A REALLY, REALLY Terrible Morning

The red ink is stunning, almost breathtaking.

As of 9:05 A.M.(Thanks Marketwatch):

MONDAY MARKETS BY THE NUMBER

Pre-market indications: • Dow industrials: -353 • S&P: -46.2 • Nasdaq: -52

• Crude oil: -$5.15 • Gold: +$14.50 • Dollar vs. yen, -2.4% • Euro vs. dollar: -0.4%

The destruction of paper wealth this morning is incredible. The indexes are off 3%. Oil is down 5%, the first business day after a major hurricane continues to shut down 20% of the nation's production and even more of our refining output. The Yen has spiked due to "safe-haven" buying.

At this point, it seems like we're all in this together. Wall Street leaders put in a 40-hour weekend trying to open their doors this morning. Lehman Brothers has filed for a form of bankruptcy. Merrill Lynch has agreed to be consumed by Bank of America for $29/share; the street doesn't believe it, based on the MER quote of $22 that I'm getting right now.

Ten banks set up a $70 billion fund that they can draw from during times of stress. Some of those banks will be using it this morning.

"Big" companies have fallen. Bigger companies have lost almost everything; AIG's market cap is $20 billion this morning, compared to nearly $200 billion less than one year ago. LEH's $200 million morning market cap is laughable. (I have to believe that there's more value in the company than that, but I chose to buy AIG this morning instead of LEH.)

I'll drown in the sea of red ink this morning along with most investors. My FSLR short and DUG shares will hedge losses, but not offset them. As I mentioned, I bought a little AIG pre-market at $7.50 and TTWO at $15.50 (as they are reeling from ERTS' walkaway, not this general weakness).

Hopefully the VIX will spike, and at the very least, this trauma will create a bottom. With quotes for nearly every company I can think of down 5% before the bell, maybe this is capitulation. Then again, this is probably the third or fourth time that I've hoped for a bottom.

TTWO's Response

Below is the response that TTWO released after ERTS announced that they are done with merger talks.

Strauss Zelnick, Chairman of the Board of Take-Two, commented, "We remain focused on creating value for our stockholders and our consumers. This has been our goal since EA launched its conditional and unsolicited bid six months ago, a bid which was repeatedly rejected by our stockholders. As part of that commitment, we remain actively engaged in discussions with other parties in the context of our formal process to consider strategic alternatives. We're especially proud of the success we've enjoyed over the past eighteen months and we remain confident in our ability to generate value for stockholders."

"Take-Two's business has continued to strengthen since the time EA first made its offer. We have delivered terrific products to our consumers and we've been rewarded with very strong financial performance. We have an exciting future ahead of us, powered by our profitability, a significant cash position, the absence of debt, an undrawn credit facility and a terrific lineup of games. We are confident in the unique value of our business given our strong position in what is a growing and dynamic industry," said Ben Feder, Chief Executive Officer of Take-Two.

Electronic Arts Walks from TTWO Talks

"Electronic Arts Inc today announced that while EA continues to have a high regard for Take-Two's creative teams and products, after careful consideration, including a management presentation and review of other due diligence materials provided by Take-Two Interactive Software Inc., EA has decided not to make a proposal to acquire Take-Two and has terminated discussions with Take-Two.

John Riccitiello, Chief Executive Officer of EA, said: "EA is tracking toward a record breaking year. We're launching 15 new games including award-winners like SPORE, Dead Space and Mirror's Edge, great new titles from the Sims, new family titles with Hasbro, and the highest quality slate of EA SPORTS titles on this generation of consoles. We're also expanding beyond our core business with a series of direct-to-consumer launches including Warhammer Online."

(Taken from Marketwatch.com)

First, I think that the tone that ERTS used is noteworthy. Though the reaction tomorrow may still be negative for TTWO shares, ERTS said nothing to that effect in their statement. In fact, from my point of view, it was mildly positive - ERTS seemed to say, "We're more focused on turning around our money-losing business right now than spending the appropriately-large amount of money on TTWO's successful one."

