Filed under: Deals, Products and services, Kraft Foods’A’ (KFT), Stocks to Buy

Israeli small cap food manufacturer and distributor, G. Willi-Food (NASDAQ: WILC), announced this week that it had signed a binding letter of intent to form a new joint company with the owners of Shamir Salads, an Israeli manufacturer/distributor of prepackaged, chilled kosher Mediterranean dips and spreads in Israel and abroad.

Mr. Zwi Williger, President and COO of Willi Food commented, “The growth and popularity of Mediterranean style foods has grown beyond ethnic food borders and into the diet of mainstream consumers. Shamir Salad’s line of kosher Mediterranean hummus, dips and spreads, appetizers, and gourmet specialties are in line with Willi-Food’s core kosher and healthy living businesses.”

I love my hummus with a large helping of chips while I enjoy watching the NFL on Sundays. I also love small cap companies with juicy growth stories and G. Willi is just one of those companies. Israeli Billionaire Arkadi Gaydamak, who controls a huge egg business in Russia, recently signed a deal with G. Willi to begin importing high-end dairy products (read fancy, stinky cheeses) to the nouveau riche in Russia.

As Kraft Foods (NYSE: KFT) and its competitors look for new overseas markets where business is good and getting better, G. Willi may ultimately be a good M&A candidate for a large multinational food company.

Zack Miller is the lead equity analyst for America Israel Investment Associates, LLC., the managing editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund.

The author’s fund owns WILC as of 11/04/07.

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Filed under: Earnings reports, Forecasts, Industry, DaimlerChrysler (DAI), Ford Motor (F), General Motors (GM), Toyota Motor Corp. (TM)

To me, General Motors Corp. (NYSE: GM) is beginning to take on the persona of Rocky Balboa, the consummate tough guy who is winning against all odds. Forget for a moment who sells more autos and just look at all the smart work it has taken to get GM this far in the struggle to effectively manufacture and market automobiles. Take a contrasting look at the last few week’s announcements from America’s auto manufacturing block. Take a look at the news about Ford (NYSE: F) and Chrysler in contrast to what you hear about GM. It is my opinion that of those three, GM is the only company which has a realistic grasp on what it must do to survive and regrow.

General Motors posted 2007 second-quarter adjusted net income, excluding special items, of $1.4 billion, or $2.48 per diluted share, compared to $1.1 billion, or $2.03 per diluted share, in the year-ago quarter. However, bear in mind that while GM increased its market share over 9% outside of North America, it’s global market share was down 0.4%, meaning that there was a decline in the number of vehicles sold at home. Current analyst consensus is a quiet hold on GM. I would take that position also, but overall I expect GM shares to move steadily upward as company outlook improves.

Continue reading General Motors (GM) earnings preview: You gotta’ have heart

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Filed under: Competitive strategy, Marketing and advertising, Stocks to Buy

Barron’s thinks (subscription required) that it might be time to look at Kenneth Cole Productions (NYSE: KCP), which currently trades right around its four-year low. With its cash pile and strong same store sales growth, the company could be an attractive value — a rarity in fashion stocks.

Recently, BusinessWeek looked at Iconix Brand Group (NASDAQ: ICON), the company of Kenneth Cole’s younger brother Neil. Iconix has a very different business model though. The company’s strategy is to acquire brands, and then license design, manufacturing, and distribution out to third parties. This leaves Iconix to focus on acquiring strong brands and developing innovative marketing campaigns. Judging from the company’s robust profits and strong share price growth, it’s a strategy that’s working. The company currently owns brands including Candie’s, Bongo, Badgley Mischka, Joe Boxer, Rampage, Mudd, London Fog, Mossimo, Ocean Pacific, and Danskin.

Interestingly, Kenneth Cole may be borrowing a bit from his brother’s playbook, recently snapping up ’80s icon Le Tigre for up to $25 million.

Which of these is a better buy here? The Iconix model seems to have a lot more appeal, as the company relies on license fees and is able to maintain a lean operation. The multibrand strategy also eliminates the risk of an essentially single-label fashion company.

But the contrarian in me wants to go with Kenneth Cole, the once-proud fighter whose fallen on (relatively) hard times. But given that they trade at similar valuations and Iconix has much more impressive growth, I’d probably go with the little brother.

