Bull & Bear's Smarts

       Kelley Wright, Managing Editor, Investment Quality Trends, 7440 Girard Ave., Suite #4, La Jolla, CA 92037, www.iqtrends.com looks at the best performing stock from over the last 25 years.
        "Eaton Vance (NYSE EV) is a familiar name to the financial management community. The company was founded in 1924 and is one of the oldest financial services firms in the US. Eaton Vance manages more than 150 types of portfolios, focused on varying tax implications pertaining to wealthy investors and institutions. In 2004, EV managed $94 billion in assets. Over the last few years, the firm has undertaken significant acquisition activities. In 2001, the company paid $75 million for a 70% equity stake in Atlanta Capital Management and $32 million for an 80% equity stake in Fox Asset Management and in 2003 it paid $28 million for an 81% profits interest in Parametric Portfolio Associates, whose specialty is to design portfolios which outperform client-specified benchmarks.
       "The close of the first quarter of 2005 marked a 17% increase in assets under management from the same period in 2004. Diluted earnings per share rose to $0.27 from the $0.22 made during the same period in 2004. Revenues rose 16% from the first quarter of 2004. Overall results were strong, but fell short of Wall Street expectations, leading to reserved selling. After a series of dividend increases EV is once again close to its historic levels of high dividend yield, suggesting the shares have just 7% downside risk compared to 86% upside potential. Its strong growth has made several dividend increases possible, paving the way for its return to Undervalue. The shares offer a history of strong dividend growth, a low payout ratio, a great balance sheet, and good prospects for future growth. Investors will find the shares trading at Undervalue up to a price of about $24 per share."

        I am also particularly excited about attending a workshop from Dr. Scott Gottlieb. He will be making his first appearance at a Money Show, in this case, following the recent launch of the Forbes/Gottlieb Medical Technology letter, 291A Main St., Great Barrington, MA 01230. Here are some of his insights on the biotech arena.
       "Several cancer companies are developing drugs based on completely new scientific concepts, and aiming them-in many cases-at completely novel biological targets. But there is one standout that I believe is on the verge of reporting significant data with its lead drug. Kosan Biosciences (Nasdaq KOSN) has two first-in-class cancer drugs in phase I and phase II trials in multiple cancers. The company essentially improves upon nature; it uses its genomic technology to tweak the genetic sequences that code for the production of the proteins that underlie these medicines. By changing the genetic code, Kosan is able to design in all of the qualities that will make the polyketides better drugs, and design out those qualities that limit their usefulness.
       "Its lead drug is KOS-862, which has a mechanism of action similar to the taxanes, which is a class of drugs used in a variety of cancers, but principally breast cancer. There is buzz in some cancer circles that the company could present strong data regarding KOS-862 at the upcoming conference of the American Society of Clinical Oncology in May 13-17. Kosan's other discovery program encompasses a class of compounds known as Hsp90 inhibitors. Kosan is trading at a valuation that most big pharmaceutical companies would pay for just one of the company's drug development programs. Investors in Kosan are essentially getting two promising cancer programs for the price of one, and taking on less risk in the process. I recently spoke with one of Kosan's senior science executives, and came away impressed by how passionate his team was about their science. Kosan could be on the verge of some big data announcements-hopefully positive news about its lead drug-and I like what I see going on at this small California biotech. I am currently rating Kosan a buy and adding it to my core portfolio."

       By tracking over 65,000 virtual model portfolios, Ken Kam, Portfolio Manager, Marketocracy's Masters 100 Fund, President and CEO, Marketocracy Capital Management, LLC, 1200 Park Place, Ste 100,San Mateo, CA 94403, www.marketocracy.com, isolates the best non-professional stock pickers. He then looks for those stocks that are being bought by the "best" performers, while concurrently being sold be the "rest". Here are some of his latest buys.
       "Sierra Wireless Inc (Nasdaq SWIR) develops products that permit users to access wireless data and voice networks using notebook computers, personal digital assistants, vehicle-based systems, and mobile phones. The Best Investors have bought and sold SWIR pretty effectively over the years. They held a relatively large position in SWIR as it jumped 250% during 2003. Then in January 2005 the Best began selling, as the price dropped from $17 to $10. Now, as the price has dropped, the 'Best' have jumped back in again.
       "American Technology (Nasdaq ATCO) is engaged in sound reproduction technologies and products. At the end of last year, the Best investors' holdings in ATCO was small, ranking in only the top 31% of the portfolio. Since the new year, they significantly increased their position - by a whopping 688%. ATCO now ranks within the top 4%. In March, ATCO announced record quarterly earnings for their quarter ending on December 31. ATCO has a market cap of $180 million.
       "TJX Companies (NYSE TJX) is an off-price retailer of apparel and home fashions in the US and worldwide. It has been in the Best investors portfolio for a long time. However, at the end of March 2004, as it reached it's all-time high, the Best more than doubled their position. And when it dropped in July, the Best added 70% more to their portfolio. After locking in some gains after a price rise last Oct./Nov., the Best are now buying again, putting TJX in the top 16% of all holdings in their portfolio.
       "Doral Financial (NYSE DRL) is a financial holding company engaged in mortgage banking operations in Puerto Rico. In March, based on downgrades from several analysts, the stock tumbled 44%. As the market sold the stock, the Best were buying; increasing their position by 39% that week and then 75% the next week. In recent trading, the price dropped further and they kept buying, adding another 7% to bring the total increase in shares of DRL to 160% since the drop."

       It's a rare opportunity to share commentary from both James Oberweis, Jr., who offers us some top stock ideas, as well as Jim Oberweis, Sr., President, Oberweis Asset Management, Inc., publishers of The Oberweis Report, 951 Ice Cream Dr., Ste. 200, North Aurora, IL 60542, www.oberweis.net who offers his insights. Indeed, both will appear at the upcoming Money Show.
       "Just when you've gotten used to low interest rates and low inflation due to a relatively muted economy and excellent productivity increases, the world begins to change," notes Jim Oberweis, Sr. "There are no guarantees or 'sure things' in the investment business. But for what it is worth, from a guy who has watched markets closely for almost 40 years, the likelihood of interest rates rising and gold prices rising over the next few years is as high as ever. It seems inevitable to me that the recent substantial boost in oil prices will spread through the economy, causing a general and not insignificant increase in commodity and manufactured goods prices. Such an increase is likely to be followed by increasing prices for services as well. I expect general price increases of 3-4% a year for the next several years.
       "The substantial trade deficit that the US is running is likely to cause continued weakness in the dollar as well. Weakness in the dollar, if substantial enough, will eventually help boost our exports and limit our imports, bringing trade back into balance. But that weakness in the dollar will tend to increase inflation as the cost of imported goods rises. Dollar weakness and rising inflation will, at some point, spook savers (foreign and domestic) into demanding a higher price for their capital. That price is the interest rate. I expect 10-year rates to rise from the 4.6% area to the 6% area over the next few years. Of course once such trends get started, they tend to go further than anyone expects, so rates might in fact carry much higher. Similarly, I expect gold to rise from its current $425 area back towards its old highs in the late 1970s of over $800 per ounce. Once again, such trends, when in place, can carry much further than one might rationally expect. Perhaps gold will reach $1500 to $2000 per ounce over the next decade. We'll see."
       "Where does all of this speculation leave us? I believe investors should be cautious about buying long term fixed income securities unless they intend to hold them for the long term and need the income. If not, cautious investors should buy laddered fixed-income securities with one to five year maturities to enable reinvestment at higher rates in the future. Some small gold or gold mining share hedge might make sense. In a higher inflationary environment, stocks may do better than fixed income securities for those able to accept the volatility and risk. Real estate may benefit also, but home prices, especially on both coasts, have already risen to somewhat precarious levels. Oil stocks and other commodity producers may benefit as well. Alternative energy plays may have another run. Rapidly growing small companies may do well as they are frequently more flexible and more able to adapt to rapidly changing economic conditions. So that light you see at the end of the tunnel? Be careful. It may be a train. Don't get run over!"
       Meanwhile, James Oberweis, Jr., offers some of his latest stock ideas from the latest issue of The Oberweis Report:
       "Cogent (Nasdaq COGT) provides fingerprint biometrics to governments, law enforcement agencies, and other commercial customers worldwide. It's solutions allow customers to encode fingerprints into searchable files and accurately compare a set of fingerprints to a database containing millions of fingerprints in seconds. In its recently reported fourth quarter, revenues grew to $31.8 million, a 36% increase. Earnings per share grew to $.08 per share versus a loss in the same year-ago period. Clients of Oberweis Asset Management own 31,000 shares.
       "Lazare Kaplan International (ASE LKI) sells diamonds and jewelry products through its worldwide distribution network. In November 2004, the country of Angola agreed to supply Lazare Kaplan with up to $300 million annually of rough cut diamonds. The company has also recently enhanced its relationship with DeBeers and has established a joint-venture with a supplier in Russia. In the company's latest reported second quarter of fiscal year 2005, sales increased 78% to $93.2 million. Earnging per share were $0.12 in the quarter versus $.01 in the same quarter of last year. Clients of Oberweis Asset Management own 60,000 shares.
       "Ctrip.com International Limited (Nasdaq CTRP) is a leading consolidator of hotel reservations and airline tickets in China, operating much like Expedia.com in the US. Ctrip targets primarily business and leisure travelers in China. In the company's latest reported fourth quarter, sales increased approximately 45% to $12.6 million. Ctrip reported earnings per American Depository Share of $.31 in the latest reported fourth quarter versus $.19 in the same quarter of last year. Clients of Oberweis Asset Management own 235,000 shares."

