huge number of smaller-town newspapers where they have little competition, and none on the horizon. Powerful finances, also. GCI is still a personal buy/hold favorite in this media space. Dividends paid since 1929.

(Back to Index)

PEARSON INVESTMENT LETTER
6431 Rubia Cir., Apollo Beach, FL 33572.
Published monthly for clients of Pearson Capital, Inc.

Affiliated Computer Services and
SFBC International rated a Buy

       Donald Pearson: "Affiliated Computer Services, Inc. (NYSE ACS) is a provider of business process outsourcing and information technology outsourcing services to commercial and government clients. The Company's services enable businesses and government agencies to focus on core operations, respond to rapidly changing technologies and reduce expenses associated with business processes and information processing. The Company provides technology-based services with a focus on transaction processing and program management services, such as child support payment processing, electronic toll collection, welfare and community services and traffic violations processing. For the three months ended 9/30/04, revenues rose 1% to $1.05 billion. Net income rose 8% to $94.2 million. Revenues reflect new contracts signed during the period.
       SFBC International, INC (Nasdaq SFCC) is a contract research organization that provides a range of specialized drug development services to branded pharmaceutical, biotechnology and generic drug companies. The Company provides early clinical development services, specializing primarily in the areas of Phase I and Phase II clinical trials and bioanalytical laboratory services. It also provides a range of complementary services including early clinical pharmacology research, biostatistics and data management, and regulatory and drug submission, as well as Phase III and Phase IV clinical trial management services in select therapeutic areas. For the nine months ended 9/30/04, revenues rose 57% to $110.3M. Net income rose 86% to $13.7 million. Revenues reflect the performance of more clinical trials and a general increase in the size of trials."

(Back to Index)

THE YAMAMOTO FORECAST
P.O. Box 573, Kahului, HI 96733.
Monthly, 1 year, $350.

Raymond James Financial:
Possible takeover candidate

       Irwin Yamamoto: "Raymond James Financial Inc. (NYSE RJF) provides financial services to individuals, corporations and municipalities. The services include trading of stocks, bonds and mutual funds. Other products offered are investment management for retail and institutional clients and banking and trust services for retail customers. The Florida-based firm is listed on the New York Stock Exchange.
       RJF is running on all cylinders. New annual records in both net revenues and net income were achieved in the 2004 fiscal year which ended in September. Net revenues increased by 23 percent over last year's figure. While net income skyrocketed 48 percent. And earnings per share in the current year should be up in the double-digit range.
       The unique strategy, especially in the brokerage industry, of expanding the recruitment of professionals even in slow periods is beginning to pay off in big dividends for Raymond James. The company's record highs in net revenues and net income attest to it. Client assets under management reached the $22 billion level last quarter. Remember, the growth has been done largely in a lackluster market. Imagine the results when investing activities pick up - as they are now.
       The stock is on the verge of making a 52-week high. RJF's profile must be considered as very appealing. There are more than 5,100 financial advisers serving 1.3 million accounts in 2,200 locations throughout the United States, Canada and overseas. Total clients assets register over $110 billion. Raymond James Financial is indeed a viable independent player in the industry. We also view it as a possible takeover candidate."

(Back to Index)

DOW THEORY FORECASTS
7412 Calumet Ave., Hammond, IN 46324.
Monthly, 1 year, $259. Includes Hotline. www.dowtheory.com.

Corporate profile

       MBNA has $118 billion in managed loans and more than 51 million customers around the world. The company issues Visa, MasterCard, and American Express (NYSE AXP $55) credit cards, ranking third in the U.S. credit-card market with a 13% share. MBNA is the world's leading issuer of affinity cards, which are marketed to members of associations and institutions. The company boasts more than 5,400 endorsing organizations and is the official card of more than 700 colleges and universities, 1,400 professional organizations, and numerous professional sports teams. The company focuses on customers with strong credit histories.
       With interest rates rising, MBNA has been converting fixed-rate accounts to variable-rate accounts represented less than 10% of the portfolio in May but now represent 40%. All new offers feature variable rates. The company also increased rates for some customers in July. MBNA has a good record of repricing without increasing attrition.
       The company is cutting back on 0% introductory rates and similar discount offers. Instead, MBNA is shifting its focus to rewards programs - a move that could slow loan growth in the short term but should result in a more profitable mix of loans. Customer retention is typically higher for rewards-based credit cards from American Express, which is well-known for its rewards program.
       The November deal to purchase AmSouth Bancorporation's (NYSE ASO $25) $550 million credit-card portfolio, expected to close by year-end, is an example of MBNA's plans to expand by acquiring small, high-quality credit portfolios.
       MBNA is working to increase its market share abroad. At the end of September, managed loans from international operations had increased 22% from a year earlier to represent about 20% of total managed loans.

