Filed under: Competitive strategy, Top Picks 2007, Chasing Value, Stocks to Buy, Intuitive Surgical Inc (ISRG), Technology, Best Stocks for 2008

My eight stock picks for 2008 will not include one of my favorites, Intuitive Surgical, Inc. (NASDAQ: ISRG) because of current appreciation in the stock price. Since I am basing my picks on the December 28 close, in two days, it just looks too pricey. The company isn’t only the leader in producing patented robotic surgical systems; it is the only game in town.

Intuitive Surgical was a strong candidate at $280 to $290, about 20% off it’s high, but not at Wednesday’s closing price of $335.24. It has a trailing P/E of 109 and a forward P/E of 77 if you believe projections, and I do since ISRG is constantly beating them. However, this stock has a 52-week low of $86.20 and a high of $359.59. That’s very high and a 400% bounce has to leave even Apple Inc. (NASDAQ: AAPL) and Google Inc. (NASDAQ: GOOG) enthusiasts astonished.

I have written favorably about ISRG in the past 22 months, so perhaps some of my readers have shared in the gains. It is one of the few stocks I’ve mentioned that does not pay a dividend, but it has beat all estimates each year since I purchased it, and is apt to do so again (albeit with fits and starts). It has hardly penetrated its potential market, and already it has grown into a $12 billion company.

At this point, I would definitely put ISRG on my watch list, and perhaps like many volatile stocks, there would be an opportunity to own it at a lower price.

Disclosure: I own shares of ISRG in several portfolios.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm.

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Filed under: Rumors, Competitive strategy, Best Buy (BBY)

Earlier this year, Best Purchase (NYSE: BBY) was accused of operating an internal website that featured differing prices from its public website. This caused those web surfers who saw advertised prices on www.bestbuy.com to visit local locations only to find higher prices on the shelf. In addition, employees were asked about the discrepancy and pulled up Ideal Buy’s website (an internal-only website, according to many) that supported the higher price.

Although Best Buy saw a lawsuit earlier in the year from the Connecticut attorney general, it appears that the same problem is happening again — in Connecticut. Something is fishy if Best Buy employees are using a “secret” website that looks like the retailer’s official public website that in fact does not have the same pricing information as the Best Purchase public website. What’s the purpose of such a scenario? To eak out a few extra bucks from that contingent of customers who browse on the web only to end up at a store for the actual purchase? Who knows.

Connecticut attorney general stated “we thought Ideal Purchase had addressed this … that’s what they said to us. Apparently that’s not the case.” This may re-ignite the flame under Ideal Buy’s behind to ensure employees don’t reference some internal-only website for current consumer pricing information, but only use www.bestbuy.com as a reference. Is that so difficult? Apparently, it is.

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Filed under: Forecasts, Competitive strategy, Apple Inc (AAPL), Stocks to Buy, Ideal Stocks for 2008

Apple Inc. (NASDAQ: AAPL) has been a truly fun company and stock to watch and write about during the course of 2007. Not a bad name to own either. I have probably written a dozen posts for BloggingStocks about Apple, and I have raised my price target five or six times this past year. I think I started out at $85, went to $125, then $150, and so on. I’ll make it easy — for year end 2008, the new price target is $300.

Seems so easy, but let me explain why.

Apple’s story is actually stronger today at $200 than when it was at $100. Why? Apple is experiencing large momentum in all business segments AND it’s still early in all its product cycles. This is the astounding part and I must repeat — IT IS STILL EARLY IN ALL PRODUCT CYCLES.

The December 31 quarter, ending in four short days, will be another blow-out quarter. The estimates call for $9.3 billion in revenue with earnings per share of $1.50 or so. Apple is going to beat these numbers and once again forward estimates are going to go up. Right now I’ve September 30, 2008 fiscal year estimates at revenues of $31 billion and earnings per share at $5.25; fiscal year 2009, revenues at $38.5 billion and earnings at $6.35 per share.

Numbers are conservative and going higher and here’s why. The iPod will be blow away estimates again, and this is the most mature product set in the Apple portfolio. Installed base after the December quarter will be over 120 million total units sold. It is on its fifth iteration and the penetrable market is only at about 7-8%.