       One of the most defensive groups is food distribution," notes Ivan Martchev in Personal Finance, 1750 Old Meadow Rd., Ste. 301, McLean, VA 22102, www.kci-com.com. "This sector is about as stable and non-cyclical as you can get; institutional investors love to pile into these stocks in times of uncertainty." Here are three of his favorites.
       "Sysco (NYSE SYY) is the #1 food distributor, accounting for around 13% of the market. Since its inception 30 years ago, the company has made 70 acquisitions. During the last five years, Sysco has been 'digitizing' its operations, creating economies of scale, and changing the company's previous structure of a loose-knit association of semi-autonomous distributors. The system implementation has helped earnings, and more improvement is expected. It is also combining all its smallest distribution centers into large regional centers. Sysco's main challenges are rising commodity prices for dairy and meat and its difficulty in passing these costs to customers. That said, Sysco is a solid company with a great management team; buy this excellent defensive holding below 37.
       "Since its nearly fatal accounting scandal two years ago, Netherlands-based Ahold (NYSE AHO) has been doing serious housecleaning, trying to win back investor confidence. The stock was pummeled when it was discovered that the company's US distribution operations were inflating profits. But after many firings, several cash infusions, and a successful restructuring plan, the stock is attractive again. Meanwhile, despite being beaten badly, Ahold still ranks fourth in size behind Wal-Mart, Carrefour of France, and Germany's Metro in the world retailing charts. Large corporations that survive scandals tend to trade at a discount for awhile and then close over time. The healing process has started. Trading at 20% of sales, Ahold has the highest risk exposure of the trio, but it's a good buy below 10.
       "Although Supervalu (NYSE SVU) has a much bigger weighting in food retailing than food distribution its focus on the discount grocery business has kept it on the right side of the industry trend. Full service supermarkets have seen their pricing power erode and their market share stagnate, but the discounters have been doing well. Supervalu has had great success with Save-A-Lot, which is the nation's leading extreme-value grocery chain with nearly 1,300 stores. The core idea: If you carry less of a variety of items, you can sell the ones you have much cheaper. Its comparable quality, private-label items sell at 40% below the leading national brands. Currently, Supervalu is the only way in the US to play the extreme-value trend. The stock is a buy under 33."

       By focusing on the Fidelity family of funds, Jim Lowell, Editor, Fidelity Investor, Chief Investment Strategist, Adviser Investment Management, 186 Crescent Rd., Needham, MA 02194, www.fidelityinvestor.com, has developed a noted expertise in assessing buy and sell opportunities among the various funds in the group. Here, the advisor highlights some of his favorite buy-rated Fidelity growth funds.
       "At the core of every one of my Buy, Sell, and Hold ratings is my proprietary fund manager ranking system which enables me to strip away all the noise (from the markets, the economies, the pundits), and lets each manager's numbers speak for themselves. While this has the look and feel of being overly personal, the reality is that it's just the opposite; a purely quantitative ranking based on the merits of each manager as opposed to a subjective rating system.
       "Harry Lange has been running Fidelity Capital Appreciation (FDCAX), a go-anywhere growth fund since the beginning of 1996. His style is simple: growth, value, large-, mid-, and small-cap, with a healthy dose of foreign stocks - like I said, Cap App is truly a go-anywhere fund, and as such, it's a suitable holding for virtually any growth investor. Currently, Lange is focused on technology, consumer discretionary names, health care, financials, and industrials.
       "In a sense, Contrafund (FCNTX) is also go-anywhere, although contrarian manager Will Danoff tends toward large cap stocks and broader diversification. Danoff has been running Contra since September 1990 in his inimitable style- going against the grain to sort the wheat from the crowd's chaff. Where's he looking these days? His top five sectors are just what you'd expect from a contrarian: technology, financials, industrials, health care, and consumer discretionary.
       "We have just added Value Discovery (FVDFX) to both our Aggressive Growth and Growth portfolios. While Value Discovery is a relatively new fund (launched as it was on 12/02), manager Scott Offen, is a veteran who, at different times, previously managed Select Brokerage, Energy, Food & Ag, Life Insurance, Natural Resources, and Paper & Forest Products over the course of the past 15 years. These days, values might be harder to come by, but Scott's diversified fund background and consistent value discipline bode well for more profitable discoveries down the road.
       "I also upgraded Fidelity Blue Chip Value (FBCVX) this month. Manager Brian Hogan is a relative newcomer (as is this fund); he's been the manager since the June 2003 inception. Currently, he's positioned the top 5 sectors of this fund as follows: Industrials (19.5% vs. 12.5% for his benchmark index, the Russell 1000 Value Index); financials (18.6% vs. 32.6% for his benchmark); energy (12.6% vs. 12.1%); healthcare (10.4% vs. 3.6%); and consumer discretionary (9.2% vs. 10.7%).
       "Harris Leviton has been running Value Strategies (FSLSX) for the past 9 years, but it was basically invisible until Fidelity reopened it at the end of January 2004. The fund has shifted from the mid-cap 'blend' (midway between value and growth) camp, toward the value side of the balance sheet. While there's something to be said for style purity, I also have to respect a manager willing to make the kind of outside-the-box bet which proves that he is not willing to accept mediocrity, that he would rather stand out, even at the risk of his career. As it happens, in 2003 Leviton doubled the market's performance with his smart buys in the bargain basements of technology and consumer discretionaries."

       Jim Collins, Editor, OTC Insight Listed, and Biotech Investor Insight, Chairman and CEO, Insight Capital Research & Management, Inc., 2121 North California Blvd., Ste. 560, Walnut Creek, CA 94596, www.icrm.com, is a specialist in momentum investing, using a complex screen that searches through thousands of stocks to isolate those issues showing the strongest patterns of relative strength and earnings growth. His latest buy is a Florida real estate play.
       "The St. Joe Company (NYSE JOE) is a real estate operating company and one of the largest private landowners in Florida, owning about 820,000 acres. The majority of its land is located in the Northwest part of the state. Its acreage includes hundreds of miles of frontage on the Gulf of Mexico, bays, rivers, and waterways, with nearly 40 miles of Gulf coastline, including five miles of beachfront property. The company is also engaged in commercial and industrial land sales, and real estate services.
       "The company's resort operation, which was 65% of 2004 revenues, develops and sells home sites and homes in primary and vacation communities on company-owned land. Management has reported increased consumer interest in Northwest Florida. In February, the company announced that their first resort releases of the year, in the WaterColor and WaterSound Beach communities, sold out of all available home sites, at prices of about $1 million per home site. The firm also reported selling out its lower-priced RiverCamps on Crooked Creek project, with average selling prices of $276,000 per site.
       "For the quarter ended December 31, 2004, St. Joe reported earnings of $0.37 per share, an $0.11 increase from the year-ago quarter. Revenues grew 29% to reach $291 million. We caution that St. Joe's operations are highly concentrated in one region and the real estate industry is cyclical and impacted by interest rates changes. Meanwhile, management has targeted earnings per share for the full year 2005 in the range of $1.35 to $1.50 per share. The stock has performed strongly since bottoming at $36.86 last May, rising 79% for the rest of the year. Year to date, the shares have risen another 13%. The company receives an A rating for accumulation and distribution and has a relative strength rank of 94 out of a possible 100."

