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Value Investing News: Top Stories

Here are the week’s favorite reader posts at Value Investing News

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Friday’s Links

Santa and Wall St., France iPhone’s, Sears and Analysts, Hillary’s revenge

– Check this out. Christmas Spirit anyone?

– iPhone are not selling very well in France.

– Max Olson does a great job looking into Sears and an analyst call.

– She never forgets.…..

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Barry Ritholtz on Wall Strip

Check out this video of Barry. Painfully lucid and honest..Great job…

Barry comments on the Fed, Countrywide (CFC), Alternative Energy and more

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Study Finds Ethanol IMPROVES Fuel Economy

Boy this is going to through a wrench into the “ethanol isn’t the answer” crowd’s number one argument.

The University of North Dakota Energy & Environmental Research Center (EERC) and the Minnesota Center for Automotive Research (MnCAR) conducted the research. All of the vehicles tested got better mileage with ethanol blends than the ethanol’s energy content would predict, and three out of four actually traveled farther on a mid-level ethanol blend than on unleaded gasoline. I am sure the doubters are instantly wondering what arcane vehicles were used to game the results. The cars? A Toyota Camry, a Ford Fusion and two Chevrolet Impalas, one flex-fuel and one non-flex-fuel.
Some of the most purchased vehicles today.

U.S. Senator John Thune (R-SD)said of the results, “I applaud the American Coalition for Ethanol for taking action and studying the impact of intermediate blends of ethanol. I am encouraged by the findings of this study, which should benefit the federal regulatory process for approving higher blends of ethanol.”

Brett Hulsey, president of Better Environmental Solutions said, “These studies show that moderate 20-30 percent ethanol blends can reduce air pollution, improve gas mileage, and save drivers money in the most popular cars on the road today. Moderate ethanol blends are homegrown in America, can be delivered with existing pumps to current vehicles, and cost less than gasoline. Ethanol lowers CO2 emissions 20 percent from gasoline, making it one of our most effective greenhouse gas reduction programs currently in place.”

Here is the best part. In addition to improved fuel economy findings, the study provides strong evidence that standard, non-flex-fuel vehicles can operate on ethanol blends beyond E10. The three non-flex-fuel vehicles tested operated up to E65 before any engine fault codes were displayed.

Emissions results for the ethanol blends were favorable for nitrogen oxides, carbon monoxide and nonmethane organic gases, showing an especially significant reduction in CO2 emissions for each vehicle’s “optimal” ethanol blend (E20 for the flex-fuel Chevy, E30 for the Toyota and Ford, E40 for the non-flex Chevy).

KEY FINDINGS

Ethanol’s energy content was not found to be a direct predictor of fuel economy. A fuel’s energy content in British Thermal Units (Btu) is current standard practice for estimating fuel economy, a method that, because of ethanol’s lower Btu value, leads to estimates of decreased fuel economy in proportion to the percentage of ethanol in the fuel blend.

— This research, however, did not find ethanol’s Btu content to be a direct predictor of fuel economy. All four vehicles tested exhibited better fuel economy with the ethanol blends than the Btu-value estimates predicted.

E20 and E30 ethanol blends outperformed unleaded gasoline in fuel economy tests for certain autos. Contrary to Btu-based estimates of fuel economy for ethanol blends, three of the four vehicles tested achieved their highest fuel efficiency not on gasoline, but on an ethanol blend. Mid-level blends of ethanol E20 (20% ethanol, 80% gasoline) and E30 (30% ethanol, 70% gasoline) offered the best fuel economy in these tests.

— E30 offered better fuel economy than gasoline (a 1% increase) in both the Toyota and the Ford.

— E20 offered better fuel economy than gasoline (a 15% increase) in the flex-fuel Chevrolet.

Here is the funny thing. I have looked for an actual study on ethanols mpg claims and have yet to find one. Everything I have found simple says that based on the BTU of the products, this is how it will perform vs gas. Did anyone actually do a test before these claims were thrown around to become “accepted fact”?