Conclusion

       September-based per-share earnings increased 10% to $0.56. Loan receivables rose nearly 12% from a year earlier. Total managed loans, which include loan receivables and securitized loans, grew 4.5% from a year earlier. The company added 2.3 million new accounts during the quarter. Loan losses remained below industry averages.
       Reflecting an outstanding track record and modest valuation, the stock earns strong Quadrix( scores - 92 Overall, with 96 in Quality and 93 in Value. Consensus estimates project profit growth of 14.5% for 2004 and 12.2% for 2005."

(Back to Index)

NATE'S NOTES
P.O. Box 667, Healdsburg, CA 95448.
Monthly, 1 year, $150.

EBay will continue to run

       Nate Pile: "Well, after waiting for over a year for eBay (EBAY $111.50) to "come down a bit in price" (which has not happened!), I am finally biting the bullet and purchasing a ticket on the eBay Express in this issue. Now that I have become a regular eBay user, I am solidly convinced that, as many analysts before me have already pointed out, this is a company that truly does have the potential to continue growing its top and bottom lines at an above-average rate for several years to come. Not only is the company the clear leader in the world of online auctions, it also owns PayPal, one of the leading electronic payment services with near universal acceptance by those who offer goods and services for sale over the internet.
       The stock has been on a tear for over two years now, and one would think it is therefore due for a cooling off period "sometime soon." However, with an ever-growing number of people launching "niche business" as sellers over eBay's network - and an even greater number of people utilizing the company's marketplace as buyers to find items they would otherwise have a difficult time tracking down - I believe there is a very good chance the stock will continue to run for another several quarters before it finally pauses to catch its breath.
       If you have never used eBay and are skeptical about "how much business could possibly take place at an "electronic flea market," I encourage you to, just for fun, think of three of your favorite toys from your childhood... or three of your favorite TV shows from that same time period...and type them into eBay's search engine. While you may have to add them to a "watch list" and wait for a period of weeks or months for your items to appear, I think you will be astounded at the ease at which you are able to rack down just about anything you can imagine wanting to buy.
       What is particularly intriguing about the whole process from an investment standpoint is that, on the one hand, eBay is creating a very efficient marketplace by matching up buyers and sellers who otherwise would be unable to find each other; however, on the other hand, the market for individual items can be incredibly inefficient at times due to that fact there is only One item available for "the market" to bid on. As a result, items that would otherwise sell for $5-$10 sometimes sell for well over $100! Since the fee eBay charges to the seller is a function of the final selling price of the item, the more an item sells for, the greater the fee eBay will end up collecting from the seller...and, as a bonus, if the transaction is carried out through PayPal (as many are), eBay then winds up with a higher fee on the PayPal transaction as well!
       While it is true that I may be arriving late to the party and we may wind up sitting on dead money for a couple of quarters while the stock undergoes a consolidation phase, I am not terribly concerned that we missed the party. Yes, a 20-timer is always more fun than a triple, but I believe that if we patiently build a position in the stock over the next six- to twelve-months, there is a very good chance we will still be able to triple our money from current prices over the next five years. Though I hate to see the stocks fall after I recommend them, I am actually hopeful that we will see a decline of some sort in the stock price once we get through the holiday quarter so that we will be able to aggressively add to our positions in this stock (which I believe has the potential to become a "core stock" if we are able to purchase it at the right price). In the meantime, I encourage you to join me in starting a small position in the stock based on the current buy limits. EBAY is considered a strong buy under $85 and a buy under $115."