It will be interesting to see TTWO's reaction tomorrow. Though I have a long bias, I must admit that an initial drop will likely occur. I'll be buying if it does. TTWO is on track to make $2/share this year; no other company in the video game industry (and really very few companies besides integrated oil industry) trade at a 10 p/e. TTWO has a steady stream of releases for the rest of the year, the holiday season, and beyond.

Though I initially and continually touted a possible merger, I recognized that value may be better maximized when ERTS stopps capping TTWO shares with the $25 merger ceiling. Therefore, I think that going forward - whether at 3:30 tomorrow, this friday, or next April - TTWO share should be trading at a higher price than they were at Friday's close.

It looks like my calls may expire worthless, but it was a gamble that I don't regret taking. The earnings TTWO reported about ten days ago were unbelievable, and the street could have, under other circumstances, applauded loudly. Observing the ERTS' Take-2 tango was certainly a good experience for this young, often-speculative investor to experience.

I'll be sure to disclose any new position I take if conditions are ripe enough tomorrow morning.

Results? Check. Reaction? Nope.

TTWO blew out the quarter, reporting earnings of 67 cents per share compared to an analyst consensus of about 54 cents.

TTWO raised guidance for the year, and released their pipeline, which should provide strong sales during the next quarter and through the Christmas season.

Investors were unimpressed, however, and shares are flat.

The withdrawn-bid of $26 continues to cap the stock price. Hopefully analyst upgrades or commentary (which I expect to be forthcoming) will inspire investor interest; otherwise, ERTS needs to bid reasonably ($35+, now that TTWO is set to make $2/share this year), or admit that TTWO is too expensive for them so that the stock price can rise organically.

Almost D-Day, and TTWO is Jumpy

Today's session featured some strange exchanging of TTWO shares, just one day before the company is set to release earnings.

There was no news released (though Barron's later said that the price decline was due to rumors about ERTS walking way from merger talks), though ERTS had an executive speak at a conference right around noon.

Below is a graph of TTWO's trades between about 11:15 and 12:05, when shares declined sharply, rebounded sharply, and then settled roughly 5% lower than where they opened.

Note: Right-click and open this picture in a new tab or window. Damned blogger margins!

As the stock crossed $24 about 8 minutes into the graph, the first pickup in volume can be seen, possibly by stop-limit orders being triggered. The price continued to slide on light volume until shares broke through $23, when volume accelerated to over 50,000 shares per minute.

As the shares dropped below $22, volume topped 150,000 shares per minute, which is impressive, considering only 500,000 shares traded during all of Friday and only 1.3 million exchanged hands yesterday.

Frantic selling and buying took place over the following ten minutes, as about 1.3 million shares were traded. It seems as though stop-limit orders first were triggered, panic selling insued, and finally, as the stock sat at $22, buyers came in to snap up shares.

Normally I wouldn't analyse the intraday trading of a stock so deeply, but the trading pattern certainly seemed odd. TTWO consolidated at $25 during the previous week, with Thursday's trading featuring a $.15 range.

If there was a news leak, or some sort of manipulation, I'd expect to see it in the options, as premiums are still low enough that a trader with information could make a killing. However, volume and pricing on the options seemed normal. The options with the greatest volume were the $25 and $27.5 September calls; premiums did decline, but the $25 call, which went from being nearly at-the-money to almost 10% out of it, only lost about 25% of its value, and ended the day with a trade at $1.10. Volume was a little high (relative to open interest) in some deep OTM Sept, Oct, and Dec puts (with trades at the $15 strike), but I can't see the shares falling that low.

So I backed up the truck a little further and bought a few more $27.5 calls at a cheaper price, adding to my unwisely-large position going into tomorrow. (Thankfully recent good trades with FSLR puts, AIG, AEO, and DDM calls have helped to offset any potential losses from TTWO.)

Once again, in my humble, bullish opinion, all signs (besides today's trading) point to good events tomorrow. I don't know why TTWO would have bothered setting up these secret meetings with ERTS if they weren't showing them something good, and I don't know why ERTS wouldn't have walked away already if they were wholly unimpressed. TTWO has historically beaten earnings, and they are still riding the success of GTA IV, with a decent slate of titles that will be released for the holidays this year.