I had an interesting email back and forth with a Sunoco employee this past week who harped on this very topic. She said that making Detroit give us better mpg was the answer, not ethanol. They are but the new levels will not bew in full force until 2022. Really want to wait that long? Me either. I guess I would have to say, doesn’t this study prove ethanol does just that? When you consider you get the added kicker of a 20% instant reduction is oil use due to the 20% ethanol blend, isn’t this the perfect answer?

for ethanol producers like ADM (ADM), The Andersons (ANDE), Verasun (VSE), and Pacific Ethanol (PEIX) who have seen shares stagnate or tumble the past year as ethanol’s critics have gained considerable traction, this study ought to light a fire under their prospective PR and R&D departments to get the word out and continue the research on other vehicles.

Ethanol is not the “only” answer to our dependence on oil. It is however, the “only” one we can do today on a massive scale that will actually make a difference.

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Fall Clean-Up At Dow?

Now that I have had time to digest Dow Chemical’s (DOW) move on Wednesday, something just keeps popping up in my head.

Have you ever done a reorganization of your home or even a room in it? What is the first thing you do? Get rid of the stuff you really do not use that much or need anymore. This is what I just cannot get past with Dow.

After about a year of predicting CEO Andrew Liveris had no major acquisition or merger plans, I think I am changing my tune.

Now, Dow just reduced its workforce by 2.3% and will save $180 million a year with the businesses it is shuttering. More importantly, they have also freed up millions in capital to be deployed elsewhere more profitably. This is where it gets good.

Liveris and Dow have made no secret of divesting away from the cyclicality of their commodities business. What would be the most effective way of doing it? How about using the very same strategy they have been using for the past year? Selling chunk of this business to outsiders and placing them into the Joint Venture (JV) category.
This would provide Dow billions of dollars instantly to be deployed in buying some specialty chemical makers without impairing the balance sheet (another Liveris prerequisite for any acquisition). Without having to use debt or stock to make a major purchase, it would also settle nicely into Liveris requirement of being accredive to earnings.

It also would allow Dow to benefit from the commodities business through the JV’s. while an erratic business, it is still very profitable when it earnings are on the upswing.

Who would buy the commodity business? There are a host of developing nations (Asia, Middle East & South America) that Dow already has JV’s with that would love to have the businesses if for no other reason than to secure a supply of the primary product they produce, plastics.

Do I think Liveris has a “for sale” sign on the company? No. I do think he is in the process of positioning it to make a major move very soon.

I expect the commodity sale into a JV to be announced after the new year and a merger or major purchase to be announced at the latest by the end of February.

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Friday’s Upgrades and Downgrades


UPGRADES
Children’s Place PLCE Broadpoint Capital Neutral » Buy
CAI Intl CAP William Blair Mkt Perform » Outperform
Ryder System R Morgan Keegan Mkt Perform » Outperform
VeraSun Energy VSE SMH Capital Sell » Neutral
Douglas Emmett DEI Wachovia Mkt Perform » Outperform
Genentech DNA Cowen & Co Neutral » Outperform
H.B. Fuller FUL KeyBanc Capital Mkts Buy » Aggressive Buy
Optium OPTM Broadpoint Capital Neutral » Buy
Comstock CRK Lehman Brothers Underweight » Equal-weight
PDL BioPharma PDLI Lehman Brothers Equal-weight » Overweight

DOWNGRADES
Innovative Solutions ISSC Northland Securities Outperform » Under Perform
Genentech DNA Leerink Swann Outperform » Mkt Perform
Zumiez ZUMZ Caris & Company Above Average » Average
Talisman Energy TLM BMO Capital Markets Outperform » Market Perform
Forest City Enterprises FCE.A Wachovia Outperform » Mkt Perform
Maguire Properties MPG Wachovia Outperform » Mkt Perform
Parkway Prop PKY Wachovia Outperform » Mkt Perform
Corp Office Props OFC Wachovia Outperform » Mkt Perform
Genentech DNA Jefferies & Co Buy » Hold
Entercom ETM Wachovia Outperform » Mkt Perform
ANSYS ANSS Deutsche Securities Buy » Hold
Digital River DRIV Deutsche Securities Buy » Hold