       Richard Moroney, is editor of Dow Theory Forecasts and Upside which focuses on small and mid cap growth and value opportunities, Vice President and Portfolio Manager, Horizon Investment Services, 7412 Calumet Ave., Hammond, IN 46324, www.dowtheory.com, www.upsidestocks.com, and www.horizoninvestment.com. His quantitative ranking system, Quadrix, uses more than 100 variables to rank 4,200 stocks on a scale of 1 to 100. Here are two that score near-perfect ratings.
       "Most of our new recommendations earn Overall scores above 80 in our Quadrix system. Our studies have show that the very best scorers historically outperformed consistently, delivered excellent returns, and showed below average risk. Here are two recent buys - one earning a 99 overall rating and the other a 100.
       "Commerical Metals (NYSE CMC) has an Overall Quadrix score of 99. Like most steel makers, the company has outstanding operating momentum, along with a cheap valuation that reflects concerns regarding an industry downturn. For its February quarter, Commercial Metals earned $0.91 per share on sales of $1.6 billion, up from $0.35 on sales of $1.1 billion in the year-earlier period. The company raised May-quarter guidance for earnings per share to $1.10 to $1.30 - well above the $0.98 analysts had expected. Like many stocks with very high Overall scores, Commercial Metals is a top-performing company facing Wall Street skepticism. The two-analyst consensus estimate projects per-share earnings will more than double to $4.73 for the year ending August, but a decline to $4.05 is expected the following year. Historically, steel-company profits have been volatile and difficult to predict. Commercial Metals appears well positioned relative to peers, but results are highly sensitive to global steel demand. The stock, trading at nine times trailing earnings, remains a Best Buy.
       "General Maritime (NYSE GMR), an oil tanker company, earns the maximum Quadrix score of 100, thanks to strong Momentum (recent operating results), Value (price/earnings and other valuation ratios), Quality (long-term growth rates and returns on equity, assets, and investment), and Performance (stock-market returns over different periods within the past 12 months). The stock will soon offer one more attraction: a high dividend yield. Beginning in late April, General Maritime plans to declare quarterly dividends equal to earnings before interest, taxes, depreciation, and amortization - after interest expense and a reserve for maintenance and expansion. Had the new policy been in place for the fourth quarter, when General Maritime earned $3.70 per share, the quarterly dividend would have been $3.94 per share. Consensus estimates project per-share earnings of $6.35 in 2005 and $4.29 in 2006. The tanker industry is highly cyclical. But, from current prices, the stock remains a Buy based on its 20% total-return potential over the next year."

       Despite being an advocate of mutual funds for 25 years, Doug Fabian now says, "There is a paradigm shift going on that has led me to conclude that I may very well have bought my last mutual fund." Here, the editor of Successful Investing, www.fabian.com explains his new "fund focus".
       "The mutual fund industry has a lot of fat in it in terms of fees and commissions and that hold down the profits an investor can realize. The average management fee of a stock fund is 1.58%. That's pretty rich when you see that the average fund lost 2.5% last quarter alone. Mutual fund companies seem to be getting the message as 844 fund companies are cutting their fees. But it may be too little too late as investors have caught on to a much better way of investing that does not involve the higher fees and human frailty associated with actively managed-funds. I am talking about, you guessed it, ETFs.
       "Exchange traded funds are tied to a given index that trade like stocks. That means that you can buy and sell ETFs throughout the day. You can also establish a stop loss. You can only buy or sell mutual funds at the day's closing price. There are 120 ETFs out there and they range from market indices to sector indices to bond indices. And the list continues to expand. The average fee for buying an ETF is 0.3%, a huge discount from what you pay for a mutual fund. Another benefit to ETFs is that your fund will never under-perform the benchmark because your fund is the benchmark. ETFs are just a better way to invest and people are starting to figure that out.
       "For example, we would suggest that long-term investors use ETFs to invest in the energy sector. Energy has been the best sector over the last 3 years - up 30%, year over year. I continue to recommend that my readers overweight energy up to 15% of their portfolio's value. To take advantage of this long term trend and to capitalize on rising energy prices, I continue to recommend an allocation to the energy ETFs such as iShares Dow Jones US Energy (IYE ASE) and Energy Select Sector SPDR (XLE ASE). You might want to check out iShares Goldman Sachs Natural Resources (IGE ASE), a natural resources ETF which is up 12% for the year."
       Editor's Note: Bull & Bear readers are invited to attend the Washington, D.C. Money Show, August 11-13th, Wardman Park Marriott Hotel - free of charge. Focus: Investing in Public Companies. Over 50 of Wall Street's top analysts, advisors and money managers will address the issues of greatest concerns to today's sophisticated investors and traders, helping you acquire the knowledge, tools, skills and strategies to prosper and profit. Get advice and insights from over 200 free workshops, panel presentations, and intensive presentations. Take advantage of the exhibit hall featuring over 200 financial service companies. To register call 1-800-970-4355 or visit www.TheBullandBear.com.

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

In search of catalysts

       Richard Moroney: "Before recommending any stock, we look for a catalyst, an identifiable reason why we expect the stock to outperform the market over the next 12 months. Such catalysts are numerous, and the significance we place on them varies. But the stocks reviewed below illustrate seven catalysts with good track records.
Earnings Momentum
        Companies with accelerating profit growth can surprise Wall Street, leading to a revaluation of the company and a higher price/earnings multiple. In addition, positive profit-estimate revisions can help confirm a company's growth prospects. To find earnings-momentum candidates, we screened for companies with positive three-month profit-estimate revisions for this year and next year. In addition, the companies handily beat consensus profit estimates in the last two quarters. Companies making the cut include Brady (NYSE BRC $35), Select Insurance Group (Nasdaq SIGI $47), and Valley National Gases (ASE VLG $15).
        Brady delivered an impressive December quarter. Per-share earnings more than doubled to $0.41, beating the consensus estimate of $0.30. Sales increased 28%. For fiscal 2005 ending July, management now expects per-share earnings of $1.55 to $1.60, up from previous guidance of $1.35 to $1.41. Sales are expected to range from $790 million to $810 million, implying at least 17% growth. The stock, an impressive performer over the past year, still trades at an attractive price/earnings ratio relative to its growth prospects. Brady is rated Buy.

A dividend initiation may signal that a company's growth is sustainable. On average, stocks outperform after declaring first-time dividends. Also, academic studies have found that dividend-paying stocks tend to have less volatile returns than stocks without dividends. To find potential first-time dividend payers, look for companies with solid balance sheets, a strong cash position, and healthy free cash flow. Three companies to watch include Rofin-Sinar Technologies (Nasdaq RSTI $36), Electronics Boutique (Nasdaq ELBO $39), and J2 Global Communications (Nasdaq JCOM $39).
Rofin-Sinar has a solid balance sheet, with nearly $6.50 in cash per share. In addition, the company pumped out $1.76 per share in free cash flow over the last 12 months. Rofin has been volatile following the release of December-quarter results. Per-share earnings jumped 34% to $0.55, topping the consensus estimate by $0.02. Revenue climbed 29%, with internal revenue growth of 10%. Apparently, some investors were expecting a larger earnings surprise based on the company's blow-out September quarter. In addition, management's sales forecast was a bit disappointing. Still, the stock remains a top pick for 12-month gains. Rofin-Sinar is rated Buy.

Relatively few small companies pay dividends, and even fewer consistently increase their payout. In general, companies that grow their dividend are expressing confidence that cash flow can support higher payouts. An increasing dividend also shows willingness by management to share the wealth. Four notable dividend growers are Commercial Metals (NYSE CMC $35), Gibraltar Industries (Nasdaq ROCK $25), R&G Financial (NYSE RGF $37), and StanCorp Financial (NYSE SFG $88).
Commercial Metals has increased its dividend at a 9% annualized rate over the past three years. In December, the company raised its quarterly per-share dividend to $0.06, up from $0.05. Commercial Metals has paid a dividend for 161 consecutive quarters, or more than 40 years. The company is benefiting from favorable pricing and robust demand. November-quarter sales surged 84%, on top of an August-quarter increase of 82%. The stock has more than doubled over the past year yet remains reasonably valued at 11 times trailing earnings. Commercial Metals, yielding 0.7%, is rated Best Buy.

In theory, stock splits should not matter; a split has no impact on the value of your holdings. But stocks usually rally on split announcements, and academic research suggests that stocks tend to outperform after splitting. You should never buy a stock solely for a stock split. Still, investors seem captivated with stock splits. To find split candidates, we screened for stocks trading near or above the price at which they last split. Candidates include Cal Dive International (Nasdaq CDIS $50), Quiksilver (NYSE ZQK $32), and Select Insurance.
Cal Dive's last stock split was in November 2000, near $42. The split was 2-for-1. Cal Dive, a leading marine contractor and operator of off-shore oil and gas wells, posted impressive December-quarter results. Including a charge of $0.06 per share, per-share earnings were $0.65, up from $0.23. Full-year 2004 earnings per share reached $2.06, up from $0.87. For 2005, per-share profit estimates range from $2.37 to $2.95, with an average of $2.54. Cal Dive is rated Best Buy.