(Back to Index)

THE TURNAROUND LETTER
225 Friend St., Ste. 801, Boston, MA 02114.
Monthly, 1 year, $195.

Time Warner: Very attractive price

       George Putnam, III: "As its name suggests, Time Warner's (NYSE TWX $25) legacy dates back to the 1989 merger between the Time-Life publishing business and the Warner Brothers movie business, each of which represents one of the great brands in its field. But such a simple observation obscures the complexity of the company's story since then. After a series of acquisitions in the 1990's, Time Warner merged with AOL in 2001 in what was the largest merger in corporate history. To many analysts, it represented the blending of the great media of the twentieth century with the burgeoning digital media of the twenty-first. These same analysts - not to mention the company executives - expected opportunities from the new company's stable of brands.
       But alas, the fall was as grand as the expectations. By the time it dropped AOL from the corporate names in late 2003, the company had reported the largest annual corporate loss ever of some $100 billion, written down asset values to the tune of $54 billion and been targeted by both the SEC and Justice Department for faulty accounting practices. And, perhaps most poignantly, the stock swooned nearly 91% from its late 1999 bull-market high!
      Analysis: Despite its travails, TWX remains one of the pre-eminent media and entertainment companies in the world, with a leadership position in all of its business segments: online operations (19% of total revenues), cable television (19%), filmed entertainment (30%), networks (21%) and publishing (13%). A few of the familiar brands include Turner Entertainment Networks, CNN News Group, Home Box Office, The WB Television Network, Time Warner Cable, AOL, Time, People, Sports Illustrated, Warner Brothers Entertainment and New Line Cinema.
       Perhaps it will not come as a surprise that new management has taken over. Gone are the likes of Gerald Levin of the pre-AOL Time Warner, Steve Case of AOL fame and Ted Turner. Current management, led by CEO Richard Parsons, may not appear as frequently on TV screens or magazine covers, but it is focused on bringing together the company's considerable brand assets and managing legal challenges while continuing to strengthen the firm's financial picture.
       Results are improving, pretty much across the board. All of the company's operating segments showed decent revenue gains in the latest quarter. Particularly encouraging is the fact that advertising revenues, which have been in the doldrums for several years, are showing signs of picking up.
       Time Warner generates tremendous amounts of cash - $3 billion in free cash flow over the first nine months of this year. For the past couple of years, the company has been focused on reducing debt, but having trimmed about $6.5 billion in long term debt from the balance sheet since the end of 2002, it can now use that cash flow to generate renewed growth.
       The ongoing government investigations still cast a shadow over the stock. However, the company recently created a $500 million reserve to cover the cost of possible settlements, which could be a sign that the investigations are nearing an end. While there is still the possibility of more negative headlines, we do not believe the government actions will inflict any permanent harm on the company.
       Media and entertainment are likely to be two of the fastest growing segments of the economy for many years to come. Time Warner is in the enviable position of controlling both the content and the delivery mechanisms in several of the principal sectors of those industries. And any convergence that occurs between the traditional and digital delivery mechanisms will only improve the company's ability to generate synergies between its different divisions.
       Though the stock has rallied a bit in recent weeks, investors have been slow to look beyond the AOL debacle and the government investigations. We think those problems are now ancient history, and the investor skittishness provides an opportunity to purchase a media and entertainment powerhouse at a very attractive price. We recommend purchasing Time Warner up to 25."

(Back to Index)

INVESTOR'S VALUE VIEW
2254 Winter Woods Blvd., Ste. 2006, Orlando, FL 32792.
1 year, 6 issues, $95.