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"Fast Money" for Friday

Friday’s Picks
Jeff Macke recommended buying SPDR (SPY). Open $150.94

Guy Adami liked Intel (INTC). Open $27.98

Tim Seymour preferred Stillwater Mining Company (SWC). Open $10.98

Pete Najarian said Apple (AAPL) is a buy. Open $189.95

Thursday’s Results
Jeff Macke likes Gamestop (GME). Open $57.90 Close $59.65 GAIN

Guy Adami recommends Intel (INTC). Open $27.22 Close $27.98 GAIN

Karen Finerman prefers Crocs (CROX). Open $42.82 Close $45.21 GAIN

Pete Najarian says EMC Corp. (EMC) is a buy. Open $19.44 Close $19.52 GAIN

Guy Adami= 51-42 = 57%
John Najarian= 13-4 = 76%
Jeff Macke= 56-35 = 64%
Pete Najarian= 39-38 = 51%
Tim Seymore= 6-7 = 57%
Karen Finerman= 33-25 = 55%
Stacey Briere-Gilbert= 3-0 = 100
Ned Riley= 1-0 = 100%
Carter Worth= 0-1 = 0%

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Wal-Mart’s Results: This Thing Could Be Turning

Wal-Mart (WMT) reported November sales today and it is continuing to gain momentum.

                        Net Sales
4 Weeks Ended Percent 43 Weeks Ended Percent
11/30/2007 12/1/2006 Change 11/30/2007 12/1/2006 Change

Wal-Mart Stores $20.165 $19.244 4.8% $192.347 $181.456 6.0%
Sam's Club 3.620 3.331 8.7% 36.160 33.797 7.0%
International 7.933 6.690 18.6% 73.024 62.356 17.1%
Total Company $31.718 $29.265 8.4% $301.531 $277.609 8.6%

Company same-store-sales rose 1.5%.

Wal-Mart Stores

Grocery and pharmacy continued to drive strong comparable store sales during the November four-week period. In addition, Wal-Mart had very solid “Black Friday” sales across the store, from entertainment items to sleepwear.

Sam’s Club

In the November four-week period, Sam’s Club had strengths in a number of holiday and gift-giving categories, including electronics and video games.

Guidance

The Company expects the comparable store sales of its U.S. operations for the December five-week reporting period to be between one and three percent. Can Wal-Mart just stop giving us guidance? One to three percent, we get it. Let’s just save the time and we’ll assume it. Just let us know if it will be anything different.

All in all, what is not to like? The international operation continue their growth up to 25% of sales from 24% last year in Q3 despite a soft Mexican environment. Even thought they were not buying as much, more shoppers were coming through the door throughout the country.

More good news:

Target (TGT) today said that November same-store sales rose 1.1 percent, missing analysts’ expectations of a gain of 3 percent and shares fell 4%. The reason? They may actually a see an earnings decline in Q4 if earnings in the quarter are not “impressive”.

Taget and Wal-Mart have become an “either / or” proposition. You are either going to one or the other. Now that Wal-Mart seems to be getting its act together in the US, Target will face more headwinds. Now, do not get sucked into the % gain for the two companies. 1.5% for the $200 billion Wal-Mart is considerably more dollars than the $46 billion Target. When that volume of dollars is flowing to Wal-Mart rather than Target, it means two things.

1- Wal-Mart means value and that is what shoppers want this year.
2- Wal-Mart’s renovated stores and improved electronics and clothing departments (the one here looks great) are bringing in shoppers who last year went to Target.

Today’s report is very good news for Wal-Mart shareholders. The supertanker that is Wal-Mart has been doing a slow turn since early summer and today shows us it might just be coming around. Let’s not get too excited though. We need a December confirmation to be sure. However, based on these numbers and the walmart.com results to date, one ought to be very encouraged.