Short sellers sell borrowed shares in hopes of buying the shares back at a lower price and pocketing the difference. In a short squeeze, a heavily shorted stock starts to climb, pressuring short sellers to buy back the stock to prevent further losses. Ultimately, buying begets more buying, pushing a stock's price higher. To uncover short-squeeze plays, evaluate a company's short interest (the number of shares sold short) and short ratio (short interest divided by average daily trading volume). Three stocks to consider as short-squeeze plays are Biosite (Nasdaq BSTE $58), Sonic Solutions (Nasdaq SNIC $15), and Gildan Activewear (NYSE GIL $40).
Biosite had 5.8 million shares sold short, or about 39% of float (tradable shares), on Feb. 8 - the most recent data available. The short ratio, or roughly the number of days needed to purchase all shorted shares based on average trading volume, was 11. Biosite notched solid December-quarter results. Excluding a $0.09 per share benefit from a lower-than-expected tax rate, per-share earnings were $0.59, up from $0.32. Total revenue jumped 44%. Biosite is rated Buy.

       Genia Turanova: "We added SanDisk Corporation (SNDK $27.24) to the Fast Track Portfolio. SNDK is the leading supplier of flash memory cards, used in digital cameras, MP3 players, computers, cell phones, and so on. The market for flash memory is fueled by the demand for greater density, better performance, and lower cost, and SanDisk is on the technological forefront. The company expects its market will expand from under $8 billion in 2004 to nearly $16 billion by 2007 as consumer demand for all the products referred to above grows. Another spur to growth will be increasing demand for removable flash memory drives. SanDisk has great technological expertise in the storage and memory area, as can be seen from its 284 U.S. patents, with 300 more pending.
       Of course, we can't disregard the competition. SanDisk competes directly with many semiconductor heavyweights, including Intel and Micron Technology. But this seems manageable given both SanDisk's expertise and the fact that flash memory isn't a major revenue driver for these rivals. SanDisk also competes indirectly with Apple's iPod. That's because its drives are used in MP3 players, which are alternatives to iPod. Probably its chief competitor is Samsung.
       In January, SanDisk reported a stellar quarter, with virtually all metrics - revenues, per-share earnings, and margins - above management's guidance as well as consensus estimates. The stock has been uptrended since then but remain below the 52-week high. With projected growth of 20 percent and a forward P/E of about 21, the PEG is a very attractive 1.05. We recommend buying SanDisk for a target of 34."

        In 1962, Sam Walton opened the first Wal-Mart store in Rogers, Arkansas. By 1970, the small chain was thriving with 38 stores and $44 million in sales, and Wal-Mart's stock began trading over the counter as a public company. By the 1980's, Wal-Mart began branching out into different retail formats by adding warehouse clubs and supercenters, which feature a complete grocery department along with general merchandise. Wal-Mart was quickly becoming one of the most successful retailers in America. Delighting investors in 1983, Mr. Sam did the hula at high noon on Wall Street, making good on a promise to associates after the company achieved pre-tax profits of 8%.
        A decade later, Wal-Mart generated its first $1 billion sales week, and by 1996 Wal-Mart had its first $100 billion sales year. While many folks thought Wal-Mart at $100 billion in revenues was too big to grow much more, the business wasn't about to slow down. Just 10 years later, Wal-Mart is poised to triple those sales by generating more than $300 billion in sales in fiscal 2006 and double-digit earnings growth.
        With the first $10 billion earnings year under its belt, management continues to see plenty of growth opportunities. Currently, Wal-Mart sales account for only about 8% of all retail sales in the U.S., excluding autos. Market share gains in the U.S. will continue with worldwide growth, especially in China, just beginning.

Over the years, Wal-Mart has created tremendous shareholder value. From the $3.3 million raised in its initial public offering in 1970, Wal-Mart's market capitalization today is over $200 billion. The company began paying dividends in 1974 and has increased those dividends every year since then - paying out more than $12 billion. Last year, the dividend was increased by 44%.
Wal-Mart has also used its ample cash flow to repurchase shares. Since beginning the program, Wal-Mart has repurchased more than $17 billion in stock. Last September, Wal-Mart approved a new $10 billion share buyback program in contemplation of the possible repurchase of shares associated with the S&P Index float adjustment scheduled for March and September of this year. With the Walton family still owning 39% of the company, there may be selling pressure on the stock as index funds make the required adjustments to the new float-weighted S&P 500 index. With Wal-Mart's stock on sale, long-term investors should load up the shopping cart with this HI-quality firm - a global market leader with solid growth opportunities, superb profitability, steady dividends and an active share buyback program."

        Patrick McKeough: "Albertson's, Inc. (NYSE ABS $20, WSSF Rating: Average) is the nation's second-largest supermarket chain, behind Kroger Co. It operates over 2,500 stores in 37 states under several banners including Albertson's, Acme Markets, Bristol Farms, Jewel, Osco Drug and Shaw's.
        In 2001, the company began a major cost control program, and recently reached its goal of reducing its annual expenses by $1 billion. It now aims to cut $250 million more from annual costs over the next two years.
        To put these figures in context, Albertson's earned $0.50 a share (total $186 million) from continuing operations in its fourth fiscal quarter ended February 3, 2005, up 42.9% from $0.35 a share ($129 million) a year earlier. If you exclude last year's hurricanes in Florida and other one-time items. Albertson's made $0.52 a share in the latest quarter. Sales rose 29.1%, to $11.1 billion from $8.6 billion, mainly due to an acquisition. Same-store sales rose 5.3%.
        The stock has drifted lower lately due to fears over increased competition from Wal-Mart and other discount grocery stores. But costs controls and higher sales of private label brands, which generate higher profits for Albertson's than national brands, should lift its profits in fiscal 2006 to $1.55 a share. The stock trades at just 12.9 times that estimate.
        It's also cheap in relation to its sales per share of $107. The $0.76 dividend seems safe, and now yields 3.8%.

        McGraw-Hill Companies, Inc. (NYSE MHP $88, WSSF Rating: Average) is one of the world's biggest publishers of educational textbooks and related materials. It also publishes several magazines, including BusinessWeek. Through its Standard & Poor's division, the company provides credit ratings and other financial information.
        In the forth quarter of 2004, McGraw-Hill earned $0.98 a share from continuing operations, down 12.5% from $1.12 a year earlier. If you disregard a gain on the sale of real estate in the year-earlier period, profits improved 19.5%. Most of the gain came from Standard & Poor's, thanks to new products and strong international demand for credit ratings. Revenue rose 16.7%, to $1.4 billion from $1.2 billion.
        The company recently strengthened its financial information operations with a deal to buy J.D. Power & Associates for an undisclosed sum. J.D. Power uses polls to gauge consumer satisfaction in several industries, but the automotive sector provides two-thirds of its revenue. This purchase should add $150 million to McGraw-Hill's annual revenue. The company also recently paid an undisclosed amount for Vista Research Inc., which links up portfolio managers with independent experts (such as scientists) in a wide variety of industries. These managers pay fees to Vista for access to an expert for a set amount of time.
        These acquisitions will cut McGraw-Hill's 2005 profits by around $0.07 a share, but they also reduce its exposure to cyclical advertising markets. The stock now trades at 20.9 times its likely 2005 earnings of $4.21 a share. That's acceptable when you consider McGraw-Hill's strong portfolio of brands. The $1.32 dividend yields 1.5%.
       McGraw-Hill is a buy.
        Anheuser-Busch Companies, Inc. (NYSE BUD $47, WSSF Rating: Above average) is the world's largest brewer, and has roughly half of the U.S. beer market. It also makes aluminum cans, and operates 10 theme parks and resorts in the United States.
        The company earned $0.42 a share in the three months ended December 31, 2004, up 16.7% from $0.36 a year earlier. If you exclude a gain on the sale of an asset and one-time items, per-share profit in the latest quarter grew 8.3%, to $0.39. Revenue grew 4.7%, to $3.37 billion from $3.22 billion, as higher prices offset lower beer volumes.
        Anheuser-Busch has improved profits in recent years with regular price increases in selected markets. These hikes are small enough that they have little impact on the company's market share.
        The company plans more price hikes this year. It also plans to launch new premium brands aimed at younger drinkers, such as caffeine-laced drinks that should help it compete with energy drinks like Red Bull. These initiatives should help lift its profits in 2005 to $2.74 a share, and the stock now trades at 17.2 times that estimate. The $0.98 dividend yields 2.1%.
        Anheuser-Busch is a buy.
        YUM! Brands, Inc. (NYSE YUM $51, WSSF Rating: Average) operates the world's second-largest fast food chain, after McDonald's.
        It has roughly 33,000 company-owned and franchised outlets in over 100 countries, mainly under the Pizza Hut, Taco Bell (Mexican food) and KFC (fried chicken) banners. It also owns the A&W (hamburgers) and Long John Silver (seafood) chains.
        Yum earned $0.70 a share in the three months ended December 25, 2004, unchanged from a year earlier. If you disregard unusual items, per-share earnings grew 12.3%, to $0.73 from $0.65. Revenue rose 5.7%, to $2.8 billion from $2.65 billion.
        Most of Yum's recent growth came from its overseas locations - revenue from international operations rose 13% in the most recent quarter (or 8% if you exclude favorable currency exchange rates). The company's fastest growing region is China, where the number of restaurants in operation grew 28% in the fourth quarter. In 2005, Yum aims to increase its Chinese base by 10%.
        In the United States, Yum's sales were flat as it replaces older restaurants with new ones. The company is also building more multi-brand outlets that combine one or more of its chains. These multi-brand outlets generate higher sales and profits than regular, stand-alone restaurants.
        Yum now hopes to revitalize its struggling KFC chain with more new products and better service. The same strategy helped spur growth at Taco Bell.
        The stock recently hit a new all-time high of $52, and now trades at 19.4 times the $2.63 a share it will probably make in 2005. The $0.40 dividend yields 0.8%.
Yum! Brands is a buy for aggressive investors."