Who knows, maybe TTWO will report a loss, and these talks were about some firesale price at $14/share, and some speculator (or inside-information-haver) will be chuckling as they rake in the bucks. However, TTWO's management has insisted on the strength of TTWO's business, and empiracle evidence doesn't contracdict their statements.

Considering that ERTS lost over $400 million last year while TTWO is expected to book about $140 million in profit this year, barring a disaster, I don't get how TTWO shares would move lower. An independant TTWO (without this takeover hangover) would be trading much higher than it is today, and TTWO should demand a price somewhere in the $30's if they are to be bought.

Prior to the after-the-bell announcement tomorrow, I'd expect that TTWO trades around $22.5 or $25, as those option strikes have been heavily traded. When they report at the close, a beat-and-raise (without any mention of a takeover) should send shares skyward; ultimately, there could be some announcement concerning the deal during the call tomorrow. Though there is the non-disclosure agreement, I can't believe that TTWO will be completely silent about a deal during the call tomorrow.

If I had a reputation, I'd be putting it on the line. Thankfully, if I'm wrong, no one really reads this anyway, and I'm young enough to lose some money. If I'm right, the profits, and vindication, shall be lovely.

Backing up the Take-Two Truck

I closed my last post, which was about Take-Two and Electronic Arts entering into a confidentiality agreement, with a cautious sentiment. I said that I was planning on maintaining my disclosed position, TTWO Sept $27.5 and $30 calls, or selling contracts as premiums rose.

There was little spike in the stock price or options premium, so I decided to load up on more calls. TTWO has now set September 4th as the date of their earnings report and conference call for the quarter ended July 31st.

TTWO made $1.52 per share in during the quarter ended in April; much of that money was made during the few days that Grand Theft Auto IV was sold during the end of that quarter. However, sales continued to be strong during this quarter and TTWO's results should reflect this. The consensus estimate for this quarter is only $.55/share, which could easily be beaten; in fact, TTWO has beaten estimates handily each of the past four quarters. Full-year predicictions (currently $1.85) also may be revised upward; so far this year, TTWO has tallied -$.41 and $1.52, for a total of +$1.11. The estimes for the next two quarters, $.55 and $.19 could be easily crushed. TTWO is releasing GTA IV in Japan in early October and on the PC in November (which falls under the next fiscal year), so sales should continue to trickle down to TTWO's bottom line.

As long as TTWO comes in at least in-line this quarter, ERTS will have to re-bid at a much higher price or admit that TTWO is too expensive for them. If ERTS does make the $1.52/share that they're expecting to tally this year, the stock trades at about a 32 P/E. ERTS's asking price of $26/share for TTWO assigns a 14 P/E. Activision-Blizzard trades at a P/E in the high 20's. ERTS cannot expect TTWO to sell out at such a discount to itself and the industry.

So I am indeed speculating as this tango proceeds. If TTWO's management has presented its material to ERTS's board already, they could forseeably make an offer before earnings to minimize the influence of the investor community's reaction on a takeover price. If TTWO reports in-line or surprises positively, shares should jump for many reasons - TTWO's shares are deeply undervalued compared to its competitors, and investors like me may think that ERTS will pony up more for the company.

Shares currently seem to be hugging the $25 level, but I'd be surprised if they stayed there for long. It's time for ERTS to sack up and make a reasonable bid, or leave TTWO alone. The lead-lined takeover cloud capped TTWO's share price as it released the best-selling media release of all time and subsequently reported unbelievable earnings. It's time for the sun to shine on TTWO.

Disclosure: Long TTWO Sept. $27.5 and $30 calls.

Electronic Arts Wining and Dining Take-Two

According to a Reuters press release after-hours, Electronic Arts (ERTS) and Take-Two (TTWO) have now entered into confidential discussions regarding a potential merger.