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Thursday’s 52 Week Low’s


JAS Jo-Ann Stores Inc 14.45
ITIC Investors Title Company 36.26
ISSC Innovative Solutions … 10.99
ISLE Isle Of Capri Casinos Inc 14.76
INET Internet Brands Inc 7.75
HRZ Horizon Lines Inc 18.45
HOTT Hot Topic Inc 5.87
CKEC Carmike Cinemas Inc 10.34
CBOU Caribou Coffee Inc 4.16
CASA Mexican Restaurants Inc 6.22
CACH Cache Inc 12.32

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Eddie Lampert: Worst Third World Dictator, Come On Herb..

Why not? As long as Herb Greenberg is going to name him the “worst CEO”, a job he does not hold, how about that too? Come on Herb, this is lousy even for you….

I have a policy of not going after fellow bloggers but when the column written is just so outrageous and fundamentally flawed, well, if you open the door…

Other who made the cut were:

Chuck Prince, formerly of Citigroup (C)
Ed Zander (MOT) of Motorola
Peter van Stolk of Jones Soda (JSDA)
Angelo Mozilo of Country Financial (CFC)
Kerry Killinger of Washington Mutual (WM)
Jimmy Cayne of Bear Stearns (BSC)
Scott Hartman, of subprime lender NovaStar (NFI)
Mesa Air’s (MESA) Jonathan Ornstein
Phil Schoonover of Circuit City (CC)

Every one of the institutions is currently near crippled and more than two will be bankrupt soon. Three of the CEO’s are gone with at least another 3 on the brink. Yet, somehow Lampert is worse?

Here is what this is. Those guys will make everyone’s list this year BECAUSE THEY DESERVE IT. Herb, being the smart guy he is realized that he need to pick someone NOBODY else else would lest his pick just get caught up in the wash of the blogsphere and become irrelevant.

Enter Lampert, a guy who does not even hold the title Herbie gives to him. What is really ironic here is that Greenberg eliminates Zander, Prince and von Stolk who were so bad, they either are no longer employed or soon will be “because they are no longer CEO”. Oh, so lets pick a guy who “never was CEO”? Herb, don’t you think this is just a bit hypocritical, even for you?

What you have in Sears Holdings (SHLD) is the combination of two retailers that prior to Lampert’s purchase we on the trash heap. Kmart was bankrupt was Sears was racing there as fast as it could get there. Now the combination throws off about a billion dollars a year for Lampert and unlike most of the above companies, is still very profitable. Not bad in only two and a half years, huh Herb?

Recently Sears has been caught in the retail environment like Macy’s (M), Home Depot (HD), Lowe’s (LOW) and JC Penny (JCP). If we look at the following 1 year chart, see anything familiar Herb?

The largest one year loser? The very JC Penny that Herb trumpets in his column…

You see Herb, Sears get 40% of revenues from appliances. Those are those big expensive things in you house that if people are not buying and remodeling homes these things go unsold. Since Sears is the #1 retailer with about 20% market share for them, logic would tell you the hit here would be far worse than the others. Right?

If folks are not going there for these things, they also do not pick up the ancillary item they buy when in the store. In a nutshell Herb, this is Sears problem. So, while we wait this out, Lampert is busy buying up shares by the truckload so that when housing turn around and yes it will Herb, Sears EPS will jump as people will resume buying these items again.

I am sure Lampert is somehow responsible for the housing crisis, after all if he isn’t your entire article is, well, just bad journalism… Let’s not make things up Herb.

To say Lampert is “the worst” at a job he does not even have and is worse than the list above justs show desperation on your part. Desperation for relevance in an arena once dominated by folks such as yourself, now owned by us all.

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Thursday’s Links

Blogystyle, Drunk, Cough Remedy, Herb Greenberg

– A great collection this week.

– Why did this take so long?

– I did not know this but when you actually think about it, it makes perfect sense.

– Usually I do not agree with much of what Herb says but I have to admit he nailed it on this one.

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China & Hogs: A Buying Opportunity In Harley?

There is an interesting political event coming up that may be the impetus shares in Harley Davidson (HOG) need to go on a ride (yes, pun intended and sorry it is so bad).

