Entry for August 14, 2008

Fri, 15 Aug 2008 06:30 GMT

Volume IV, Issue IV Annual Subscriptions $95.00 Single Issue $10.00 September, 2008

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Will Mid-2008 Be Remembered As A Great Buying Opportunity?

If real life were like the comedy film "Caddyshack", I would be like Al Czervik, the obnoxiously-rich character played by Rodney Dangerfield. In one scene, Czervik takes a call from his broker while on the golf course. Irritated that he's been bothered in the middle of a round, Czervik impatiently yells the instructions "Buy! Buy! Buy!" into the phone. But then, after a pause, Czervik gets some more information, to which he responds, "Everyone is buying? Well then Sell! Sell! Sell!"

In a world where everyone is selling, I am in the contrarian camp yelling Buy! Buy! Buy! The reason? It has been a long time since we have seen valuations like this on growth stocks. Valuation, after all, is what ultimately drives, and protects, the market. If you can buy UPS and FedEx for the same price you could five years ago, or Coca Cola for last year’s price, what kind of bargains can you find in small cap stocks?

The market looks attractively priced in an absolute sense and relative to inflation, bond interest rates and to other assets. Historically, when the S&P dropped 20%, which it did from its October peak to its March low, when the Fed and Congress were stimulating the economy, when we are in an election year, when stocks are undervalued versus bonds and when stocks are somewhat cheaper versus their own history, you are supposed to buy. The harsh truth is that every time we went through one of these cycles, there were experts coming out of the woodwork talking about how different it is this time. But the market always rallied, stocks came back, and eventually euphoria took over.

Wall Street’s current infatuation with the credit crisis and its love affair with value stocks is no exception. Growth stocks are trading at a much lower valuation than normal. If valuations are lower, obviously there is less risk. With that in mind, when will you turn bullish? Will you pile in once the euphoria starts again? Or will you take a look at the underlying fundamentals and add some of the stocks you missed out on over the last few years to your portfolio? In the long term, we think mid-2008 will be remembered as a great time to buy growth stocks. Keep in mind that if he market trends lower, growth stocks will follow. However, if history repeats itself, they will probably snap back faster, since they are so oversold.

Inside are some companies with strong insider ownership, market leadership, a niche product, little or no debt, honest and capable management, and a strong record of growth. Don’t throw caution to the wind, but on the other hand, don’t let the doomsday crowd take money from your pocket.

Crocs, Inc.: The Rubber Meets the Road

Crocs Inc. (NASDAQ: CROX $4.40) is one of our big winners. We featured CROX after it went public at $29.72, watched it take off, split 2 for 1, and hit $75.21. After taking money off of the table, we still own some shares (for free) and are going back for seconds. Look at the recent news on CROX. Nothing is positive and it is all over, according to the doomsday crowd. Just the opposite is true.

In the past 12 months, U.S. sales expanded 55%, and Europe exploded with 270% growth, and Asia was up 162% year over year. Total international sales now account for more than half of Crocs' revenue and Crocs shoes are sold in more than 90 countries. On July 24, CROX said it now expects sales of $218 million to $223 million and diluted EPS of $0.03 to $0.07. Its previous guidance was sales of $247 million to $258 million and EPS of $0.42 to $0.45. CROX shares were down about 50% on the news. The news is not so bad and CROX is a steal at this price.

www.crocs.com

Xcorporeal, Inc.: Changing Dialysis Forever

Xcorporeal (Amex: XCR $2.50) is a medical device company developing devices for home and hospital Hemodialysis. These devices should allow patients to increase the amount of time on hemodialysis with improved outcomes. With over half a million patients expected to receive chronic kidney therapy over the next several years and 5-year mortality rates standing in the 30% range, we believe Xcorporeal is targeting a large, unmet clinical need with a device design that should provide improved quality-of-life (QOL) and therefore better outcomes than those allowed by today's available products.

XCR plans to file a 510(k) in Q4 '08 for its Portable Hospital Hemodialysis Device for the critical care and hospital market. The market for hospital hemodialysis is estimated to be $1.1 billion. Several catalysts are possible for a big move in shares of XCR. We would look for a strategic partnership to be developed for the Portable Hospital Hemodialysis Device, with a major player, early this fall. Investors could also bid up the price if XCR files its 510(k) prior to Q4 ‘08. Most important of all, some key arbitration should be settled soon.

www.xcorporeal.com

Ilog: Software That Is Changing The Way Business Is Done

ILOG (NASDAQ: ILOG $11.15) delivers software and services that empower customers to make better decisions and manage change and complexity. In shaky economic times, ILOG's enterprise business software helps companies reduce costs and become more efficient. ILOG just released its latest versions of supply chain, inventory, and product flow analysis and optimization software.

