Hit #60

NDC Health (NDC), a solutions provider to hospitals/medical professionals, is being bought in a 3-party transaction, valuing the company at $19.5/share, a tiny premium over my average cost of $19.37/share. One of those holdings that I never got back to averaging down, though I did mention it atleast once on this blog before.

Atleast $13.5/share will be in cash, and the rest will be as stock in Per-Se Technologies (PSTI), one of the two buyers.

I own a few Per-Se shares already, and they have more than doubled since I bought a few months ago. I view Per-Se itself as a takeover target ultimately.

This acquisition follows the recent buyout of IMS Solutions (RX).

Expect more buyouts soon, with Eclipsys (ECLP), Allscripts Healthcare (MDRX), WebMD (HLTH) and Zixit (ZIXI) as possible targets. I expect both Oracle and IBM to enter this market in a big way.

---

Previous hit - CP Ships (#59)

on Eyetech/OSI

Eyetech (EYET) was bought out by OSI Pharmaceuticals (OSIP) recently at a substantial premium. I had mentioned Eyetech as a target twice - here and here. In both posts I mentioned that I wasn't buying yet due to insider selling and absence of insider buying. I was right in not buying at those points, though the later sharp pullbacks did make the shares a bargain. I also got the potential buyer, Pfizer, wrong.

The market has reacted very negatively to this deal, sending OSI shares down sharply. Part of the reason for this reaction is the high price paid. The other part is the possible strained relation with OSI's main partner, Genentech, whose Lucentis was the one that caused Eyetech shares to plunge a few weeks ago.

While the buyout price is high, I think OSI knows something that we don't. I am not going to guess what that could be. At this point the overreaction has definitely made OSI shares cheap. Whichever way the buyout turns out, success or failure, OSI stock now represents a bargain. Buy now, and you won't complain.

OSI itself now becomes an extremely attractive target for someone line Pfizer. I do not own OSI but would buy shares now if I could.

Jill on the block

J Jill (JILL), the women's retailer, is reported to be looking for a buyer. I missed mentioning it on my earlier post on Tommy Hilfiger.

I own a small number of J Jill bought around $12.5/share. With the shares trading at around $17 any premium is bound to be small.

A few others that should have been listed on that earlier post :

• Charlotte Russe (CHIC) : Another specialty retailer, to young women. I own a somewhat large number of shares bought around $9. The shares now trade at ~$14. Still worth buying in small numbers. Strong insider buying at $11.
  
• Cache (CACH): Apparel, handbag and other accessories' retailer. I don't own any, but will be watching for a big pullback.
  
• Russell (RML): Athletic apparel/footwear maker. I don't own any, but would be a buyer at the current price.
  
• Playtex (PYX): Mostly selling feminine care products. I bought a few recently, and will be adding slowly around current price. Definitely a takeover target. Buy on a big dip.
  
• Deckers Outdoors (DECK): Makers of the celebrity-adopted Ugg women's boots. The shares have pulled back sharply from their highs and are worth buiying in small numbers now. Buy aggressively on a large pullback. If the Ugg charm survives much longer, this will be taken out.
  

Hit #59

I mentioned in a recent post about CP Ships' (TEU) possible sale. Hapag Lloyd, or more specifically, its German parent TUI AG, announced that it is buying CP Ships for $2 billion in cash, valuing the shares at $21.5. This is a 53% premium to my average cost of $14.09/share.

The earlier rumors hinted at 2 other possible suitors including China Shipping and French shipping company, CMA CGM. I think China Shipping will still be looking at other targets.

Growing up in a port town, I heard names of cities like Limassol and Monrovia (think flags of convenience) as often as I heard names of other "real" cities. I boarded tens of ships - from large oil tankers to lumber/iron-ore hauling giants - just for fun. There are other advantages associated with living in a port-town, but those cannot be detailed in an investing blog! Hapag Lloyd is a name I saw often. As such this hit is extremely satisfying.

Shipping is entering another golden era and the entire sector is worth loading up on. A number of shipping IPOs have performed badly, but I see that as a short-term trend and a great buying opportunity. With a global synchronized slowdown now looming, shipping stocks may get even cheaper, but that will be short-lived. China and India's long-term ascendancy is not in doubt and global shipping will prosper alongside.

Look especially for shipping companies that haul crude and other mineral resources on the Pacific and to a lesser extent on the Baltic seas.

I have recently opened positions in Dry Ships (DRYS) and OMI Corp (OMM) and will continue buying these and possibly a few others. Others I am watching include Quintana Maritime (QMAR), Diana Shipping (DSX), Ship Finance (SFL), Seaspan (SSW), Genco Shipping (GSTL), Aries Maritime (RAMS), Top Tankers (TOPT), Eagle Bulk Shipping (EGLE), Sea Container (SCR), TBS International (TBSI), Excel Maritime (EXM). Most of these went public in the last 2 years, and some have paid dividends since their initial offerings.

Given that a good number of these are based in Greece, all these offerings are also likely to stimulate the local Greek economy. So an alternate way to play a shipping boom is to invest in a Greek Index.

How does one go about spotting a shipping top ? Look for a Greek shipping magnate to feature on the cover of People magazine!