This is the latest development in a soap-opera-like courtship that has disappointed TTWO investors as the share price has been stagnant since ERTS's first offer of $26 this spring. ERTS extended the offer multiple times throughout the summer. ERTS withdrew the offer earlier this month, but agreed to view a presentation of non-public material by TTWO's executives.

This disclosure of privacy should stoke investor speculation that a new offer may be in the works. Whether an offer is publicly made, however, remains to be seen. Electronic Arts seemed set on acquiring TTWO at $26, but many investors thought that the bid was a shrewed tactic to cap TTWO's share price as it released Grand Theft Auto IV, the biggest game release ever. But Electronic Arts shareholders may be disappointed by a higher bid, as each dollar increases the takeover price by about $75 million. A price in the $30s, which would represent a reasonable premium in light of GTA's success and TTWO's earnings potential, would represent a bid increase of hundreds of millions of dollars.

I may sell some of the options, likely the 30s, if TTWO share prices (or options premiums) pop tomorrow at the open. After speculating twice on this merger, I'm willing to take profits when I can (hopefully) get them. TTWO didn't move much after hours, so maybe longs aren't enthused by this hype anymore. However, TTWO and ERTS will probably clear the air with a new bid or a conclusive "not-interested" statement fairly soon.

I held TTWO calls that expired (worthless) at the end of August, and did buy September calls at both the 27.5 and 30 strike.

Grand Theft... Vista?

My previous post addressed the possibility of another company bidding for Take Two (TTWO), a video game maker that currently has been offered to be bought out by Electronic Arts (ERTS).

Take Two's chairman said (in a press release) that multiple other parties were performing due diligence and TTWO was in early discussions with these potential suitors.

In my previous article, I threw out Viacom, as many pundits often cite them as wishing to become a player in the growing video game industry. However, I think that there's a more likely bidder.


I think that Microsoft is a likely bidder for TTWO. Microsoft already makes a video game platform (Xbox and Xbox 360) and also independently publishes video games. Years ago, they made a video game acquisition when they bought tiny Bungie studios, the company that developed the Halo series. Microsoft had already published the Halo games, but they decided to bring the production in-house to reap the benefits of vertical integration. I can't tell you how many dollars Microsoft has made, but Halo has now produced three best-selling games, and its exclusivity on the Xbox (it's also available on the PC, but no other console) has driven console sales too.

Besides Halo, Grand Theft Auto, TTWO's signature game, is the other dynasty of the video game universe. GTA IV, the most recent addition, released earlier this year, broke sales records that were set by Halo 3 last year.

Halo 3 generated sales of $170 million dollars during its first week last fall. (As previously discussed, virtually every component of creation, production, and distribution is internal, so much of this amount must fall straight to MSFT's bottom line). Compare that to a major blockbuster movie's debut weekend (the numbers are very similar), and the growing value of video games becomes clear.

However, that total, while impressive, is dwarfed by GTA IV's first week, as the game reported $500 million in sales.

For the mere cost of $2.5 billion (25% over ERTS's bid, or about $32/share), MSFT could absorb that massive revenue- and profit-generating game along with the rest of TTWO's portfolio. TTWO does make other games; BioShock was a surprise success this year, and its sports franchises, covering basketball, baseball, hockey, and tennis, are ranked highly and sell well.

Microsoft could become a serious player in the video game industry if they made a console and sold the two best selling games on the planet. Making GTA exclusive to the Xbox (like Halo is) would be a terrible decision, but providing some incentive, like an earlier release date, could drive additional Xbox sales too.

Such a takeover would be so insignificant to MSFT as a whole; unlike an overpriced Yahoo takeover, buying TTWO at $2.5b would only use up about 10% of their cash, in a transaction that's only as big as 1% of their market cap. However, their growing video game department would certainly flourish, growing to a point where it could be spun off if MSFT deemed that most profitable.

Microsoft has the cash, the takeover desire, and the rationale for making such a purchase. The Grand Theft Auto franchise alone is worth more than this current takeover price (which is why many people think that ERTS submitted the bid before the game came out, so that they could cap the share price), and TTWO has many other promising games and franchises that MSFT could continue to build and polish.