The iPhone is JUST beginning and remember this is a global story. iPhone numbers by year end will exceed 20 million units sold. Analysts estimates run right now between 12-14 million units sold by year end 2008. Remember, Apple also gets a piece of the carrier contract with each iPhone sold — in the US, it’s AT&T (NYSE: T). Europe and Asia are just getting started and of course there is still China and South America yet to announce. iPhone is a revolution, not just a product. On June 28, 2007, Apple was not in the cell phone industry. On June 29, 2007, Apple became a feared major player.

The new Mac with the new Leopard operating system is taking the PC world by storm. In the September quarter, Apple sold 2.116 million units, nearly 400,000 more than anyone anticipated. That is also just starting. The Mac is taking market share and will continue to do so all through 2008 and beyond.

Apple’s operating margins have been running at about 17% and most Street analysts have them settling at 15% or so. Wrong. Apple has the component gig down pat: they’re sharks on component pricing and the operating margins will actually hang around 18-20%, which for a hardware maker is totally stunning. Dell (NASDAQ: DELL) would kill for 6-7% operating margins.

The Apple retail stores, 197 strong, average over $4400 of revenues per selling square foot, the highest of any American retailer. That was the 2006 sales per square foot number and that was before the iPhone or the new Mac. I think those numbers are going higher.

So let’s cut to the chase and set the new price target for Apple. I believe the September 2009 earnings number, now at $6.35 per share, will actually be over $7. At a 45 PE multiple, fully justified by operating margins, market dominance and early product life cycles, this puts the price target at $300 by year end 2008.

[Disclosure: At publication time, Georges Yared owns Apple stock.]

Georges Yared is the CIO of Yared Investment Research and the author of Stop Losing Money Today

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Filed under: Industry, Consumer experience, Competitive strategy, Short stories, Comcast Cl’A’ (CMCSA), Verizon Communications (VZ), Technology

Cable stocks have fallen sharply and most trade near 52-week lows, but that is not keeping short sellers from continuing to believe that they could go lower. The short interest in Comcast (NASDAQ: CMCSA) and Charter (NASDAQ: CHTR) went up on December 14 compared to November 30 according to data from Nasdaq.

The slide in cable shares began around mid-year, when comments from Comcast indicated that the new TV-over-fiber products from telecom companies like Verizon (NYSE: VZ) were starting to take cable customers. Up until recently, cable was able to market voice, TV,and broadband as one package into the home. The telephone companies could not match that. But fiber installations have changed the picture, and competition is fierce.

Cable companies are starting to see slowing growth in their subscriber bases. That could push them to drop rates, and it is forcing them into capital expenditures to improve the speed of their own networks. Both moves put pressure on earnings.

The huge bet against cable might be premature. It will still take years before telecom companies can get fiber to all of their customers, and there is no guarantee that these consumers will switch from cable. Also. cable continues to take a massive number of voice customers from the telephone companies with inexpensive VoIP products.

Cable might not be dead yet.

Douglas A. McIntyre is an editor at 247wallst.com.

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Filed under: International markets, Other issues, Good news, Rants and raves, Competitive strategy, US Airways Group (LCC), Contl Airlines’B’ (CAL), Headline news, Delta Air Lines (DAL)

As regular readers might have observed I’m one to mull things over a while before offering up a slice of investment thought pie. A few weeks ago Barron’s (subscription required) ran a cover story titled “Open Skies” discussing the imminent deregulation of trans-Atlantic air routes.

In this context they reviewed the potential for airline mergers, (something I’ve written about before in Why no airline mergers? Finally the answer…) and they commented on who the winners and losers might be. The article highlights the fact that there has been a 30 year agreement in place, “the Bermuda airline agreement” that limited Heathrow-U.S. air traffic to just four airlines: two British and two U.S. Other foreign airlines were barred flying to the U.S. except from their own nation’s airports.