---

Previous hit - Epiphany (#58)

Tommy and others

Tommy Hilfiger (TOM) announced that it is looking at a possible sale of the company. I have been expecting this for a while, and had bought shares earlier at around $10/share. The stock is now at $17.5 and will likely fetch atleast $19/share.

It is now an extremely dangerous time to get into areas like apparel, dining out and consumer electronics, since consumer confidence is headed down. A fall in home prices will hit consumers further.

I have sold most of my restaurant stocks after a decent runup. I am still holding onto my specialty apparel retailer stocks, most of which have gained considerably in the last few months. I am assuming that these will be the least hit during a slowdown and a consolidation will work in their favor. These include

• Charming Shoppes (CHRS), a plus-size women's retailer, a growing! business
  
• United Retail Group (URGI): another plus-size women's retailer
  
• Casual Male Retail Group (CMRG): a plus-size men's retailer
  
• Mothers Work (MWRK): maternity apparel manufacturer / retailer
  
• Gymboree (GYMB): a children's retailer whose turnaround is proceeding well
  
• Limited Brands (LTD): owns Victoria's Secret - need I say more. This is also an interesting play on demand for their wares in Japan, China, where it already owns stores and eventually in India too. Pays a healthy dividend and recently made a good one-time payout. Still sits on a lot of cash. This will be the last one to be effected in a consumer spending slowdown!

I have also been watching a few others, waiting patiently for a good entry point. These include

• Gap (GPS): At a cheap-enough price, this will find a lot of buyers, including possibly private-equity groups.
  
• Children's Place (PLCE): extremely expensive right now.
  
• Maidenform (MFB): makers of women's intimate apparel. Recently went public after a bad spell that included bankruptcy! The original creators of the modern bra, this company has a long history peppered with classic adlines like I dreamed I stopped traffic with my Maidenform bra. Enough titillation for one post!
  
• Kellwood (KWD): may sell part of the company instead of the whole.
  
• Ashworth (ASHW): Will definitely sell out, but I am waiting for some insider buying to show up. Concentrates on sportswear, with golf as the focus.
  
• Hot Topic (HOTT): definitely worth buying now, after the recent pullback. Teenage retailer, but unlike others (Aeropostale, American Eagle, ANF) who I would not touch with a bargepole, these guys have a focus on punk and gothic items and hence have a corner of the market all to themselves.
  
• Perry Ellis (PERY): sportswear and casual wear retailer. Fairly priced.
  
• Dressbarn (DBRN), Haggar (HGGR) and Guess (GES): Haggar announced that it is looking for a buyer and the stock has had a runup since then. The other two look attractive, but I am waiting for some insider buying to show up.
  
• Zumiez (ZUMZ): Recently had a very successful IPO. Mostly action-sports related apparel to be found here. One of the few stores in the malls that still attract large crowds. Could be worth buying even at current prices, but I will wait.
  

A tech heavyweight in the making

Macrovision (MVSN) disappointed investors recently with its weark earnings and expectedly got punished. What most seem to be missing is Macrovision's series of smart acquisitions that is turning it into a monopoly player in the digital rights/license management and IT deployment/maintenance space.

The stock is a value buy right now.

Macrovision has acquired InstallShield, TryMedia and Zero G Software in the last few months.

It will take a few more buyouts to complete this picture. Companies that Macrovision should go after include Opsware (OPSW), Motive (MOTV), SupportSoft (SPRT), Altiris (ATRS), Aladdin (ALDN) and Digital River (DRIV)/Intraware (ITRA).

There has been a lot of hype around on-demand/hosted services, but I think it will be a while before this will have on impact on the client-side business of Macrovision's. In addition, any reduction on the client-side, will be replaced and I think more than made up for, by increased server-side complexity requiring offerings from Opsware/Altiris to keep things in control.

I personally have a lot more to say about this sector, but that will have to wait!

I own shares of Altiris, Opsware and Intraware. Most of the above are still worth buying, in stages.

Hallmark for sale

Crown Media (CRWN) announced today that it is looking at strategic alternatives, that includes a sale of the company. I think its main asset, the Hallmark Channel, has been underappreciated and had bought a few shares earlier this year in a portfolio I am managing for a friend. Today's 20% spike has brought it to fair-value territory, and I would not be a buyer now.

Another interesting pick here is ValueVision Media (VVTV), which is involved in home-shopping tv operations. I have been buying this regularly and see it finally getting acquired by a larger cable company.

Also worth following are Outdoor Channel (OUTD) and the recently spun off Discovery Holdings (DISC).

Time to short China and India ?

There have been atleast three cover stories in one month with China and India as the focus, the newest one being the latest edition of Business Week. In the past, I have used cover stories to avoid buying and to start selling stock.

A Business Week cover story has been a great indicator of a top, even a temporary one. I think a China slowdown is around the corner, though the long-term growth of China is in no doubt. In India, the economy itself is not in danger of slowing down yet, but the stock market has to pullback soon.

In summary, do not open large positions with significant exposure to China/India. A better entry point is coming soon!

The mega-merger that wasn't

Rumors earlier this week that Cisco was interested in buying Nokia created a lot of excitement, but with denials from both sides, no one is talking about this anymore.