I'm long ERTS and now own TTWO calls, so admittedly, I have an interest in a higher bid (especially from someone other than ERTS). But it is in no way ridiculous to conclude that TTWO could, and should, be bought for a price much higher than it's current share price (high $24) and offer price (~$25.75).

Take Two's Takeover

Electronic Arts (ERTS) has been courting Take Two (TTWO for some time now; just yesterday they extended their current offer to buy out TTWO at about $26 per share just as it was set to expire.

Electronic Arts bid for TTWO when the shares were trading in the mid-teens, as TTWO struggled to do much of anything between releases of the different editions of Grand Theft Auto. However, the recent installment has been successful beyond expectations, and TTWO plans to ride that gravy train until its final stop.

In light of the success of GTA IV, TTWO is claiming that ERTS's offer significantly undervalues the business, which may be true. Here's what the chairman of TTWO said today:

"We are fully engaged in a formal process to evaluate strategic alternatives that have the potential to deliver greater value than EA's inadequate offer," said Strauss Zelnick, Take-Two's chairman. "As part of this process, we continue to engage in meaningful discussions with multiple parties, a number of whom have been conducting due diligence."

The chairman hinted, if falling short of explicitly stating, that there are other companies shopping for TTWO. In the golden age of the video game, traditional media companies like Viacom have been previously suggested/speculated upon being interested in such a purchase. Otherwise, ATVI would be the only likely suitor, though they just completed their own merger with another company.

However, since the chairman stated with more-than-hypothetical language that there is the possibility of another offer, I think it's worth it to gamble here. I bought TTWO August 27.5 calls for $.15 today; the shares closed at $24.66, a discount to ERTS's offer. September calls at 27.5 strike went for about $.70.

Certainly, a higher bid is far from certain, and ERTS could get tired of pursuing the stubborn TTWO and let its current offer expire. However, if another company does come in with a bid of, say, $30, owning either options contract will result in windfall profits.

Owning something like the Aug calls might actually be the safest way to play this; the enormous upside potential is preserved, while the downside from a the end of ERTS's extensions won't be too painful. I can't say that I expect a new bid to emerge - and for one to be announced within the next month is even less likely - but I'd rather lose a little money speculating than miss a hugely profitable trade.


(Disclosure and note: I am long TTWO Aug 27.5 Calls. If a new bid is made, I have a crystal ball for sale... but actually, any success predicting such an event is because of common sense and/or dumb luck.)

Terrible Tuesday

After US Index Futures trading on global markets had priced in a 5% plunge when the markets open today, the Fed decided to try to salvage the situation by cutting rates by 75 basis points.


Immediately, futures gained lots of lost ground, as Nasdaq 100 ETF is only pricing in a mere 2% decline. (QQQQ quote taken 8:30 AM).

But was this the right thing to do?

I'm not so sure.

First, let me establish that I don't want stocks to fall. I own an Ultrashort Oil & Gas Fund (DIG), which can be seen as a hedge against oil (and the entire economy), but I am very, very long, which is clearly not the place to be right now. I'd like nothing better than to see the market go up 20% tomorrow, but for logical, meaningful, substantial reasons.

The Fed's early cut is purely symbolic, not something that will actually have an effect on the financial situation in America. Since the policy (rate cuts) take many months for their effects to be felt in the economy, realistically, waiting until the meeting to cut 75 points would have provided the same stimulus in the second half of this year. If anything, I think it may have been better to cut then - if things got even worse, then they could cut a full point without making it seem like the sky is falling.

I can't say that a decline of "only" 5% isn't bad (especially since some stocks I own, like Countrywide (an arbitrage, at this point)) were set to open down 10% or more. But global markets have faired even worse over the past two days - Indian and Chinese markets are down 10-20% since last week.

It's hard and unreasonable to tell people to do this, but if people could just act rationally, and avoid clicking "close" next to all of their positions, we'd be a lot better off. For example, I follow Activision (ATVI) and Electronic Arts (ERTS), two stocks who should have shot up after news of an absolute blowout of video game sales numbers during the holiday season. However, both were flat (or down) last week after the announcement was made, and both were/are pricing in a 5% dip today. Clearly, if we're in a recession, people are still buying Guitar Hero and Call of Duty; if anything, investors should be buying up shares of a seemingly-stable niche.