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Filed under: Earnings reports, Deals, Products and services

NICE Systems (NASDAQ: NICE), announced the signing of their second contract in a week for the NICE Platform system. Commenting on the new deal, NICE president and CEO Eran Gorev said, “We appreciate the confidence West has demonstrated by selecting NICE to replace its existing solution. The selection of NICE Perform as West’s enterprise standard is further evidence that NICE is the premier choice for improving performance at the agent, contact center and enterprise level.”

NICE is a security company that specializes in two markets: security and call centers. Its security solution empowers security personnel to detect, prevent, and respond to threats in real-time. It also allows them to investigate, and reconstruct criminal and security cases using video surveillance and control services, incident monitoring, and reconstruction solutions.

The company has been a star on the Israeli hi-tech scene, and with everyone looking at security as a must-have, their business has been booming. The company is due to report earnings on Wednesday. Analysts expect the company to post earnings per share of $0.37 on $130.9 million revenue. I would look for the company to beat estimates by between $0.01 and $0.02, as they have a history of beating estimates.

Disclosure: Writer holds a position in NICE. He has no other position in any stock mentioned as of 11/4/07.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com.

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Filed under: Apple Inc (AAPL), Goodyear Tire and Rubber (GT)

Twice a year, Barron’s does its “Smart Money” poll of institutional investors. This fall’s edition includes opinions from 112 money managers. The poll was e-mailed to these participants in late September.

These investors believe that market is still headed higher. Forty-two percent were bullish compared to 18% who called themselves bearish.

But, the strange thing about the poll is that some of the most mentioned “buys” were also among the most mentioned “sells,” which shows how deep the spread of opinion is on these companies.

Apple (NASDAQ: AAPL) and Google (NASDAQ: GOOG) made both lists. The first list was called “Two Favorite Stocks,” and the other was called “Most Overvalued.”

Continue reading Barron’s poll has Apple and Google as “buys” and “sells”

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Filed under: Earnings reports, Cisco Systems (CSCO), QUALCOMM Inc (QCOM)

Halloween has come and gone but the earnings season rolls on. Among companies reporting next week are Cisco Systems Inc. (NASDAQ: CSCO) and Qualcomm Inc. (NASDAQ: QCOM), and here are a quickie earnings previews for them.

Cisco has offered upside surprises in every quarter for the past two years. When it reported fourth quarter 2007 results back in August, earnings were 36 cents per share, beating Wall Street estimates by a penny, and six cents more than in the same period of the previous year. For the full year, earnings were $1.34 per share, again beating expectations by a penny. But for the current quarter, analysts surveyed by Thomson Financial are only expecting another 36 cents per share.

The analysts’ consensus recommendation is to buy Cisco, and has been for the past six months. The share price has been climbing since mid summer, and reached a 52-week high of $33.60 in mid October; it closed Friday at $32.51. It was trading in the low 20s a year ago.

For news about Cisco and its rivals that could influence Cisco’s results, check out BloggingStocks’ Cisco coverage.

Continue reading Earnings previews: Cisco (CISCO) and Qualcomm (QCOM)

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Filed under: Deals, Management, Merrill Lynch (MER), Wachovia Corp (WB)

While the board at Merrill Lynch (NYSE: MER) didn’t really need another reason for pushing out CEO Stan O’Neal ($8 billion in write-downs is probably enough), rumors suggest that Mr. O’Neal’s decision to approach Wachovia (NYSE: WB) about a merger without consulting the board was another factor.

The New York Times isn’t so sure what the big deal is: “The job of a CEO — even one at a floundering firm — remains the same: to lead the firm’s strategy. That task may include talking to rivals and others about possible combinations. According to some of the nation’s top corporate governance experts, a board’s role is to sign off on the wisdom of a corporate union, not necessarily to look over the chief’s shoulder during negotiations or micromanage every decision …. In deal talks, boards are not Mommy and Daddy. CEOs enamored with another company should be free to pursue their heart’s desire — or at least woo it, without going too far.”

At some companies, this might be true. But at Merrill Lynch, O’Neal’s clandestine pursuit of a merger was indicative of a management style that was too autocratic. The huge write-downs point to the failure checks and balances, and questionable deals with hedge funds may raise questions about internal controls at the company. That O’Neal talked to Wachovia alone is confirmation of many of the reports that have emerged about him in the past week: He didn’t respond well to criticism, and tended to go off and do things on his own.