Under terms of a new agreement cast last April U.S and European Union airlines departing 27 nations will be able to fly direct routes. Barron’s does a fairly thorough analysis in my view of the potential success among various airlines and those that might come up short.

Under the heading of Dividing the Spoils they list the winners as Air France-KLM ADR (NYSE: AKH), Continental Airlines, Inc. (NYSE: CAL), Delta Airlines, Inc. (NYSE: DAL), Deutsche Lufthansa ADR (OTC: DLAKY), Ryanair Holdings plc (OTC: RYAAY), UAL Corporation (NASDAQ: UAUA), and the US Airways Group, Inc. (NYSE: LCC).

Without choosing sides and speculating as too which airlines might do the ideal financially in this new environment, as Barron’s has done, I would caution investors that it is all speculation. No doubt, this is a part of the investing world, still, there are industries that offer greater predictability than the the airline industry.

Airlines are capital intensive, subject to mountains of regulations and treaties, subject to fluctuations in fuel prices and politics, require heavy maintenance responsibilities, and must deal with unions and hijackings and more issues. Therefore while I’ve no reservations about making airline reservations to fly, I do get a queasy stomach when it comes to investing in them. If you normally think twice before investing, then think three times before you take into account these stocks.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm.

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Filed under: Forecasts, Competitive strategy, Apple Inc (AAPL), Dell (DELL), Hewlett-Packard (HPQ)

The media is making much of Apple, Inc. (NASDAQ: AAPL)’s move above $200 and it is a nice milestone. What is much more impressive is that about 20 months ago, the shares were only a bit above $50.

The question for Apple investors now is not how far the stock has come, but whether it can continue the trip. The company is now burdened by expectations which didn’t exist two or three years ago.

The assumptions on which a continued rise in the stock are based see the iPhone becoming a significant player in the smartphone market, the iPod continuing to sell tens of million of units a year, and the Mac getting well beyond 5% of the global Personal computer market.

The Mac goal may be more difficult than the others. With over a billion handsets sold a year worldwide, the thought that the iPhone could capture 20 million units a year isn’t astounding. And, with a dominant position in the multimedia player market, the iPod is prone to have long-term growth so long as consumers want music and video to go.

But, the personal market is a much tougher nut. Hewlett-Packard Company (NYSE: HPQ), Dell Inc. (NASDAQ: DELL), and Asia manufacturers Lenovo and Acer, are not going to give up the share that they have now, at least not without cutting costs and improving features. Apple may not be able to hold the expensive end of the market forever.

If Apple stumbles, it is likely to trip over expectations for the Mac.

Douglas A. McIntyre is an editor at 247wallst.com.

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Filed under: Good news, Products and services, Competitive strategy, Costco Wholesale (COST)

Even though there’s still need for concern about the retail sector, I have to admit that I’m feeling fairly secure right now about Costco Wholesale Corp. (NASDAQ: COST). That is why I see this morning’s 1.25% drop in Costco’s share price as an possible buying opportunity. Already, that share price is being supported and lifted from a low of $69.55 and I’d be willing to speculate that Costco shall end the day in positive territory.

A Wall Street Journal article today puts a shine on Costco’s seasonal performance, indicating that management executed a seasonal plan which worked nicely within the fragility of today’s retail realm. Costco CFO Richard Galanti said Monday, “We were left pretty clean in terms of seasonal markdowns.Generally talking, our season went well.” Costco has already changed over its seasonal square footage to furniture offerings, something it began doing even before the Christmas season grinds to a halt.

The two issues to keep focus on regarding Costco this year is how well it takes advantage of new opportunities and the quality of its management team. Already, five NBA teams have joined with Costco to sell discounted game tickets through Costco’s website, according to SportsBusinessJournal.com (registration required). This development may prove to be part of a marketing push which will see Costco attempting to sell more non-perishable goods via the World wide web.

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Filed under: Competitive strategy, Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO)

In November world wide web search engine rankings by comScore (NASDAQ: SCOR), Google (NASDAQ: GOOG) again lead the pack, with 5.9 billion core searches conducted — a 58.6% market share of all searches in the internet. This was almost the exact same level as October.