Now that the day's news (BAC's awful earnings and the Fed cut) are on the table, it looks like markets will open down about 3%. What they do during the day is anyone's guess - We could finish positive, or we could lose 10%. According to WSJ articles over the weekend, markets have priced in 80% of the impact of a recession - this potential decline today should increase that figure further. I truly believe that a recession is fully priced in; there's clearly some stocks that are still overvalued (I think that tech like Apple, RIM and Amazon are still grossly overvalued), financials seem to be fully discounted.

Barrons wrote an article about the bond issuer MBIA this weekend; they stated that the company's liquidation value is at least $30, while the stock currently trades around 8. Countrywide is being merged into BAC; the terms of the deal, which can be broken but are generally unconditional, priced CFC around $7; now, when CFC converts into BAC at .1822 shares, you're essentially buying BAC stock for $25 (instead of the market's $33) if you buy Countrywide today.


If you can stomach a short term loss, in five years, they should identify early 2008 as the best buying opportunity in years. Yes, the economy may not be great. Yes, the subprime problems are not over yet. But companies (and the entire market) are heavily, irrationally discounted, and an investor with a strong stomach will thank his nerves a year or two from now.



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Two quick thoughts: Electronic Arts and Oil

I'll post full writeups on both of these topics within the coming days, but I wanted to publicize some thoughts now.

First:

Electronic Arts is one of the best video game stocks to own this year going into the holidays.

• Madden and NCAA are still selling well
• SKATE displaced Tony Hawk as the best/most popular skateboarding video game
• "Orange Box" is being heavily advertised; apparently, it's one of the best games of the year
• Rock Band, a competitor to/improvement on Guitar Hero, goes on sale for christmas
• Halo 3 has put more consoles in homes, Wii still selling well, PS3 price going to be cut

Sure, based on P/E, ERTS is richly valued, and as a value investor, that's always something to be cautious about. I don't think this is a buy-and-hold-forever situation, but I think EA is going to perform well through the christmas season. Stop back for a full writeup within a few days.



Secondly, oil prices are unbelievable.

I originally wrote about oil needing to correct when it was at 82 (and it did - I held CVX and then COP puts, and ended up not selling soon enough and approximately breaking even).
Now, after little significant news, it's at 90. It touched 90 during aftermarket/electronic trading just a few hours ago. Unless this passing of this psychological barrier encourages buying (which, at this point, I would not be surprised at), I think oil simply has to fall. The price of oil, as well as the price of oil stocks, SHOULD fall soon. Here are a few reasons why:

• Chance of a production-disrupting hurricane now is slim to none
• Driving season ending
• Warm winter predicted
• Refining margins evaporating.
  

Since $80, most professionals have been saying there is really no significant supply issues or current events to support this price. Just tonight, this article posted at Bloomberg.com states that 20 out of 29 professional analysts polled believe that oil will fall within the next week. The article asserts that futures demand (aka, demand by traders who do not actually buy oil) is increasing, while actual worldwide demand for physical oil really isn't.

So rationally, I think, we should see sub-$80 (maybe sub $70) oil this winter. Does that mean it WILL happen? No. As I stated, paper demand, not physical demand, is responsible for these current inflated prices.

As long as the dollar doesn't collapse, or there is no World War III, there is no reason for oil to remain at these current levels.

Weekly Wrapup: September 10-14

It was a great week for the market; the major indexes all enjoyed gains of at least one percent. Here are weekly charts, courtesy of Marketwatch.com:

Dow Chart 9/10-9/14

NASDAQ Chart 9/10-9/14

S&P 500 9/14-9/14

As the charts show, each index posted gains for the week... and if measured from the bottom of the lows on Monday, the weekly increases are even more impressive.

Moving on:

A few interesting things happened with the stocks I own or watch this week. Syntax-Brillian (BRLC), which I had a small speculative position in, first delayed earnings, then disappointed the street by revising its future outlook downward. It fell from almost $7 on Monday to $4 this Friday.