That’s a style that’s led to Merrill’s current troubles, and it’s not the strategy that should lead to any kind of merger to save the company.

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Filed under: Citigroup Inc. (C), Merrill Lynch (MER), NYSE Euronext (NYX), Goldman Sachs Group (GS)

The New York Times reports that Citigroup Inc. (NYSE: C) may make Robert Rubin Chairman until it can find a CEO. This temporary solution is analogous to what Merrill Lynch & Co. (NYSE: MER) did by making Alberto Cribiore, a director, its interim non-executive Chairman.

Rubin, who has made $150 million at Citigroup since he left the Treasury Department eight years ago, has traded a sterling reputation at Goldman Sachs Group (NYSE: GS) and Treasury for a nice chunk of change at Citigroup. Unfortunately for him, making bank at Citigroup has tarnished his reputation — despite his efforts to distance himself from Citigroup’s problems. Meeting with clients and walking around without shoes offering advice — known in his contract as “no operational responsibilities” — does not seem to have buffed Rubin’s reputation.

If the New York Times is correct, it remains to be seen how Rubin’s role will change. It could be that his primary job will be to take the lead on recruiting Prince’s successor. Will he take on an interim non-executive Chairman’s role like Cribiore? I imagine he’ll seek to evade legal responsibility for Citigroup’s problems. Otherwise, he could end up spending more time than he’d like dealing with shareholder lawsuits.

Continue reading Will Robert “No Operational Responsibilities” Rubin chair Citigroup?

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Filed under: Bad news, Industry, General Motors (GM), Citigroup Inc. (C), Wachovia Corp (WB), Economic data, Personal finance, Politics, Sunday Funnies, Commodities, Federal Reserve

I’m glad that I’m not the only one who is just a little miffed at the way that Fed chairman Ben Bernanke and his elite staff have chosen to handle our economy. My feelings fall pretty much in line with those of investment genius Jim Rogers. I listened to a short interview with him today on public radio. He pretty much confirmed my belief that the dollar could be going the way of the dinosaurs. For crying out loud, the Fed dumped about four tons of greenbacks on the financial system Thursday. Bank leaders such as Citigroup Inc. (NYSE: C) aren’t generating enough profit to meet the demands of operation and to please the shareholders at the same time! What’s the Fed going to do about the 80% profit decline at Wachovia Corp. (NYSE: WB)? A lower basis point for bank borrowing won’t even scratch the surface of the cash shortfall. In fact, the lower the basis point the more it injures the bank’s ability to make a profit on the loans that we need right now to salvage some home ownership scenarios from the mortgage debacle. How much more evidence do you need to realize we are living in a time of disastrous fiscal policy? We’re lining up to make 1929 look like a cake walk.

Continue reading Sunday Funnies: Ben Bernanke, someone hates what has happened

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I’m sure many of you have seen TLC’s Property Ladder show.  It is a similar show to Flip This House except I’ve noticed that Property Ladder is more willing to show flips that have gone bad.  If you haven’t seen the show the premise is simple.  Someone buys a home, has a budget and time line, and tries to get away with as much profit on a greater fool.  After mulling over the shows, I’ve noticed a common thread and psychology with many would be flippers and real estate moguls.  First, most of these people have failed to do a thorough market analysis of the area.  What would the property lease for if you couldn’t sell?  How long of a time line do you have before your carrying costs knock out your profits?  It doesn’t seem like they’ve taken anytime to be realistic.  Yes, in the last few years we’ve seen people make out like bandits but then again, they were selling and buying in an epic bubble with lax lending.  When you can sell a $720,000 home to a farmer making $14,000 I wouldn’t exactly call it financial prudence.  

Now that standards are tighter the margin of error is shrinking.  Next, most of these people have a lack of understanding of the construction costs and timelines.  Remodeling is no cakewalk.  You have the good, the bad, and the ugly when you deal with construction projects.  This one team of would be flippers were trying to flip a condo in Garden Grove with a tiny budget, a two week timeline, and an absurd amount of profits.  Guess what happened?  First, they tried to do the project themselves.  That didn’t work out.  Weeks turned into months and carrying costs started eating into their profits.  It took four months to get the property ready and the property is still sitting on the market even after price reductions.  At this point they will come away with zero profits.  They are now in negative territory.