THE MAJOR TRENDS
Published for clients of Sadoff Investment Management LLC
250 W Coventry Ct., Ste. 109, Milwaukee, WI 53217.

The emerging Chemicals

        Ron Sadoff: "The chemical industry is emerging out of a major 10 year well-defined decline that began in 1994.
        The industry fundamentals haven't looked this good since the middle of the late 1980s. It appears we are in the earlier part of this recovery. The supply side is looking excellent for the participants in the industry. Very little capacity is coming on.
        Over the past eight years there has actually been an under investment in chemical capacity. This is good for pricing and companies with existing assets because they are able to operate these plants at higher operating rates. This will push their profit margins and returns on assets higher.
        The growing global economy will help provide a boost to the chemical industry. More than half of all chemicals are used to manufacture other products. The U.S. chemical makers are well positioned to take advantage of an expanding economy. China represents roughly 15% of the consumption of basic chemicals.
        Most of the chemical companies are using their rapidly growing cash flow to pay down debt. Accordingly, their balance sheets are significantly improving.
        Recently we began purchasing shares of several chemical companies: Dow Chemical, RPM International, and Great Lakes Chemical. In the midst of our buying Great Lakes Chemical, Crompton (another excellent chemical company) and Great Lakes agreed to merge.
        Dow Chemical (DOW) has broken out of a well-defined 10 year downtrend signaling a mega turnaround. This large cap company is a major chemical producer with $42 billion in revenues. Major insider buying is being reported. Also note the improving fundamentals.
        RPM International (RPM) makes specialty paints, protection coatings, roofing membranes, sealants, adhesives and auto touch up products.
        The stock has broken out of a well-defined 12 year decline trading on increased volume. Very bullish!
        Double digit growth rates are occurring for both its consumer and industrial divisions.
        Great Lakes Chemical (GLK) and Crompton (CK) agreed to a merger soon after we began purchasing the stock of Great Lakes.
        Each Great Lakes shareholder will receive 2.2232 shares of Crompton for every share held. Crompton makes adhesives for plastics and rubber. Great Lakes produces flame retardants and water treatment chemicals. The new company will have combined revenues of $4.1 billion. Crompton and its new CEO will emerge as top dog.
        This merger is a win-win situation that will amplify the strengths of each company. This combination represents an excellent strategic and financial fit. This merger will create the third largest specialty chemical company in the United States.
        The stock price patterns for both Great Lakes and Crompton are basically identical. Both have recently emerged out of a well-defined, 12 year downtrend and have broken to the upside on increased trading volume. This suggests a mega turnaround is taking place."

        Scott Pearson rates Asta Funding (ASFI $21.17) an "Aggressive Buy."
       "Asta Funding is a purchaser of consumer receivables, which it then manages and seeks to collect. Some of the receivables purchased may still be "performing" (receiving payments), but most have already been "charged off" when the doctors stopped paying. While the line of business may sound unappealing (I mean, seriously, who wants to be the people to deal with bad debt?), the company has proven its ability to excel in this niche business. Asta's strength is in its ability to buy at ideal prices and to receive partial payments on these "lost causes."
        Like most stocks in the recent period, Asta shares fell from their highs of only a few weeks ago. This company, however, is incredibly well-suited for dealing with the very events that led to the fears that caused the market to fall. The company buys portfolios of "distressed" receivables from credit card companies and other creditors at massive discounts, and negotiates "settlements" with the debtors. In a weakening economy, the firm finds new opportunities, and in improving economies, the firm achieves stronger collections rates. One might imagine the only bad time would be a stable and certain economy, something that no one is predicting now. The company appears optimistic, and has recently bought Option Card, itself a debt-buyer and debt management company, for $13.5 million. In addition to a $197 million portfolio of distressed receivables, Option Card brings with it a facility in Denver, two buyers with particularly strong experience, an ongoing contract with a major financial institution, and an improved software system that can be easily integrated into Asta's existing computer system. Furthermore, 1st quarter profits rose 33%, demonstrating the success of the company's outstanding business model. The company has always been careful to buy only those receivables that it believes will yield strong earnings, and therefore only buys when it can get portfolios at good prices (they typically pay just pennies on the dollar). Thus, earnings may be more "choppy" than some of our recommendations in the past, but we recommend management for holding out for the best deals. We'd rather see good profits than perfect consistency.
        We continue to recommend these shares for purchase, and are particularly fond of buying at current prices. With the recent dip, Asta can be had for a little over 12-times trailing earnings. Considering how fast this company is growing, and how much more expensive shares of its competitors are, we believe this is an excellent bargain."

BI RESEARCH
P.O. Box 133, Redding, CT 06875.
Monthly, 1 year, $110.

Paincare Holdings

Thomas Bishop: "If there were no physical pain in the world, we wouldn't have a recommendation here. But in fact it is estimated that 50 million Americans live partially or totally disabled by pain, and the annual cost of chronic pain is estimated at $100 billion each year in medical expenses, lost income and lost productivity. Lost work days alone due to pain are estimated to cost $50 billion per year. While Paincare Holdings (ASE PRZ $4.60 www.paincareholdings.com) deals with alleviating all kinds of pain, from migraines to arthritis, from aching shoulders to aching knees, the biggest culprit is back pain. An estimated 11.7 million Americans are impaired by it and 2.6 million are permanently disabled by it. Indeed the number one reason for visits to the doctor's office is... back pain. It's also the number one ailment on worker's compensation claims. Paincare is on the leading edge of technology when it comes to diagnosing that pain, strategies and treatments for alleviating it, conducting minimally invasive surgery, if necessary, and orthopedic rehabilitation. While I wouldn't want to invest in other people's pain, I feel pretty good about investing in a company that helps people get rid of it. As its name implies, Paincare's focus is entirely on helping people address their pain. And to that end it acquires physician practices in the field, or in some cases just provides management services to practices, or simply provides its various pain care programs to the practices (e.g. electrodiagnostic and rehabilitation programs) that the practice might otherwise have sent the patient elsewhere for. Paincare's business model works like a clock. Few companies can claim such a strong growth record (including 60% EPS growth forecasted by the Company for 2005)... and trade at just 18 times 2005 earnings.