I think that a Cisco/Nokia combine would be terrific, even though executing such a huge merger carries its own risks. The merger would have made sense because the future of networks is wireless and it is just a matter of time before the various wireless and cellular standards converge.

A Cisco/Nokia combine would have been even more significant in its widespread impact on the industry.

Microsoft would definitely have felt threatened, since Nokia also essentially owns the mobile platform and has a large marketshare in Asia.

Apple would also be a loser. Apple knows that once cellphones start becoming mp3 players, along with a few other things, it would have to find some other way to retain users. There is already talk about Apple becoming a VMNO.

Motorola's market is mostly in the US. Its recent Razr has attracted a lot of attention, but in the cellphone world today's cool device is tomorrow's paperweight. To compete with a Cisco/Nokia combine, Motorola would have to go after a real network infrastructure provider. In fact, I think that even without a threat from Cisco, Motorola will ultimately end up buying Lucent. Motorola's cash horde is large (I think it was $15 billion). Apart from Lucent, it could also be eyeing Research In Motion and Symbol, with the latter having a really bad period right now and hence available at a bargain price.

Research In Motion itself is in danger of becoming obsolete, with or without a Cisco/Nokia combine. Just like Apple, it will have to find an alternative soon.

Palm / PalmSource also are losers, PalmSource may still find a buyer, perhaps Palm itself!

A Cisco/Nokia combine would also have meant that Nortel would be left without its prospective suitor!

Given Lucent and Nortel's (including from its recent PEC Solutions buyout) security-related contracts with the US Government, legislators will definitely block a bid from a foreign buyer. Otherwise, Nortel could easily combine with a European or a Chinese networking major.

I own Nokia (NOK), Symbol (SBL) and Nortel (NT) stock.

Obscene!

In my post on the recent Pacificare takeover by United Health, I had said that top executives will likely get away with rewarding themselves amounts they don't deserve.

Reports now indicate that a handful of executives may make a cool $250 million from this deal! Coming from an industry where bosses likely are aware of the masses without access to healthcare, I wonder how these guys can rationalize such greed.

Having been a Pacificare customer before and experienced what it is like to be at the receiving end (!) of their service, I can definitely confirm that they don't deserve even $2.5 million.

Given that a good portion of revenue in this industry comes via government programs like medicare, the Feds need to look deeper, though I see no chance of that happening.

We need a thousand Spitzers!

Hit #58

SSA Global (SSAG) announced that it is buying Epiphany (EPNY) for $329 million in cash, valuing the shares at $4.2/share. This is a discount of 55% to my average price of $7.5/share. I had a very small number of shares that I failed to average down further during later pullbacks.

This is one transaction where I actually wish that I received stock of the buying company instead of cash. SSA Global went public just a few weeks ago. It has been extremely smart in acquiring assets cheaply, like it did with Baan in the past. In fact, I expected the public offering to be aborted by a takeover from SAP or Oracle. Oracle instead, decided to waste its money on I-Flex! Both SAP and Oracle will repent not having bought SSA and one of them will eventually buy SSA at a much higher price.

SSA has not yet received analyst attention on the Street and hence the stock is still cheap. I bought a few recently and will continue adding as long as the stock remains in the $12-$15 range.

---

Previous hit - E-Loan (#57)

Hit #57

E-loan (EELN) is being acquired by Popular (BPOP) for $300 million. This cash offer, of $4.25/share, is a 25% premium over my cost/share of $3.39.

E-loan is an online lender. It's CEO, Chris Larsen, is more well-known than the company. He has been a fierce supporter of online-privacy laws and a prominent Democrat.

I was expecting E-loan to be acquired by someone like Interactive Corp or Cendant. Popular is the largest bank in Puerto Rico, with also a good share of the Hispanic market in California and Florida. This does seem like a wise acquisition for Popular and will expand its customer base beyond its traditional market.

On a related topic, Puerto Rican financial institutions have taken a hit this past few months and I think a shakeout is imminent. Popular being the largest will most likely be a buyer, though European (mainly British and Spanish) and mainland-US banks (Bank of America, Citigroup, Wells Fargo and Washington Mutual) may still be eyeing Popular.

The lesser known players like Doral (DRL), Oriental Financial (OFG), RG Financial (RGF), First Bancorp (FBP) and Euro Bancshares (EUBK) are targets in this coming shakeout. Some of these are 60-70% off their recent highs and they all have yields in the 2% - 5% range. Doral is the best bet and I think it is massively undervalued now. The others are more speculative in nature.

Popular itself is a stable, value buy for long-term holders.

I own Popular and Doral shares.

---

Previous hit - Ivax (#56)

Time to change course a bit

On May 1st, I wrote here that it was time to buy stocks again. I credit lady luck with most of the hard work, but the timing could not have been more accurate.

As I read various features over this past week, I realize that the sentiment is exactly the opposite now, with not a single cautious voice around!

What does that mean ? I have realigned by 401K to switch out of S&P 500 and into bonds and international/mid-cap value stocks. I will continue investing personally in takeover targets as before since that activity is essentially market-independent.