With this same team, they openly stated that they were going to do double-digit flips in one year.  That was before their two week project turned into a four month challenge.  This isn’t common only to these flippers.  In fact, these are words taken verbatim from multiple Pollyanna real estate books.  Doing a quick “real estate” query on Amazon you will find 153,000+ books on the subject.  I assure you that you do not need that many.  I wonder if they ever thought how publishers make profits?  In fact, I’ve read many of these books, at least fifty and there will always be unforeseen contingencies that will occur that these books will fail to foresee.  The numbers never play out perfectly.  You will always hear on the beginning of property ladder a book planned budget before they actually get into the trenches.  Theory to practice is much harder. 

Lack of Fundamental Analysis

I realize that these shows are on a tight timeline and everything is hurried and for dramatic effect.  But even a basic back of the napkin calculation can tell you if a deal is good or not.  The fact that many of these shows have been running for years during the peak of the housing bubble created a mass belief that flipping houses would always be an easy process; in fact many of these shows fed into the issues we are now facing.  There are 3 simple ways for real estate valuation.  Using a combination of these methods would help many would be flippers from encountering major problems.  In addition, there is never any contingency plans on these shows.  We all know that life is unpredictable.  Hope for the best and prepare for the worst.  These folks hope for the California Lottery and prepare for the best.  My question is who in the hell is funding these people?  I’m finally starting to see some flips gone horribly bad televised.  My take is that shows take awhile before they hit the airwaves so there is a lag factor.  The major credit crunch only hit in August.  I wonder if they’ll continue airing these shows and maybe change the title to Flip this Short Sale.   After all, even Ben Bernanke in May of this year was saying that the subprime market would be contained.  I wonder if he watches Property Ladder?

Misunderstanding of Construction Process

Construction is the litmus test of this entire housing market.  When we look at major builders and see them having difficulties, you can rest assured that the overall consumer market will contract as well.  That is why there have been pullbacks in companies such as Home Depot.  All these sales of the century are now competing with your flip.  You can rest assured that builders have more of an advantage and can cut prices faster than you can say “price reduction.”  This creates more added inventory in an already declining market.  These shows will never talk about the credit crunch except as a footnote into their juggernaut of flipping homes for absurd prices.  Certain construction projects take time and you need to find the right people to work for you.  You need to have your team in place before you even undertake a project.  This one couple was using their computer and using Google to figure out how to tackle massive projects!  You can’t help chuckling as you see the guy sitting there and probably typing “tutorial on installing plumbing.”  You can’t nickel and dime these projects.  And since you’ve gutted the place and payments are now rolling in, you really don’t have much time to negotiate major construction projects.  A kitchen remodel or redoing a bathroom will take time.  Now guess what?  You are competing with home builders that have mastered the art of faux luxury and staging, so good luck on trying to squeeze out a $20,000 profit simply because you used Feng Shui.  You’ll realize why more and more potential buyers are deciding to rent than buy.  

Too Many Real Estate Books

Which bring us full circle.  I’m sure you know or have friends in your immediate circle that I like to call walking human parrots, WHP™.  Sometimes you’ll need to do a double take otherwise you’ll mistake them for a talking head on a cable show without the rectangle around their head.  Folks on these shows sound like they are simply repeating from rote memorization their favorite housing book.  There has been another bubble that I have failed to talk about but is clearly present.  There is a massive bubble in real estate books.  Since the profits in real estate have been criminal these last few years - no seriously, some companies have been so brazen they have thrown out sensitive housing files into public dumpsters – you realize that many folks decided to jump into the industry.  Staging professionals.  Luxury end realtors.  Certified kitchen remodeling specialist.  Did someone crack open a Kaplan GMAT study book and jumped to the verbal section?  When you watch these shows, get out a notebook and write down every real estate cliché you hear.  “Real estate never goes down” or “redoing your kitchen will yield a 130 percent return on your investment.”  Says who?  These rules only apply in appreciating markets.  In down markets you’ll need to remodel homes simply to move the property.  The gimmicks are running out and so is the funding.  I wonder if these shows will go the way of the subprime market?   

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