Canon: Attractive buypoint

       R. Scott Pearson: "Canon Inc. (CAJ) is a leading worldwide maker of business machines, cameras, and electronic products. The Japanese company is the world's top maker of copiers, and is beginning to take leadership in digital cameras, too, recently earning the title of #1 digital camera maker in the U.S. with its PowerShot line, just passing the 10 million mark in worldwide sales. The company has initiated a powerful advertising campaign emphasizing color in photos, copies and printing, which has been successful. Strong sales of digital cameras and laser beam printers boosted Canon's quarterly earnings by nearly 40%. Growing sales in Europe, which accounts for almost a third of sales, were the largest factor in the period's growth. Projections for the year were also increased. Earnings have risen in all but one of the past 12 years, and the uptrend seems to be accelerating recently. Digital camera sales are growing so fast the company has been forced to build a new manufacturing plant in Japan. Nine new, higher resolution models of its popular ink-jet printers are due to be introduced this quarter, including 3 multifunction models, bolstering its position as market leader. The company is also developing new products on the cutting edge of technology, including the Canobeam Free Space Optics line, which wirelessly transmits images up to three-quarters of a mile. Canon is the official camera of the NFL, and a new marketing deal with up-and-coming tennis star Maria Sharapova can't hurt results either. Overall, everything appears to be positive, yet the shares are selling at a low P/E compared to competitors. We expect the price to appreciate considerably as the market wakes up to Canon's powerful position, and grow further as earnings grow. This may be the last good buypoint, as strong holiday sales could boost results phenomenally."

(Back to Index)

THE BOWSER REPORT
P.O. Box 6278, Newport News, VA 23606.
Monthly, 1 year, $54.

Cyanotech: Microalgae-based
high-value natural products

       Max Bowser: "Cyanotech Corp. (Nasdaq CYAN) is a world leader in the production of high-value natural products derived from microalgae. Founded in 1983, it has three products:
Spirulina Pacifica
       This is a greenfood containing high amounts of phytonutrients such as beta-cerotene, zeaxanthin, phycocyanin and gamma linoleic acid, as well as antiviral compounds.
       Spirulina users benefit with extra energy and strengthened immune system. (Spirulina is defined by the dictionary as "a blue-grass algae.")
       This is the company's oldest product and is sold through a marketing and distribution company in the Netherlands, along with other outlets. Last year, it accounted for $6.5 million of total sales.
       Spirulina Pacifica is produced in three forms. Powder is used as an ingredient in nutritional supplements and health food drinks. Flakes are used as a seasoning on various foods. Tablets are consumed as a daily dietary supplement. All the forms are sold in bulk quantities and as package consumer products under the "Nutrex Hawaii" label.

NatuRose

       This is an effective natural alternative to petrochemical synthetic pigments for commercial fish and poultry farms. It is sold extensively in Japan.
       It is a natural astaxanthin that was introduced in early 1997 and is utilized in the aquaculture market primarily to impart a pink to red color in the flesh of commercially-raised fish and shrimp. But, it has also been found to be essential for their proper growth and survival (NatuRose was responsible for 22% of total revenue last year).

BioAstin

       The newest product, this is a coming star. First put on the market in 1999, last year it accounted for 22% of sales, up from just 12% in 2002. . . Here is how it has proven to be effective:
       Anti-Flammatory Mechanisms: Inflammation is suspected to have a role in the onset of many diseases, especially those associated with aging. The astaxanthin in BioAstin helps to reduce the production of nuclear factor kappa B and, thus, prevents the activation of pro-inflammatory genes.
       Joint Health & Muscle Soreness Clinical Trials: In a publication presented by the American College of Nutrition, a double-blind, placebo-controlled study reported a significant benefits form BioAstin for sufferers of rheumatoid arthritis.
       A second published study of BioAstin and carpal tunnel syndrome (also known as repetitive stress injury), indicated a trend of relief. Responders reported resuming previously-abandoned vocational and recreational activities.
       Extraordinarily Powerful Antioxidant: This is where BioAstin has the greatest potential. It has over 550 times greater antioxidant activity than alpha tocopherol - which appears in many products. And, it has eleven times higher antioxidant activity than bet-carotene (measured in terms of singlet oxygen quenching).

Facilities

       These products are produced on 90 acres on the Kona Coast of Hawaii, where there are consistently warm temperatures, abundant sunshine and low levels of rainfall needed for optimal cultivation of microalgae.
       Algae is grown under rigorous quality control in closed culture systems. Then, the algae is used to seed 140,000 gallon, full-sun production basins. (This property is leased from the State of Hawaii under a 30-year lease that expires in 2025).