Obviously, the company should be a little cheaper, because it did revise its future estimates. However, I do not believe that this stock deserved the downfall, or will trade at this price forever. Along with the quarterly results, BRLC reported yearlong earnings of $.48/share. At the current share price, BRLC is an 8 P/E stock, which is utterly unheard-of for such a small, high-growth company. Revenue and income continues to grow quickly (just not as quickly as expected), with demand out pacing the company's ability to supply.

I doubled my tiny position around $4 a share, and I believe that this stock will trade much higher than it does today. Unless there is some massive scandal or other major unforeseen problem, based on the current numbers and market conditions, I feel as though BRLC is beaten-up and undervalued in the long term. I don't know if it's going to "pop" anytime in the near-term, but in a year, I would not be surprised if it was at $8 or $10 per share.

Another interesting happening:
I purchased a tiny position (500 shares at $.56) of an even smaller TV maker, Soyo (SOYO.OB). Other than some news about a very small stock purchase by the CEO, information about sponsorship of a fighting candidate, and a reiteration of earnings guidence (of 7+ cents/share for the year), there wasn't much news; however, the stock shot up to $.92 on Friday, before closing in the 70-cent range.

Generally, I don't invest in "penny" stocks because it's unpredictable and more like gambling than investing. However, whenever I discovered Soyo, I researched it and really liked the company - it started as a company making specialty motherboards for gaming computers, and eventually got into the LCD TV market. Now, they produce a 24" TV that has 50% market share at that size, and signed a long-term contract to distribute products under the widely-respected Honeywell brand name, starting with portable USB drives this year and including big-screen HD LCD TVs next year. I like this little company in the long run; I could care less about the daily volatility and short term gains, becuase if this work out well, this company could be worth much more in the long run.

Along with the rest of the market, most of my other positions were up, including Marathon Oil (MRO), Electronic Arts (ERTS), and Sun Microsystems (JAVA).


For the upcoming week, markets will be focused on the Fed meeting on Tuesday. The decisions concerning interest rates will surely set the tone for the week. One of my positions, Hovnanian (HOV), will definitely be effected; I'm going to have a full-article writeup about it posted later tonight or tomorrow.



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August video game sales crush expectations - EA mini-analysis

Instead of summarizing, I'll just link you to the full article at Marketwatch.

I don't mean to toot my own horn, but I bought Electronic Arts (ERTS) on September 4th around $53.50/share in anticipation of news like this. For me, it's easy to do some analysis of EA in my everyday life; every single room that's on my floor (that has a video game console) has some EA football game. Both of its football franchises, Madden and NCAA, are wildly popular. EA's NCAA game is often regarded as the best one, and Madden is now the ONLY professional football game that is released (due to purchase of the exclusive rights to make it, by EA).

Well, Madden was the most popular game in August (by far), placing in the top ten twice because of sales on both Xbox 360 and PS3. I don't know how that will effect EA's earnings, but it's certainly a positive sign.

Even better, in my opinion, is what they have in their pipeline - a game called Rock Band, scheduled for release for this holiday season. It's made to compete with the ever-popular Guitar Hero franchise (which also held two spots in August's top 10). It's made by the same studio that made Guitar Hero 1 and 2, so it has the same popular, user-friendly, familiar interface. However, Rock Band has 3 input devices - a realistic guitar, drum pad, and microphone. Based on the limited information so far, it seems as though you can do all three yourself (at different times), play with other players on the same console, or even possibly be in an online band, connected to players through the magic of the internet.

I think Rock Band will be huge for EA - that's my main reason for being long in it right now. Only time will tell if it will be a success, and if it's a bust, it's not going to be good for EA's stock. For now, especially after this news release, I'm feeling good.

9/13 Wrapup: BRLC, SOYO, and more

The Dow was pleasantly up 130 points today, along with an almost 1% gain in the S&P 500 and a more modest 1/3% gain for the NASDAQ. The Dow was lead by Countrywide Financial, the struggling mortgage company. Today they announced that they secured an additional 12 billion dollars in financing, allowing the company to basically keep its doors open.