For Q3 '08 ILOG had revenues of US$46.1 million compared with revenues of US$40.0 million in Q3 ‘07. U.S. GAAP earnings per share (EPS) for Q3 ’08 were US$0.01 (diluted) compared with a diluted EPS of US$0.04 for Q3 ’07. Q3 '08 was impacted by the U.S. economic slowdown. Positive indicators in ILOG's Q3 ’08 included overall revenue growth at 15% year over year, and license growth at 18%. Geographically, Europe was noteworthy, growing at 23%, with 10% growth at constant currency rate. The Americas grew below expectations at 7% due to the economic slowdown, which deferred some IT spending across industries. ILOG has tremendous potential for growth and has huge upside.

www.ilog.com

ZOLL Medical (NASDAQ: ZOLL $29.60) knows how to get your heart pounding. The medical equipment firm makes noninvasive cardiac defibrillators and pacemakers for emergency resuscitation and heartbeat regulation. ZOLL sells its products, used primarily by hospitals, paramedics, and other emergency medical personnel, through a direct sales force in the US and through sales representatives in more than 140 countries around the globe. ZOLL’s technologies help resuscitate sudden cardiac arrest or trauma victims. ZOLL also provides software that automates the documentation and management of both clinical and non-clinical information.

Revenues for Q3 '08 were $100,244,000, an increase of 27% compared to revenues in Q3 '07. Net income for the quarter was $5,744,000, compared to $4,313,000 in the prior year, an increase of 33%. Diluted earnings per share were $0.27, compared to $0.21 in the prior year. Backlog at the end of Q3 ’08 was approximately $9 million. With zero debt and $45 million in cash, ZOLL is a well managed company with big profit potential.

www.zoll.com

Zoll Medical: Fifty Years Of Contributions In Resuscitation

www.zoll.com

Brite-Strike: New To The Public Financial Markets

Brite-Strike (OTC: BSTI $1.25) recently came public via a reverse merger. Founded by two police officers, its personal protection products are built on Phillips patented LUXEON® technology to be sold in a $2 billion global market. Competitors like Sure-Fire, Streamlight, and Insight primarily sell to the police and the military. BSTI serves these markets as well as the consumer self-defense market. Using no environmentally harmful chemical gases, BSTI’s flashlights and tactical balls are reusable, energy efficient, and leave no carbon footprint.

BSTI’s retail agreements with BJ’s Wholesale Clubs (in store), Amazon.com, and Lowes.com could attract other nationwide superstores, like Wal-Mart and Target. All four branches of the U.S. Armed Forces, the FBI, and the DEA use BSTI products. The first European order came from a Belgium police force. BSTI is opening a London office to meet global demand for non-lethal weapons.

Total sales since November 2007, were $226,000 and net income was $60,400 in 2007. BSTI anticipates exponential sales and earnings growth in 2008. We will keep you updated on BSTI.

www.brite-strike.com

Lukoil: 1.3% Of Global Oil Reserves And 2.3% Of Production

LUKOIL (OTC: LUKOY $78.90) is Russia's largest oil company and its largest producer of oil. The second largest private oil Company worldwide by proven hydrocarbon reserves, LUKOY has around 1.3% of global oil reserves and 2.3% of global oil production. LUKOY boasts almost 19% of total Russian oil production refining. Proven reserves at the beginning of 2007 were 15,715 million barrels of crude oil and 27,921 billion cubic feet of natural gas, totaling 20,369 million barrels of oil equivalent.

LUKOY earned $11.48 per share on $81.89 billion in revenues for fiscal '07. In fact, revenues and earnings in USD have increased every year since '03. Q2 '08 profits rose 8.4%, to $2.5 billion, from $2.3 billion, while sales rose 9.8%, to $20.1 billion, from $18.3 billion a year before. LUKOY is no small-cap, but most U.S. investors are unaware that the stock trades in the U.S. Once again, since it trades on the OTC market, no one has an incentive to recommend the stock. Trading at 7.5 times earnings, .9 times sales, and for book value, we say купить!

www.lukoil.com

Nic, Inc.: The Company That Puts The “E” In Egovernment

NIC, Inc. (NASDAQ: EGOV $7.48) is the world's only publicly held company that focuses exclusively on serving the eGovernment market. Based in Olathe, KS, EGOV employs 418 people in the U.S. and has developed a library of more than 1,500 Government applications, a significant asset.