        Paincare Holdings was founded in 1997 when it caught the eye of a publicly traded shell company that has sold its business and was looking for something new to acquire with the proceeds. In late 2001 it stumbled across Paincare, with about 3 practices then, and in mid-2002 completed the acquisition. With that Paincare became publicly traded and has access to the capital to really grow its business. Not quite 3 years later the Company supplies services to, or owns, 37 physician practices. It employs physicians in seven practices it owns outright. In states where corporate ownership of practices is not possible, the Company has acquired only the non-medical assets of 8 other practices to which it supplies management services. In addition, Paincare provides limited management services to 22 physician practices in areas such as providing in-house therapy and electrodiagnostic services. The Company has also acquired three outpatient ambulatory surgery centers where it performs minimally invasive surgical procedures to relieve pain conditions.
        The Company's strategy is to become the leading provider of pain care services and to limit its focus to pain care and to grow through a combination of acquisitions and organic growth. Organic growth of the 9 practices it owned as of 12/31/03 was an incredible 35% in Q4, so this is no token source of growth. In the acquisition arena Paincare seeks out profitable well established physician practices that it feels it can grow by adding additional services/programs, physicians, square footage or equipment. It generally pays half cash and half stock for its acquisitions and invariably offers a substantial earnout if earnings targets are met. Also the physicians sign a five year employment contract with Paincare. If a practice currently sends its patients out for physical therapy elsewhere, Paincare can bring in its MedX direct Rehabilitation Program including the specialized rehab equipment, personnel as needed and training so that rehabilitation can be done in-house. First offered in late 2002, this program has been deployed in dozens of practices across North America. In 2004 the Company began offering physician practices a comprehensive, turnkey electrodiagnostic program marketed as EDX-Direct. Under this program Paincare supplies all the equipment, technical training and support necessary to introduce electrodiagnostic medicine into the practices' pain care offering. In January 2005 the Company unveiled a new proprietary service designed to address severe knee pain and stiffness caused by Osteoarthritis, which currently affects 21 million Americans. This Intra Articular Joint (IAJ) program has already been deployed into all of the 15 practices it owns or provides management's services to and, as with the other programs, is also being marketed to non-affiliated physician practices. The IAJ program is a technologically advanced, nonoperative treatment protocol for knee pain that combines a 5-6 week series of strategically targeted injections (guided by live x-ray imaging) of HYALGAN, the first FDA approved hyaluron therapy to treat QA knee pain in the US, combined with synergistic orthopedic rehab procedures.
        The Company really has a great business model that combines accretive acquisitions and organic growth. It acquired 6 practices last year including its biggest acquisition ever in December when it acquired The Center for Pain Management with four offices serving the Maryland and Washington D.C. area, $7.5 million in annual revenues and approximately $5.5 million in annual operating income. That left about $12 million of cash which, when combined with the $14 million of net income expected in 2005, is enough to fund this year's acquisition program which targets 6 additional acquisitions (plus the sale of 15 additional programs to non-affiliates). However, Paincare has periodically gone to the capital markets to raise funds for acquisitions and as you can see, it has enabled, rather than thrown a wet blanket on, the Company's growth. Management expects acquisitions to grow revenues and operating profits organically by about 25% per year in their first two years and thereafter about 7-10% per year. If I worry about anything here it is that the Company runs afoul of state and federal self-referral and anti-kick back rules which the Company is well aware of, strives mightily to stay in compliance with, and firmly believes it does. But these rules are complicated and grey enough that they take up 4 pages in the 10-K and at the very least are something to be aware of. Note I do own this one. Paincare grew revenues 153% last year and EPS by 200%. This year PRZ targets revenue growth of 55% or more and EPS growth to $.24-$.25 (60-67%). With a BI Rank of 9.5, relative strength and relative earnings ratings both over 95 and a 2005 PE of just 18, these shares represent an enticing Buy to $5.50."

Ian Wyatt's GROWTH REPORT
611 Pennsylvania Ave SE, #417, Washington, DC 20003.
Monthly, 1 year, $179.95. www.growthreport.com

GM heads for the junkyard

        Peter Henig: "According to S&P and Fitch Ratings, General Motors (NYSE GM), still the world's largest automobile manufacturing company (though not by much), currently has one foot in the grave and the other on a banana peel. That's how close GM is to having its bonds officially declared as "junk" by the financial industry's largest and most well respected ratings agencies.
        Recently, S&P affirmed its long-term ratings on GM and General Motors Acceptance Corp. at 'BBB-minus,' one step above 'junk' status, as Fitch rated it with a 'negative' outlook, again just one step above junk. What's suddenly so wrong with GM? Just about everything. Not only has the company recently warned that 2005 earnings will be as much as 80 percent below its prior forecast due to slumping North American auto sales, but has also reported that its market share within North America - its home turf - has fallen to less than 25 percent.
        GM is now forecasting full-year earnings of about $1.00 to $2.00 per share, down from its previous target of $4.00 to $5.00 a share. In 2004 GM earned $3.6 billion, or $6.40 a share, from continuing operations, though it now expects a first quarter loss of about $1.50 per share. The company, of course, blames ballooning healthcare costs, higher fuel prices, and new product lines that won't be out for another year (vehicles which will continue to be gas guzzlers!) as excuses for its own mismanagement. Yet, as investors have learned the hard way, the company has no one to blame but itself.

        In cases of severe corporate crisis, it's always fun to match fact against fiction - or in the case of GM and the other two of the Big Three automakers, fact versus fantasy.
        First, some facts: Higher fuel prices are hurting overall sales of SUVs and pickup trucks, sales which account for nearly 80 percent of North America automobile profits at GM and Ford (NYSE F). GM's domestic SUV sales declined by 9 percent in February while Ford's sales in the same category dipped by 8 percent. (Interestingly, sales of Toyota's Tundra pickup truck and Nissan's Titan each rose by nearly 50 percent for the month). Overall, the SUV segment lost 1.2 percent market share during January and February 2005; the pickup truck segment lost 2 percent market share over the same period. Companywide, GM's sales were down 12.7 percent across the board for February. Meanwhile, fuel efficient compact cars gained 2.2 percent market shared during those two months.
        More facts: GM sold a total of 9 million vehicles in 2004, up 4.1 percent from a year earlier while Toyota increased its sales by 10 percent to 7.5 million vehicles, heading to sales of 8 million cars and trucks by 2005. (Even GM's CEO, Rick Wagoner, had to concede that Toyota could overtake GM as the world's largest automobile manufacturer). Moreover, sales for Toyota's market leading hybrid, the Prius, are booming. The Prius owns 60 percent of the hybrid market, and Lexus, Toyota's luxury brand, is introducing its first luxury hybrid SUV, the 400h, for which it has already taken 12,000 deposits and has plans to sell 27,000 units annually.
        GM's response? Bob Lutz, Vice-Chairman of General Motors has stated that hybrids, "just don't make business sense." Here's where fantasy and fiction come into play. GM loves gas-guzzling heavy metal because that's where they make their fattest margins. Fat margins please Wall Street because they imply that flat or declining sales might still yield plump bottom lines. Thus, investors should still, theoretically, be bidding up GM's stock even without waiting lists for General Motor's gas-guzzling trucks. In fact, it would seem that Toyota, with its more fuel efficient line-up of thinner margin vehicles, would be no match for fat and happy Detroit. If we were to take Lutz at his word, hybrids would be such a dumb business to invest in - they barely make any money at all on those Prius' - Wall Street should actually be penalizing Toyota for placing any emphasis on those markets at all.
        But, as the saying goes, market never lie. So as GM trades at 6 times trailing earnings to Toyota's 11 times trading 12-month EPS, and as GM's stock suffers near its 52-week lows at roughly $33 per share, down 30 percent over the last year, either Lutz is crazy or blind or Detroit is deaf or dumb. My hunch is it's as much a strong dose of the former as it is a good helping of the latter.

        Sometimes, when death is knocking on the door, it's better not to answer.
        Besides declining sales and loss of market share, GM's got a few other things stacked against it. First, it's got an $86 billion pension fund it must manage and that's a big, expensive, time-consuming proposition. Second, in covering 1.1 million workers, retirees and dependents, GM is the single largest healthcare provider in the nation - at that doesn't come cheap. GM spends more than $5 billion a year on medical bills - the equivalent of $2000 per car. (Toyota, by the way, spends a minimal amount, if any, on healthcare, as it is offered largely free of charge by the Japanese government). Last, any of the foreign manufacturers who have become interested in locating here have likely garnered rich tax incentives for years to come - tax savings the Big Three don't enjoy.
        Though the yen has gained mightily against the dollar, making imports expensive and US goods cheap, that dynamic still hasn't played out as strongly as the Big Three would have hoped. Car buyers still want the cars they love to drive; and the cars they love to drive are hardly those made by Ford or GM these days.
        Financially, though GM still has roughly $23 billion in cash, it is also nearly $30 billion in debt. And its solution? The company says financially things should improve significantly in 2006 and 2007 because that's when a new generation of, yep, large sport utility vehicles and pickup trucks hit the market. Why would GM try and fix what ails it with - well, what ails it? Perhaps it's addicted to large vehicle sales and those fat margins, margins that are supposed to rekindle its bottom line; but won't. Perhaps it, (alone) thinks the price of fuel at the pump is going to come down, or at least flatten sometime soon; they won't. Perhaps it's convinced that the mystery of hybrid fuel efficient vehicles is such a niche market it's ok to sit that one out while market penetration and market share for Toyota just grows and grows and grows.
        Or perhaps, as one of the largest companies in the world, it simply believes in its own manifest destiny - and if so, that's dangerous territory within which to tread.
        It's my opinion that the world is passing GM right by. Toyota is proving this as we speak. It may take a year, it may take 10 years, but GM needs a radical makeover (starting with an equally radical change in CEO) in order to execute the turnaround of the century. Will it happen? I doubt it. Wagoner is no Lee Iacocca, the former Chrysler Chairman who turned his company around when it was on the brink of disaster. GM would have to kill its own love affair with large trucks and SUVs, ditch its healthcare responsibilities, and get rid of its heavy debts in order to retool for a coming world where higher fuel prices are here to stay. That's a lot of heavy lifting for a company so in denial it sees hybrids as just a passing fancy. The stock, unfortunately, appears headed straight for the junkyard."