Finances

       CYAN's balance sheet was improved when the holder of $1,250,000 in debentures voluntarily converted to 1,923,076 shares, thus reducing overall debt and reducing interest expenses.
       In each of the last four quarters, long-term debt has been reduced and working capital has increased. There is a remarkable current ratio. For every $1.65 of current liabilities., there is $6.13 of current assets.

Management

       Chairman, president and CEO is Gerald R. Cysewski, PhD, 55. Dr. Cysewski is the second-largest shareholder and draws a modest salary of $110,000/year. (The directors and executive officers own 4,131,625 shares.)
       Dr. Cysewski notes that the company is evaluating three additional microalgal-based products for future commercialization. This includes an assessment of potential markets, preliminary process development and profit analyses.
       Cyanotech has received five U.S. patents - two on production methods and three on BioAstin. Their facilities are ISO compliant. (Office: 73-4460 Queen Kaahumanu Hwy., #102, Kailua-Kona, HI 96740, 808/326-1353, Fax: 808/334-9504, www.cyanotech.com.)"

(Back to Index)

Roger Conrad's UTILITY FORECASTER
1750 Old Meadow Rd., Ste. 301., McLean, VA 22102.
Monthly, 1 year, $129.

SBC Communications:
High secure dividend

       Roger Conrad: "When SBC Communications (NYSE SBC $26.67) boss Ed Whitacre started buying up regional phone networks in the mid-1990s, few saw it as a road to communications industry dominance. But here in late 2004, that's the Texas giant's obvious heading.
       SBC's core asset is a system of 54.7 million access lines in 13 high-growth states, including California, Texas and most of the Midwest. It's now in the process of a $4 billion plan to connect them with fiber optic cable in a system capable of delivering a range of advanced services, including high-definition TV, video-on-demand, high-speed internet, wireless and voice.
       SBC pooled it wireless network - bought cheaply along with the wireline systems - with BellSouth's to forge Cingular. Now it's merged that asset with AT&T Wireless to form America's biggest cellular company, of which it owns 60 percent.
       Because of the sorry state of AT&T's network, it's likely to take Cingular several years to reach full potential. Unfortunately, the same goes for the upgraded fiber network, which won't be fully available until the end of 2007. Consequently, it could be several more quarters before SBC's revenue growth really accelerates as rival Verizon Communications' has.
       Patient, risk tolerant investors will find a lot to like in SBC's high but secure dividend and massive free cash flow generation, which allows it to aggressively fund growth even while paying down debt. Good relations with the Bush administration don't hurt either. Buy SBC up to 28."

(Back to Index)

INVESTOR'S DIGEST of Canada
133 Richmond St. W., Toronto, ON M5H 3M8.
1 year, 24 issues, $137.