Coming up a distant second (as usual) was Yahoo! (NASDAQ: YHOO) with market share of 22.4%. The next three were Microsoft (NASDAQ: MSFT) at 9.8%, IAC/InterActiveCorp.’s (NASADAQ: IACI) Ask.com at 4.6% and Time Warner’s (NYSE: TWX) AOL at 4.5%. In November (a seasonally weak month for web searches), U.S. web searchers conducted 10 billion searches — a 5% decline from October.

Do these rankings surprise any web surfer? They shouldn’t — Google continues to dominate internet searches and Yahoo!’s Project Panama — even though technically a job well done — is probably too late to the celebration to put any significant pressure on Google. Microsoft’s Live Search push has garnered it about the same market share as in the past (a decent third place). The power of first-mover advantage is quite evident in Google’s placement, and I’d suspect it’s not going anywhere soon.

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Filed under: SEC filings, Deals, Press releases, Products and services, Management, Industry, Competitive strategy, General Electric (GE), Merrill Lynch (MER)

General Electric (NYSE: GE) and Merrill Lynch (NYSE: MER) announced a deal Monday, which will result in GE picking up most of Merrill’s commercial finance business.

The deal is expected to be finished during the first quarter of 2008, and will add an estimated $10 billion plus in assets to GE Capital. Merrill has been hit pretty hard this year with the subprime mortgage mess, and this deal will result in around $1.3 billion worth of capital that the company will be able to allocate elsewhere.

Merrill, which announced a big $8.4 billion worth of write downs back in October is in the middle of what it is calling a “strategic focus on divesting non-core assets.” This sale is beneficial to Merrill because the firm’s commercial-lending business has become reliant on companies that do not posses investment-grade credit ratings and pose a financial risk that Merrill does not need to be assuming, especially after Merrill’s current write down.

Included in this deal will be Merrill Lynch Capital’s corporate, equipment, energy and healthcare finance units. Merrill’s commercial real estate finance unit, however, will not be included.

This was not the only piece of news today regarding Merrill Lynch announced on Monday. The company also announced that it would be getting a nice $6.2 billion cash infusion from Singapore’s Temasek Holdings and Davis Selected Advisors LP.

In this other deal, Temasek will be laying out $5 billion for a less than 10% stake in the company, and Davis will be Advisors will be purchasing another $1.2 billion lot of the company’s stock.

Michael Fowlkes has worked as a stock trader for seven years and spent the last four years working as an analyst for the online investment advisory service Investor’s Observer.

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Filed under: Forecasts, Industry, Competitive strategy, Ford Motor (F), General Motors (GM), Toyota Motor Corp. (TM), Economic data

It looked like Toyota (NYSE: TM) would pass GM (NYSE: GM) for the No. 1 spot in global vehicle sales for 2007, but it is not clear that it happened. GM sales in China and South America may have been good enough for it to keep the lead spot.

Now Toyota has announced ambitious plans to up its sales 5.6% to 9.85 million cars in 2008. That would nearly certainly put it ahead of GM and break the U.S. car company’s all-time record year set 30 years ago.

According to The Wall Street Journal, “Katsuaki Watanabe, Toyota’s president, said the company aims to accomplish its bold sales targets by expanding in fast-growing emerging markets.” That means the Japanese company will have to do well in growing markets like China and hold its own in the U.S.

But Toyota could be tripped up on its way to the record. The market in China is becoming much more competitive. Local companies like SAIC are trying to take market share from companies based outside the world’s most populated country.

In the U.S., Toyota hopes its sales can stay close to flat. But some predictions are that the vehicle market here will drop from just over 16 million vehicles sold in 2007 to 15 million in 2008. In that case, Toyota might have a very difficult time meeting its U.S. targets, especially if GM and Ford (NYSE: F) start to offer huge discounts to lower inventories.

Also, vehicle sales have been very weak in Toyota’s home market of Japan. It is possible that Toyota could lose ground there, which may undercut its production plan.

Toyota might think it will do well next year, but it is hardly a lock.

Douglas A. McIntyre is an editor at 247wallst.com.

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