        Richard Lehmann: "March madness was not limited to basketball this year. General Motors came in for a shellacking because of a disappointing earnings outlook. The bad news began when GM announced its largest quarterly loss since 1992 due to loss of market share to Toyota and higher fuel prices. They also cut their profit projection for the year by 50% and to add to their woes, restated fourth quarter 2004 results from a profit to a loss. The media tried to outdo each other with how pessimistic they could get, even using the word "survival" as a real concern. This is the kind of negative media hype that usually creates tremendous buying opportunities. Yields went over 9% as the price of the $25 preferreds dropped as low as 19 before some sanity returned. Naturally institutional holders sold out because they feared that GM paper would be downgraded to below investment grade. In my view, the drop in prices is more of an indication of a short term imbalance of buyers to sellers than a change in GM's prospects. Proof of this is that true junk, i.e. single B rated preferreds, yielded only 8.58% at the end of March.
        According to Rapid Ratings, an up and coming rating agency that uses a totally objective measure of ratings, GM has been below investment grade for years. It's just that the current atmosphere makes it possible for the rating agencies to now recognize this without drawing a lot of heat. Although Enron was a wake up call for these ratings providers about their slowness in reporting a declining credit, old habits die hard. Investors should just recognize that BBB- or Baa3 are generally rating agency proxies for fallen angels, e.g. junk issues that once were investment grade, in all but name. Few companies bounce back up from this level without first declining further. What's really disturbing, however, is how many companies today sport this rating.
       GM is not going into bankruptcy any more than Altria Group (formerly Philip Morris). When the global tobacco lawsuit settlement was reached, Altria became principally a de-facto tax collector for the various states involved. Likewise, I look at GM as principally a HMO provider for 1.1 million employees and retirees. Shareholders are mainly just in for the dividend income, much like bondholders and preferred holders. Can this go on forever? NO, but for fixed income investors the outlook is a lot more promising than for shareholders. There are long-term solutions for GM short of bankruptcy, but its unions won't address them until the alternative looks worse. Meanwhile, you have the opportunity to look in a 9% plus yield on GM debt and preferreds.
       Basically, below 23 all the GM preferreds are a buy.
       While on the subject of auto companies, Ford Motors securities also had a bad month. Their plight is similar to GMs, but they did not forecast losses or revise their earnings guidance downward. This is not to say that the same factors affecting GM aren't going to hit Ford, it only means a Ford day is still in the offing. Some softening of Ford's pricing of its preferreds was apparent in March, perhaps because some others are seeing that what's bad for GM will also be bad for Ford. Our good friends at Rapid Ratings also have had Ford as below investment grade for years, but that should come as no surprise. It is in fact surprising how many S&P 500 companies fail this investment grade test when purely objective measures are used (examples are AIG, Boeing and Pfizer just to name three Dow stocks). This delay by rating agencies in projecting bad news is fairly common with big name companies. There's even a name for it, ratings drag."

        Jeffrey Brommer: "Washington NC based Fountain Power Boat Industries (Nasdaq SC-FPWR) manufactures high performance deep water sport boats, sport cruisers, sport fishing boats, custom offshore racing boats and super cruiser yachts. For the 6 months ended 12/31/04, sales rose an impressive 31% to $34.3 million. Net income totaled $270K versus a loss in the previous period of $117K. Revenues reflect increases in the unit selling price of boats. The jump in net income also reflects a favorable mix of boats sold at a lower tax rate.
        FPWR operates though its wholly owned subsidiary, Fountain Powerboats, Inc. as a designer, manufacturer, and seller of the various lines of boats and yachts mentioned above. The majority of the Company's recreational products are based upon a deep V-shaped pad, a notched transom and a positive lift step hull. This design enables the boat to achieve performance with standard reliable power. The Company also produces military support craft for domestic and international government agencies, including the US Customs Service, US Navy, and US Coast Guard. Network dealers are placed geographically worldwide through 55 in the US and 3 internationally.
        The Company announced on March 7th that it had already booked sales in excess of $11.6 million while exhibiting at the Miami International Boat Show. The influx of new orders increased the existing sales backlog to approximately $50 million. The Company has participated in 3 major boat shows and logged orders totaling in excess of $19.6 million. Their CEO Reggie M Fountain Jr. was quoted as saying, "We believe the significant increase in orders written during the three shows is a direct result of our product diversity, brand leadership and reputation for delivering innovative, quality boats..." We couldn't agree more. The Company has recorded revenues of the following for Fiscal Years 2002, 2003, and 2004; $59,841,760, $52,557,084, and $36,950,581 respectively. Diluted earnings per share (EPS) were $0.29 for 2004, $0.17 for 2003, and a loss of $1.49 in 2002. The Company continues to seek out new markets and dealers both nationally and internationally further strengthening its revenue growth and brand awareness.
        Given the large backlog of orders that presently exists, the low number of shares outstanding and in the float, the recent pullback in share price, and lastly the growth of EPS over the past 3 years, we feel confident for FPWR and its shareholders. While the price of fuel to power these babies continues to go up, it does give us pause for concern, but it doesn't change our decision or risk rating. People that can afford a large powerboat or yacht don't necessarily have to worry about the price of the fuel it takes to run one. We rate FPWR a strong buy at these levels with a low risk rating of 4 out of 10."
        Editor's Note: Jeff Brommer profiles companies exclusively headquartered in North Carolina. Visit the web site at www.investments101.com.

        Express Scripts, the nation's third-largest PBM, provides prescription drugs, retail drug-card programs and specialty disease management through retail pharmacies and mail order services. The company's 16,000 clients include health insurers and employers. PBMs consolidate buyers to increase purchasing power and negotiate discounts from drugmakers. PBMs also save clients money by crafting payment schedules that encourage patients to use cheaper generic drugs and mail-order services.
        Driven by higher membership and increased use by existing clients, total claims for prescriptions in the December quarter increased 13% to 139 million. Express Scripts stands to benefit from growing use of generic drugs, mail-order services, and specialty disease management - three areas where the company earns attractive profit margins. Because generic drugs are typically available from several manufacturers, Express Scripts can wield considerable bargaining power and earn good profit margins for itself.
        After the January 2004 acquisition of CuraScript, a specialty pharmacy service provider bought for $335 million, Express Scripts had a 1% share of the fast growing specialty-disease management market.
        As prices for prescription drugs have increased, so has scrutiny of the PBM industry. Some contend PBMs overcharge and withhold discounts, leading to legal problems for Express Scripts and its peers over the last several years. However, none of these issues has led to large fines.
        A multistate inquiry has requested documents dealing with Express Scripts' business practices, but a similar inquiry into a larger PBM resulted in a relatively modest settlement payment.