Greatest Canadian Investors
and Their Stock Picks

       Larry McDonald has compiled a list of the Greatest Canadian Investors and their investments.
       "The selection criterion for Greatest Canadian Investors was highest investment return achieved over a period of at least 10 years. This required pulling data together from several sources to compare the panoply of money managers at mutual funds, hedge funds, investment counseling firms, pension funds and elsewhere.
       Given the data collection and measurement constraints inherent in such a task, our list is admittedly a work in progress. Still it may be worthwhile to release our findings to date - if only to serve as a discussion piece.
       Perhaps an interesting aspect of our preliminary set of candidates is the diversity of investment methods. The message seems to be that there is no one best way to get investment results. Personal qualities such as focus, discipline and depth of understanding seem to count more.
       The first candidate is co-founder of Investor's Digest of Canada: Seymour Schulich.
       His investment vehicle, Franco-Nevada Mining Corp. (a portfolio of royalty interests in gold mines), delivered the highest long-term returns: an annual compound rate of 39 per cent form when it was launched in 1983 to its takeover by Newmont Mining Corp. In 1999. Not even Warren Buffett has these kinds of numbers.
       Mr. Schulich is now head of Newmont's investing arm and is currently betting big on units of Canadian Oil Sands Trust (COS.UN-TSX, $59.78, 403-218-6228, www.cos-trust.com). He has put Newmont Capital into six million units of COS and his own portfolio into 2.5 million units (making it his largest personal holding).
       Despite the recent run-up in price, Mr. Schulich sees units in the income trust as still undervalued because most oil analysts are using oil-price assumptions of US$30 a barrel in their projections.
       Mr. Schulich believes the price of a barrel of oil will remain around current levels for years to come and energy stocks should enjoy further appreciation once analysts revise their assumptions.
       Second spot is assigned to Sprott Asset Management CEO Eric Sprott, whose investment returns are said to be compounding annually at a 25 per cent pace since the early 1980s.
       His approach, which relies on top-down analyses of macro-economic trends, reaped a whirlwind when it led him to short tech stocks and go long on gold stocks just as the 1990s bubble burst.
       He is still bullish on gold stocks for a number of reasons, one of which is as a hedge against a financial crisis arising from the proliferation of debt and financial derivatives. He is also bullish on other commodity stocks, notably those in the energy sector. And he has bets on "special situations" such as stungun maker Taser International Inc. (Nasdaq TASR, $50.50, 480-991-0797, www.taser.com).
       Third on the list are Contra Guys Benj Gallander and Ben Stadelmann, editors of the Contra The Heard newsletter. Going by the figures on the front page of their publication, they have produced an annual rate of return of 24.5 per cent over the last 10 years.
       The two contrarians recently reiterated two previous "buy" recommendations (now trading at or below their original buy price). Kelman Technologies Inc. (TSX KTI, $0.40, 403-294-7575, www.kelman.com). Supplies seismic data-processing and management services to oil and gas companies, and Cygnal Technologies Corp. (TSX CYN, $1.27, 905-944-6500, www.cygnal.ca) provides network communications.
       Nominated for fourth place is David Burrows, investment strategist at Rockwater Asset Management, with an annual rate of return close to 20 per cent over the past decade. His approach relies heavily on technical analysis to trade the peaks and valleys of stock markets, and select individual stocks (relative strength is a key criterion).

Favorites

       Two of his favorites are CN Railway Co. (TSX CNR, $68.17, 514-399-7212, www.cn.ca) and Nova Chemicals Corp. (TSX NCX, $45.24, 403-750-3600, www.novachem.com). CN Railway is the lowest-cost operator in the North American rail industry and stands to benefit from increased transport of raw materials, while Nova is positioned to benefit from "constrained industry capacity" and a cyclical upturn in chemical prices.
       The fifth greatest Canadian investor is Irwin Michael, portfolio manager at ABC Funds. His ABC Fundamental Value Fund has an annual compound return of 17.17 per annum over the past 15 years (compared to main Toronto index's total return index average of eight per cent).
       A deep-value approach puts him into stocks trading below book value, 10 times earnings and five times cash flow. Even better if they have hidden assets (e.g., real estate carried at historical cost), little or no following in the analyst community, a lower valuation than their peers and a catalyst (e.g., new management).
       Earlier this year, Mr. Michael purchased shares in Sears Canada Inc. (TSX SCC, $17.90, 416-941-4422, www.sears.ca) close to the current price. Investors are worried about competition from Wal-Mart, but Mr. Michael believes the overlap is not significant. Sears Canada is mostly in a more upscale niche of the market.
       Also, there are plenty of hidden assets, including a new banking division (with good growth prospects), a trucking business worth $3.50 per share and real estate carried at historical cost. Furthermore, with a good amount of merchandise imported from the U.S., the soaring Canadian dollar will lower purchase costs.
       As noted above, data availability and measurement issues are caveats. There were some investors that we would have loved to put on the list but couldn't because of the inability to find comparative long-term performance numbers for them.

Other notable investors

       A case in point was Ross Healy of Strategic Analysis Corp., whose calls on Nortel Networks and other situations have been remarkably prescient.
       Another was Stephen Jarislowsky of Montreal-based Jarislowsky Fraser Ltd., a staunch advocate of shareholder causes for years.
       We would have also loved to extend the list but there were space constraints to observe. Investment professionals and firms that could have made the list include Peter Cundill, Wayne Deans, Ted Whitehead, Tim McElvaine, Sebastian Van Berkom, Robert McWhirter, Benjamin Horwood, Gerald Schwartz, Francis Chou, Jerry Javasky, Gerry Coleman, Robert Tattersall, Pembroke Management and Highstreet Asset Management."
       Editor's Note: Larry McDonald, an investment writer, analyst and author, is a contributing editor to Investor's Digest of Canada.