EGOV's Portal Outsourcing segment enables businesses and citizens to access government information online and complete transactions, including applying for a permit, retrieving driver’s license records, and filing a government mandated form or report. The Software and Services segment provides software applications and services for electronic filings and document management solutions and creates online campaign expenditure and ethics compliance systems for federal and state agencies. EGOV is 20% owned by insiders. Analysts estimate EPS of $0.19 for fiscal ’08 and $0.24 for fiscal ’09.

If you check the news on the stock, you will see EGOV is signing up state governments at a very rapid pace. With $385 million in cash, no debt, and a need for more efficient government services, EGOV could be in the right place at the right time.

www.nicusa.com

BIGBAND NETWORKS: PASS THE HIGH DEFINITION PROGRAMMING, PLEASE

BigBand Networks (NASDAQ: BBND $3.87) switched broadcast frees up bandwidth for new services and programming while providing a seamless experience for television viewers. When a subscriber selects a switched program, a management server system determines whether the program is being watched in the subscriber's neighborhood. If the program is already being watched, the subscriber joins the existing session or "stream," but if not, the program is dynamically switched to that subscriber's area. As a result, bandwidth is conserved in the areas where the programs are not being watched.

BBND’s customers include Cablevision, Charter, Comcast, Cox, Time Warner Cable and Verizon. Its switched digital video solution have been deployed, or are being deployed, by six cable operators, across 26 systems. Over fourteen million households in North America will have access to BBND's switched digital video solution once these deployments are complete, offering viewers the potential to enjoy expanded choices of high definition and standard definition programming. This is an opportunity to buy a growing company when it is out of favor.

www.bigbandnet.com

Melco Crown Entertainment: Asia’s Sinful Profit Opportunity

Melco Crown Entertainment (NASDAQ: MPEL $7.04) engages in the development, ownership, and operation of casino gaming and entertainment resort facilities. Recently, MPEL purchased a 19.6% interest in Fontainebleau Resorts, which is building a $2.9 billion, 24 acre project on the Las Vegas Strip, and a 50% interest in Gateway Casinos, which operates nine casinos in Canada. Last December, MPEL agreed to acquire Vegas casino operator, Cannery Casino Resorts for $1.8 billion.

Net revenue for Q1 '08 was $482.9 million, up from $179.8 million in Q4 '07, an increase of 267%. Net income for Q1 '08 was $43.2 million, compared with a net loss of $36.5 million in Q4 '07. MPEL’s key asset, Crown Macau, has become the busiest casino in the world in gaming volume. Macau’s government recently halted the issue of new licenses and froze land allocations for the construction of more casinos, a huge bonus for companies that own existing licenses. Macau currently allows six companies to operate 29 casinos in the enclave. In short, future competition has been blocked.

www.melco-crown.com

Ebix, Inc.: E-Commerce Services For The Insurance Industry

Ebix, Inc. (NASDAQ: EBIX $85.50) is an Atlanta-based e-commerce insurance specialist. EBIX has two primary insurance carrier system products: Infinity Systems and Business Reinsurance and Insurance Company System (BRICS). Infinity Systems, a client server technology policy and claims administration system, is designed for small- and medium-sized property and casualty insurers. BRICS is for carriers, and includes various modules, such as policy management, claims administration, underwriting, rating and a general ledger. 6 of the world’s 10 biggest Insurance Brokers use EBIX and the Company has a presence in 52 countries across 6 continents. Additionally, 35% of P&C insurance business in the United States is conducted on EBIX systems.

EBIX posted net income of $5.7 million and earnings of $1.40 a share for Q1 '08, compared with net income of $2 million and earnings of 61 cents a share in the Q1 ‘07. Q1 '08 revenue was $16.6 million, compared with $9 million in the Q1 '07. In June, EBIX was added to the Russell 2000 index.

www.ebix.com

Cra International: Fast Growing Consulting Firm

CRA International (NASDAQ: CRAI $36.27) consults on economic, financial, and business management matters for law firms, industries, accounting firms, and governments worldwide. The 43-year-old company has 26 offices across North America, Europe, Asia Pacific and the Middle East. CRAI is a fast-grower because of its 22.4% growth rate, based on the average of the three-, four- and five-year EPS figures. P/E/G ratios lower than 1.0 are acceptable and indicate that the stock is a good buy at its current price; P/E/Gs under 0.5 are the best case. When we divide CRA International's P/E of 13.56 by its 22.4% growth rate, we get a P/E/G of 0.61, which is in the ball park.

For the Q2 '08 CRAI reported earnings of 48 cents, which exceeded analysts' expectations of 34 cents. CRAI has $90 million in long-term debt, but $167.9 million in net current assets, a sign that it is financially secure. CRAI's growth over the past ten years is an impressive 200%, and it has posted positive earnings in each of the pa

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Entry for August 14, 2008