        Roland Carter's recent buys include Intel, Toyota Motor Co., Home Depot and Lubrizol.
       "Intel (OTC INTC) - With 2004 revenue of $34 billion, Intel is the world's largest maker of integrated circuits. Their microprocessor chips are the brains (not memory, though they're big in flash memory) and workhorses of today's personal computers, servers, and other products. Intel's earnings peaked in 2000 @ $1.53/share and the stock @ $75+. Two years later the shares would bottom @ 13 as annual earnings bottomed @ $0.51. Due to Intel's leadership role in an important, growing industry, this stock should probably trade in a P/E range of 15 to 30+. We're now about 1/3 up that scale from the low, and the shares are very buyable. 2005 EPS may be only 5% above 2004's $1.15, though recent first quarter revenue projections were recently raised to $9.3 bb (+15% vs. 2004). Intel is solidly positioned in wireless communication (Wi-Fi, WiMax) and has Fort Knox finances - $15 billion cash net of miniscule debt. Their dividend was doubled in both 2004 and now 2005. Two more years of such would make this a yield stock! That won't happen, but the dividend should keep rising. This is a core holding tech stock. INTC, like TXN, should be in the mid-30's within a year or two.
        Toyota Motor Co. (TM) - WW II veterans won't appreciate a recommendation to buy this Japanese giant, but investors could do much worse than TM (or Honda, or Nissan, too). We and others have noted GM's continuing slide downward. Their pension and health care costs to retired union workers are a millstone around their neck which others (Toyota!) don't have. Statistic: In 1999 Detroit's Big Three held 71% of the U.S. vehicle market. By 3/31/05 that share had plunged to 58%. GM once had well over 50% of the U.S. market - it's now about 25% and still falling. Stat #2: In the past 5 years GM's sales are up about 10%, TM's are up 45%. In a couple of years TM will probably surpass GM as the world's largest vehicle maker. If you're concerned about the quality of Toyota's products, go ask nearly any owner of a Toyota, Lexus, Prius, or the Camry (the top selling car in the U.S. for the past 3 years). TM also has a leading position in hybrid (gas/electric) technology.
        Home Depot (HD) - With 2005 revenues projected to reach $80 billion, this is a retailing giant we've liked for some time. Both HD and Lowe's (56) are favorites. HD is growing 12%-16%, and LOW faster, 15%-20%+. Shares of both have been sluggish recently, on fears that higher interest rates will hurt some new home products. HD and LOW do supply some new home products but are heavily tilted toward home maintenance and repair, from landscaping to light fixtures to screws and bolts. That market has a long history of quite consistent, 10% annual growth. HD shares have recently pulled back from 44+ to big technical support near 38. The next big support is near 32.
        Lubrizol (LZ) - Is a world leading producer of lubricating additives for engine oils and other machine fluids used across the industrial landscape. Their 2004 acquisition of fast-growing Noveon Int'l added to their plastics, food, and beverage industry exposure. This old friend has been in CC off and on for now 20 years, as a low-debt, dividend name. (The big Noveon acquisition took debt levels up, but they'll rapidly pay it down). We could have done better, but could have (we have!) done much worse. Their recent news has really turned good. The Noveon acquisition will take their $2 billion 2003 revenues to $4+ billion by 2006. We don't know how far LZ could eventually climb, but there seems to be at least 10 points with a good margin of safety - plus a little yield - from here. Dividends have been paid every year since 1935."

        Konrad Kuhn: "Givemepower Corp. (OTC GMPW .38), taking the computer-aided design (CAD) world by storm, develops, markets, and supports affordable, high-performance mobile wireless and desktop CAD and graphics software for end users and business partners involved in design, construction, engineering, manufacturing, mapping and related industries. GMPW's PowerCAD( technologies improved productivity for millions of potential users involved in the $17.5 bil. Global CAD/CAM software market, the fifth largest software market in the world. A Microsoft Mobile Solutions and Windows( Embedded Partner, an Intel( PCA Developer Network member and an IBM Business Partner, GMPW is the first company to offer full-featured 2 and 3-Dimensional, AutoCAD( -compatible design and digital blueprint processing for desktop and laptop PCs, as well as the latest mobile and wireless Windows CE(, WindowsCE.NET( and Windows Mobile' equipped Pocket PCs, Pocket PC cell phones, Tablet PCs, Handheld PCs and industry specific devices.
        PowerCAD( is the first system of its kind to deliver true "Anytime-Anywhere-Anyone" mobile and wireless CAD computing on any Microsoft Windows( computer from desktop and laptop PCs and next generation Smartphones, combining the power of a Pocket PC with the convenience of a cell phone. For the first time, millions of users in design, engineering, construction, manufacturing, real estate and related industries can dramatically increase profits by mobilizing and wirelessly connecting their workforces using GMPW's CAD Anywhere' technologies. Using PowerCAD embedded technologies, customers can get the most powerful and productive solutions in the industry for thousands of dollars less than any other alternative.
        Revenues for FY'04 increased to $117,391, with a loss per share of (.05) vs. (.06) for the prior year. Revenues for the 1st half of FY '05 increased 76% to $119,712, with a loss per share of (.02) vs. (.01) for the same period in the prior year.
       After many years of R&D, GMPW is entering its commercial growth phase with the world's first complete line of CAD Anywhere' design and digital blueprinting software solutions for the multi-billion dollar design/build market. In addition to its unique mobile solutions, GMPW's desktop products deliver up to 90% of the functionality of industry leader AutoCAD( for less than 25% of the cost. This savings, up to $3,000 per user, lets small and mid-sized businesses gain the benefits of professional-grade CAD technology, and lets larger companies implement additional licenses at a fraction of the cost, protecting their existing investment in the process. A rapidly growing list of more than 200,000 users and business partners in 40 countries around the world power their designs and collaborate on their projects using GMPW's technologies including: General Dynamics, Maytag Corporations, National Institutes of Health, Nikon, American Honda Motor Co., centers for Disease Control & Prevention, The Austen Company and Whirlpool.
        Of the 27,104,378 shares outstanding approx. 38% are held by insiders. The stock came down from a high of .65 and is now trading on top of support in the .30-.45 area where we would purchase for a 1st objective up to 1.00-1.25 since mobile computering is a key market for GMPW. Research predicts that sales of Windows Mobile devices may outstrip sales of Windows PCs by '08 growing from 14-17 mil. Units in '03 to over 200 mil. in '08.
        PowerCAD products offer direct compatibility with AutoCAD( by Autodesk, Inc., the world's leading CAD system with over 4mil.users. Instant usability between AutoCAD and PowerCAD eliminates the need for end-users to relearn, and allows GMPW to piggyback on the success of AutoCAD with fully-compatible desktop and first-to-market 2D and 3D mobile solutions unavailable from Autodesk or any other vendor. A vital industry we could not live without, CAD is used to design, construct, and manufacture virtually every manmade product and structure from clothing and gold clubs to houses and automobiles. Ultimate target 2 1/2-3."

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

Recommends Growth & Income Stocks
Home Depot and Centex Corp.

Donald Pearson: "Home Depot, Inc. (NYSE HD $38.24) operates stores which are warehouse-style stores selling building materials, home improvement supplies and lawn and garden products, primarily to do-it-yourselfers. The Company also operates The Home Depot Floor Stores, which offer primarily flooring products and installation services. At the end of the fiscal year ended February 1, 2004 (fiscal 2003), the Company was operating 1,707 stores in total in the United States, Canada and Mexico. The Company's other businesses include The Home Depot Supply, which distributes products and sells installation services primarily to businesses and governments. For the fiscal year ended 1/30/05, revenues rose 13% to $73.09 billion. Net income rose 16% to $5 billion. Revenues reflect increased sales due to the opening of new stores.
Centex Corp. (NYSE CTX $57.27) is a residential construction company that has evolved into a multi-industry company. During the fiscal year ended March 31, 2004 (fiscal 2004), the Company's subsidiaries operated in four business segments: Home Building, Financial Services, Construction Services and investment Real Estate. Centex' homebuilding subsidiary, Centex Homes, purchases and develops land or lots, and constructs and sells single-family homes, townhomes and low-rise condominiums. For the nine months ended 12/31/04, revenues rose 24% to $8.87 billion. Net income from continuing operations and before acct. chg. Increased 26% to $641.6 million. Revenues reflect increased conventional home sale closings and higher average sales price. Net income also reflects a decrease in interest expenses."

        Gregory Spear: "Every few years the market falls in love with gaming stocks. The affair usually lasts a few quarters and then passes, but it may be different this time. In the last few years the gaming business has undergone a globalization process as companies that were formerly confined to places such as Las Vegas and Atlantic City exploit international opportunities and move into Internet gaming.
        Monarch Casino & Resort Inc. (MCRI, P/E 25, Market Cap $427 million) runs a tropically-themed operation called the Atlantis Casino Resort in Reno, Nevada. The Atlantis is the closest hotel-casino to Reno-Sparks Convention Center, so they have a somewhat captive audience. In fact, casinos, are known for a type of marketing based on "capture theory," which is they overarching strategy of keeping people inside the building through various subtle manipulations. The existing Atlantis site offers 51,000 square feet of high-energy casino space and about 1,000 guest rooms in three contiguous high-rise hotel towers. Amid the tropical décor you will find 1,450 slot and video poker machines, sports betting book, poker, table games and nine dining areas.
        We like MCRI because, as the management says in their annual report, "we are a single-location company with an extremely involved. Hands-on senior management group in a highly regulated industry with significant insider ownership." We believe if y