(Back to Index)

SUPERSTOCK INVESTOR
925 S Federal Hwy., Ste. 500, Boca Raton, FL 33432.
Monthly, 1 year, $395.

Boston Communications Group:
These shares are cheap

       Jeff Manera: "Boston Communications (BCGI) provides the wireless industry a suite of services including hosting environments, billing services, roaming services and prepaid systems.
       It's also a value play with plenty of potential appeal to an acquisitive industry player.
       Fundamentally, the company has a lot to brag about. It boasts $4 of cash and short-term investments per share (a good percentage of its $9.30 share price), virtually zero debt, more than $1 per share in free cash flow. It has a very low PEG of .52 (less than half the 1.2 industry average) and a price-to-sales ratio 1.5, also about half the industry average. In a word, these shares are cheap!
       There's also been a decent amount of recent insider buying activity."

(Back to Index)

STRATEGIC INVESTING
1905 Beacon St., Waban MA 02468.
Monthly, 1 year, $157.

Expects a correction, but sees
improving market conditions in '05

       Richard Geist: "While we expect a correction in 2005, we believe the new year will see improving market conditions, with oil prices dropping, increased corporate spending, a continued leveling off of the weak dollar, corporate earnings remaining strong, (especially for small growth companies), and tame inflation as the Fed concludes its interest raise hikes.
       Our relative valuation model (or more accurately, the one most folks believe the Fed relies on) continues to tell us that stocks are undervalued by nearly 33% relative to the ten year note. Unless you believe that bonds are 33% over-valued (which we don't), then this valuation model provides a very strong safety net for those worrying about anything more than a market correction in 2005.
       Inflation has increased in 2004, but most of the excesses have been due to energy and food prices, which are beginning to moderate. Excluding food and energy and using Alan Greenspan's inflation gauge, the Consumption Price Deflator, inflation is up a mere 1.5% in 2004. We're sure the Fed will continue to preemptively and gently push interest rates higher, but we don't expect rates to exceed 3.5%-3.75% during 2005. While the Fed argues that the risk of deflation and inflation are about equal, we continue to believe that deflation over the next several years is a much higher risk scenario than inflation - primarily due to the productivity enhancements that we expect as the second wave of technological innovations take hold.
       There are several trends which should augur favorably for 2005, and apparently the management at GE agrees with us, as they announced plans to buy back 4% of their stock over the next three years, as well as raising their dividend by 10%.
       First is the continuing demand for stocks. While the consensus opinion suggests that investors are sitting on the sidelines, we noted that there were $548 million of inflows into equity mutual funds last week. So a lot of people are betting on the market in this environment.
       Second, despite the grumbling and debate over the plunging dollar, it is making our products looks extremely cheap overseas. And we expect the trends toward increasing globalization, especially in China, to help accelerate corporate growth in the next several years.
       As the economists at Wachovia recently pointed out, while the dollar has fallen 23.8% against the euro in the past two years, because we are increasing our trade with China and other Asian nations, the trade-weighted value of the dollar indicates that the greenback lost just over 4.1% over the past year.
       Third, the technology revolution is in its infancy. Progress in arenas such as biotech and nanotechnology are going to ineluctably alter life on this planet. Small emerging growth companies will once again lead the way and bring the masses back into the market.
       Psychologically, investors have always known that corporate and analyst estimates would err on the optimistic side. But with the increasingly stringent controls being put in place for both CEOs and analysts, we are much more likely to see restrained and even pessimistic forecasts. We can't remember a time when consensus earnings estimates have been lower than actual corporate earnings, as was true in 2004. We expect the same caution among analysts in the coming year. And with most talking heads looking for a poor 2005, we fell somewhat optimistic about the possibilities.
       If we had to choose two high risk investment for 2005 that could produce the highest returns over the next two years, we would invest in Guardian Technologies (GDTI) and PivX Solutions (PIVX). We wouldn't bet the farm on either, but we believe both companies are in the right place at the right time with a product that this world cannot live without."