McDonalds was also up very strongly, continuing a multiple-session rally. To be honest, I was thinking about buying them a week ago at 48, but felt like waiting because I thought they may be overvalued... now I am uncomfortable buying at the current level. However, they just raised their dividend by 50%, adding valuation to the shares.

In my portfolio, Sun Microsystems continued its rally to close up another 3%. Marathon Oil was also strong today because of higher energy prices. Electronic Arts was up a few percent, as was CIT, a financial company that has nothing to do with subprime lending that was hurt by the financial crash during the early subprime crisis.

Heelys declined, but that's a long term play, so I'm not worried. My tiny position in BRLC, arguably the worst short-term decision I've ever made, fell additionally in the open market today after being down 25% after-hours today. However, I went with my investing instincts and doubled my position today, lowering my cost. Once again, I think this stock is super risky, but for dumb reasons; it's a solid company, but day traders and short sellers really manipulate the price and make it trade irrationally. The earnings for this year were $.48/share; it's now less than a 10 P/E company... and for such a high-growth company, I'm willing to take the risk, because BRLC shouldn't stay at this valuation once it starts behaving rationally again.

Right now, I've got September calls in Harley Davidson (HOG) and Abercrombie (ANF). Abercrombie was up nicely today, and hopefully I'll be able to get out of those profitably (I bought the contracts a few weeks ago, and the stock was marginally down for the time in between the purchase and now). HOG is simply a play on the utter destruction of that stock over the past few sessions; they altered guidance, and shares fell almost 20%. I'm hoping the price stabilizes, and I can make a small short-term gain.

Edit: Almost forgot about my new interesting little company, The Soyo Group (SOYO.OB). Yes, it's traded over the counter, but its an established company; it used to focus on making motherboards for certain gaming computers, but now it makes the most popular LCD at the 24 inch size with a whopping 50% of market share; check out the article here.

They're making money, which is very impressive for such a little company. They have big plans for the future; they're supposed to start making huge-screen HD TV's under the brand name Honeywell for 2008.

I bought a tiny position for $.56 yesterday; it closed at $.71. I was surprised by the huge jump on no news, and I'm sure its going to give up its gains in the next few sessions. But this is going to be on my long-term radar; if they can continue to grow, while producing good product, this could be a great long-term play. Look past the penny-stock assumptions; it's a real, established company that's turning a profit, not some pump-and-dump scheme like other comparably-priced offerings.

BRLC Followup and 9/11 trading review

Well, BRLC was a disappointing story today... by earnings bet apparently backfired. They delayed reporting results today, sending the stock down almost 10 percent. I'm still positive long-term, but this short-term problem is indeed unfortunate.

EDIT: In fact, a few analysts have speculated that the earnings delay may be due to overwhelming sales. I'm not going to buy any additional stake, but I hope they are correct.

However, the market (and the rest of my positions) had a great day. The major indexes were up 1-2%, with some large gains in individual stocks.

My best position today was Sun Microsystems (JAVA), up almost 6% today because of great information about its new server product, Solaris. This stock has been the gem of my portolio so far: I bought shares on August 24th for $5 each ($5.05 after commission); the stock has returned a very healthy 14% since then. The stock is now bordering on being overbought, so I wouldn't be surprised if it has a few flat, or down, sessions. However, I think Sun is a great company that has been overlooked for a long time, and its business and share price will continue to grow. I'll probably have a full writeup on Sun sometime soon.

Also, today, another recent purchase, Electronic Arts (ERTS) was up a few percent. I think that they are in a great position right now; they have a ridiculously-hot selling NCAA football game as well as the ONLY NFL football game, and are releasing a game to compete with the hugely-successful guitar hero franchise for this holiday season.

Western Digital, Take-Two Entertainment, and Ebay also led the NASDAQ higher today; I've been looking to get into eBay for a while, but it just keeps going up and up.


Overall, it was a great day! Hopefully it will spill over into tomorrow.