NY Sen. Charles Schumer, Pennsylvania Sen. Robert Casey and Democratic Sens. Herb Kohl of Wisconsin and Claire McCaskill of Missouri are all calling for China to relax municipal regulations that limit or even ban heavy-duty motorcycle use in urban areas in a letter sent to Commerce Secretary Carlos Gutierrez and US Trade Representative Susan Schwab. The letter was sent just one week before Gutierrez and Schwab are set to lead a delegation to Beijing, where the Joint Commission on Commerce and Trade (JCCT) will take place.

The JCCT is generally held twice a year as a way of resolving trade disputes between the two countries, although China has failed to implement many pledges it has made to lift trade barriers at recent JCCT meetings.

Harley Davidson has been in China for nearly two years now but the regulation have lead the company to recognize almost no sales from its efforts.

How big could it be?

Currently Harley ship about 330,000 bikes a years with about 20% of them going to foreign countries. They shipped 13,300 motorcycles to Japan in 2006, up from less than 5,000 in 1997. Harleys have now become a “status symbol” in Japan. What happened? Japan dropped some regulatory barriers that had throttled sales, said Wayne Curtin, Harley Davidson’s government affairs director recently.

Curtin also said that opening foreign markets is a top priority for Harley Davidson. The Senate approved a free trade pact with Peru trade pact Tuesday, which should boost motorcycle sales there, Curtin said.

The U.S. also has free trade deals pending with South Korea, Panama and Columbia. These deals would make Harleys more affordable in those countries, Curtin said. “The free trade agreements take tariffs of 8 percent to 20 percent and takes them to zero,” he said.

This is huge for Harley Davidson. With the US credit situation not going away anytime soon, opening foreign markets is a must for the company to grow. Now, I am not going to jump into shares just because Peru has opened up, that will not offset US weakness. China is the big dog here.

The opening of the China market could prove immediate returns. Why? The infrastructure to market and sell the bikes is already there. The only thing that is waiting is not a willing buyer for them, but a buyer who can legally ride them.

Should we jump at shares now? No. Even the Peru pact with have to be ratified by both countries and that could take months. Any action next week in China, as large as the potential is, would probably not show up in results for at least two quarters. That gives us plenty of time to buy shares.

With the credit situation still deteriorating, Harley may see more downside before it turns around. I still think we will see shares in the lower 40’s. Then I am a buyer.

Here is my last post on Harley after Q3 results.

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Is A Rate Cut Really A Sure Thing?

For some reason I just am not in the 50 point cut camp like most folks are. As a matter of fact, as I speculated last week, I am not even sure I think a 25 point cut will happen.

Why? Today’s reports show the the current economic situation is not nearly as dire as people think.

Productivity in the nonfarm business sector increased at a 6.3% annual rate in Q3 the government said in its second estimate of productivity. A month ago, the government said productivity rose 4.9% annualized.

Unit labor costs, a key gauge of inflationary pressures from wages, were revised much lower, showing a 2% annual decline in the third quarter compared with a 0.2% drop estimated a month ago.

Unit labor costs in the second quarter were also revised much lower, from a 2.2% gain to a 1.1% decline, reflecting more up-to-date compensation information. The revised data show inflationary pressures from tight labor markets are much milder than previously believed.

Now this does give the Fed room to move rates lower and relieves the worry that inflation may spike. But, with the economy going at a healthy pace, are rate cut really even necessary?

Consider today jobs report.

Private payrolls grew by 189,000 in November following a revised 119,000 gain in October an ADP report said today. The increase was well above expectations for job growth of only 60,000 in November.

Employed workers are spending workers. Now, much of the rate cut talk has been focused around mortgages. The simple explanation was that millions of resets of adjustable rate mortgages were coming and high rates woulds cause high resets and million of foreclosures. The argument was that lower rates would help mitigate that. Word today is that Treasury Secretary Hank Paulson is working on a deal to freeze resets for 5 years. If that happens, then we now know the scope of the problem out for the next 5 years. We can assume based n historical data what will happen in the mortgage markets with some degree of accuracy.