(Back to Index)

THE CHARTIST
P.O. Box 758, Seal Beach, CA 90740.
1 year, 17 issues, $175. www.TheChartist.com.

All systems are go, but
don't enter without an exit plan

       "All systems are go, but don't enter without an exit plan," says Dan Sullivan. His advice for both long-term investors and Traders is to remain fully invested.
Here are fundamentals on two of Sullivan's recent recommendations:
       "Phelps Dodge (PD) "Quest for Zero" is all about improvement productivity and the bottom line. Specifically, the "Quest for Zero" program is focused on zero accidents, zero production variances and zero environmental mishaps. And it is one of the ways that Phelps Dodge is remaining a leader in the worldwide mining industry.
       For example, at its Morenci mine in Arizona, new technology enables shovel operators to know the exact weight of each dipper of material that they load on a truck. And, since they know the optimum load level, the new technology can tell them if they have too little (resulting in a partially wasted trip) or too much (causing unnecessary wear and tear on equipment). It is that kind of forward thinking that keeps Phelps-Dodge at the forefront of its category. Currently, Phelps Dodge is the world's largest publicly traded producer of copper, and a world leader in the production of molybdenum. It is also the largest producer of molybdenum-based chemicals and continuous-cast copper rod, and is among the leading producers of magnet wire and carbon black. The company is comprised of two divisions, the Phelps Dodge Mining Co. and Phelps Dodge Industries, which employ more than 4,000 people worldwide.
       Phelps Dodge Mining Co. is the industry leader in the safe, efficient and environmentally responsible production of high-quality metals and minerals. Phelps Dodge Industries comprises two global businesses, Phelps Dodge Wire and Cable and Columbian Chemicals Co. These divisions manufacture engineered products for the energy, telecommunications, transportation and specialty chemicals sectors both in established and emerging markets worldwide.
       Thanks to a strong copper market, it posted third-quarter net income of $292.6 million. Revenues soared 80% to $1.85 billion from $1.03 billion, driven by company improvements as well as a 4.5 cent-per-pound decrease in the cost of producing copper.
      Transocean's (RIG) focus on FIRST (Financial discipline, Integrity, Respect, Safety and Technological leadership) has helped the Company to post record earnings. In fact, RIG's third-quarter financials were outstanding, posting net income 14 times better than the year-ago period.
       The Houston-based company posted quarterly net income of $154.9 million, or 48 cents per share, on revenue of $651.8 million. In the year-ago period, RIG earned $11.0 million, or 3 cents per share, on revenue of $622.9 million. Due to continued customer demand for offshore drilling, the company anticipates a strong 2005. However, a long-running strike in Norway is affecting three of the company's semisubmersible rigs, and, with two more rigs undergoing repairs, the company is offering a cautious statement for fourth quarter 2004 earnings.
       As the world's largest offshore driller, Transocean excels at constructing oil and natural gas wells in deep waters and harsh environments. The company provides rigs for all types of petroleum companies in offshore drilling markets, including the U.S., Brazil, the U.K., the Norwegian sectors of the North Sea, West Africa, Asia, the Middle East, India, and the Mediterranean.
       Since launching its first jackup rig in 1954, Transocean has developed a long history of technological "firsts" including: The first fourth-generation semisubmersible, the first rig to drill year-round in the North-Sea, the first semisubmersible for the sub-Artic; and the first semisubmersible for year-round drilling west of the Shetland Islands in more than 4,000 feet of water.
       Transocean also holds 19 of the past 23 world records for drilling in the deepest waters. The company's ultra-deep-water drillship Discover Deep Seas set the current world water depth drilling record in 10,011 feet of water in the U.S. Gulf of Mexico working for Chevron Texaco.
       A Cayman Islands corporation, Transocean has approximately 10,000 employees worldwide. Principal U.S. executive offices are located in Houston, TX."

(Back to Index)