If we know the scope of the problem, the impetus to lower rates to stave off a catastrophe is now gone. With that being gone, we now go back to the old fashioned reason for rate cuts, growth vs inflation. Right now, both seem to be just fine and if they are just fine, is there really a reason to tinker with rates?

While I do not feel a cut is necessary, with the market 100% sure a 25 point cut is coming, I would assume Bernanke gives it to them if for no other reason that to avoid an end of years sell-off.

Should he give them 50, the only thing that would justify it would be an accompanying statement saying the Fed is essentially “done” unless things “dramatically deteriorate”. Either way, Tuesday will be one hell of a day

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Thursday’s Upgrades and Downgrades


UPGRADES
Tollgrade TLGD Ferris Baker Watts Neutral » Buy
Vocus VOCS Ferris Baker Watts Neutral » Buy
Blackboard BBBB Wedbush Morgan Buy » Strong Buy
Saba Software SABA Maxim Group Hold » Buy
Agrium AGU BMO Capital Markets Market Perform » Outperform
Biovail BVF BMO Capital Markets Underperform » Market Perform
Collective Brands PSS Caris & Company Average » Above Average
Take-Two TTWO Kaufman Bros Hold » Buy
Airgas ARG KeyBanc Capital Mkts Buy » Aggressive Buy
JDS Uniphase JDSU Roth Capital Hold » Buy
Verint Systems VRNT JP Morgan Underweight » Neutral
AmerisourceBergen ABC Banc of America Sec Neutral » Buy
Applied Signal APSG CIBC Wrld Mkts Sector Underperform » Sector Perform
Teekay LNG Partners TGP Citigroup Hold » Buy

DOWNGRADES
Comcast CMCSA JP Morgan Overweight » Neutral
Northern Trust NTRS Sandler O’Neill Hold » Sell
First Marblehead FMD Sandler O’Neill Buy » Hold
Electronic Arts ERTS Kaufman Bros Buy » Hold
Comcast CMCSA Kaufman Bros Buy » Hold
XM Satellite XMSR Stifel Nicolaus Buy » Hold
SK Telecom SKM Bear Stearns Outperform » Peer Perform
United Thera UTHR Brean Murray Buy » Hold
Ruths Chris Steak House RUTH Piper Jaffray Buy » Neutral
Famous Dave’s DAVE Piper Jaffray Buy » Neutral
Fannie Mae FNM Piper Jaffray Buy » Neutral
FPL Group FPL UBS Buy » Neutral
Freddie Mac FRE Credit Suisse Neutral » Underperform
Fannie Mae FNM Credit Suisse Neutral » Underperform
Johnson Controls JCI Deutsche Securities Buy » Hold

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"Fast Money’ for Thursday


Thursday’s Picks
Jeff Macke likes Gamestop (GME). Open $57.90

Guy Adami recommends Intel (INTC). Open $27.22

Karen Finerman prefers Crocs (CROX). Open $42.82

Pete Najarian says EMC Corp. (EMC) is a buy. Open $19.44

Wednesday’s Results
Jeff Macke thinks Guess (GES) is a buy. Open $43.48 Close $45.78 GAIN

Guy Adami likes Nordstrom (JWN). Open $36.45 Close $36.67 GAIN

Karen Finerman recommends getting long Goldman (GS) Open $215.22 Close $218.26 GAIN and short Lehman (LEH).Open $59.61 Close $60.01 LOSS

Pete Najarian thinks Fannie Mae (FNM) is a buy. Open $35.18 Close $36.13 GAIN

Guy Adami= 50-42 = 56%
John Najarian= 13-4 = 76%
Jeff Macke= 55-35 = 63%
Pete Najarian= 38-38 = 50%
Tim Seymore= 6-7 = 57%
Karen Finerman= 32-25 = 54%
Stacey Briere-Gilbert= 3-0 = 100
Ned Riley= 1-0 = 100%
Carter Worth= 0-1 = 0%

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