In our talks with analyst J.B. Groh, we found out some interesting information about BE Aerospace (BEAV), a company providing seating and interior products for aircrafts.

•  BE is benefitting from the general trend of aircraft manufacturers moving from producing primarily narrow body aircraft to more wide-body production. Wide-body jets have more interior content, and as the shift continues, BE  gains a chance to grow sales at a much faster rate than the overall market.
• BE’s customer list is a veritable who’s who of successful airlines: British Airways, Emirates, Qantas, Japan Airlines, and Lufthansa.
• Mr. Groh predicts a growth rate in the high teens over the next three to five years.
• The risk factor is that they have received cancelation of orders from some international customers. If growth were to be scaled back by these customers, it could potentially hurt them.

For the official website of BE Aerospace, click here.

For more info on J.B. Groh, and his predictions for the aerospace defense sector, click here

In our conversation this week with Ted D. Baszler, vice president and portfolio manager with Heartland Advisors, Inc., he gave some interesting insight into areas that investors should be wary of.

 TWST: As you look ahead, what potential problem areas or challenges do you see that investors should be wary of?

Mr. Baszler: One of the areas of concern is the economy rolling over. We have seen some nice moves early this year in some of the cyclical and material names.We are probably getting close to peak earnings in some of these names and could see a meaningful earnings decline with an economic slowdown. Companies with high levels of debt are also very concerning at this time in the credit cycle. I believe credit spreads for low quality companies are going to be significantly higher a year from now. So any company with a marginal credit rating and with funding needs will be facing higher financing costs down the road.

For the full article, click here.

 In continuation of our talks with Peter Arment of JSA Research on trends in defense, Mr. Arment comments on long-term defense spending, and areas of growth.  

TWST: Let’s shift over to the defense side. What’s the longer-term outlook there? You mentioned resetting and refurbishing.

Mr. Arment: The budget continues to increase and a lot of that is tied to the global war on terror. Supplemental bills are not only funding the War, but addressing the repairing and replacement of equipment. The latter point is really focused on the Army and the Marines. Everything from vehicles, helicopters, precision weapons, ammunition, troop uniforms, body armor and other force protection equipment are on the list of receiving higher funding. Any company that has exposure to the Army is going to benefit regardless of a change in the administration in 2008. The political aspect of the defense budget will still exist, but in a post 9/11 environment, a strong national security theme still trumps social issues. A Democratic President is still seen to be weaker on defense spending by Wall Street, so some multiple compression is likely to occur. But given current valuations, the downside seems limited.

The biggest area of growth beyond 2008 is within armored vehicles. Humvees are going to be replaced along with a number of existing tactical vehicles. The Humvees that were utilized in Iraq have been found to be very vulnerable to the IEDs. As an interim step, the Army and the Marines have been buying MRAP (Mine- Resistant Ambush Protected) vehicles, which has become the Defense Department’s number one priority. This has been a very fast evolving program that started with just demand for a few hundred vehicles back in 2004 and now the request is for well over 20,000. MRAPs cost anywhere from $0.5 million to over $1 million a piece. We are talking about a $20 plus billion program that’s come out of nowhere from five years ago. There are only a handful of companies that are delivering these vehicles.

For more information, click here.

Continuing this week’s exploration of the issue of internet retailing, Marianne Wolk of Susquehanna Financial Group discusses what to look out for in the future of internet retailing.

Ms. Wolk: In our view, the biggest focus for the next several years will be consumer privacy online. The best online retailers will be asked to do more to protect consumer privacy and to be more open about how they share data about consumers on their sites. Already the FTC is looking into privacy concerns regarding a common practice among online retailers called lead generation. Many online vendors have relied on affiliate advertising networks to drive traffic to their sites. Sometimes these networks displayed content or ads on other third-party Websites to generate leads and other times they used incentives or prizes to attract consumers, a practice that could greatly diminish the value of the lead to the online retailer.

For the full article, click here.

Oliver Marti, manager of the healthcare portfolio at Columbus Circle investors, speaks about the impact of the  current political environment on healthcare stocks.  

TWST: One of the main concerns of investors with health care, especially with the election next year, is the political environment.

Mr. Marti: Yes, absolutely. Through the Medicare and  Medicaid programs, the government pays for ~50% of healthcare expenditures in the US. So the political parties in Washington do have an influence on how healthcare spending is allocated. Democrats tend to be a little bit more focused toward a more socialized healthcare program, whereas the Republicans tend to shape healthcare policy decisions with a free market system in mind. So with the elections coming up, health care is going to be a very prominent focus. Health care is always a key agenda item for the elections and creates a lot of media headlines. Any time there is a change in the oval office leadership, there is uncertainty regarding policy change. For now, what is important to keep in mind is that regardless of who is elected, any new changes would not occur until 2010 at the earliest and, in fact, even Hillary Clinton, who is currently a front-runner of the Democratic Party, has said that any major changes, such as universal health care, would not occur until at least her second term. And so I think it is going to be many years before any real significant changes are made on the healthcare front, if any, but it is certainly something to keep on the radar screen.

For more information, click here.

In this week’s Internet Retailing Roundtable, Daniel Golding of Tier 1 Research discusses the effectiveness of retail websites that include social networking options.

TWST: Does this convergence of retailing and social  networking work or does it become offensive to the people who want social networking?

Mr. Golding: I think it works wonderfully. I think it works best when you take retail sites that people are emotionally involved with and then add social networking on to it. eBay is obviously the best example of that. In addition, Amazon with their various wish lists and lists features, as well as the recent addition of discussion forums, has made a significant impact on how much time people spend on Amazon. It is the same as with a bricks and mortar retailer, like a Barnes & Noble (BKS), the more time you spend on the premises, the more likely you are to give them revenue one way or another. I think that the other way, trying to make social networking Sites more retailing, is fraught with many more difficulties, and I think that ad sales will continue to be the primary revenue source on a purely social networking side.

For more info, click here

Peter Arment of JSA Research, Inc. has some interesting words to say about the effect of an Iraq draw-down on ammunition sales.

Mr. Arment: Wall Street is worried that if there is a draw-down in Iraq, ammunition sales will be hit. That is not the case. Post 9/11, we have changed all the training requirements and 90% of the ammunition that gets consumed in the small caliber category is for training. Those training requirements are very unlikely to change any time soon.

For the full interview, click here.

How long should long-term investment be? Peter Miller, President of Roffman Miller Associates, Inc., talks about his company’s investment philosophy, and idea of long-term investment.

 TWST: Do you have an overall investment philosophy for equities?

Mr. Miller: We look for companies with great products and services. We focus on strong balance sheets. And we look for great management who not only have great vision but also have the ability to deliver on their long-term plans. Basically, we buy stocks as if we’re buying the entire company and our ideal holding period is forever. That, unfortunately, doesn’t happen as often as we’d like, so we look at a horizon of at least three to five years. We are somewhat value oriented, but many of our most successful stock picks have performed like growth stocks and yet maintained the value characteristics over our holding period.

For more information, click here

J.B. Groh, vice-president and senior researcher, at D.A. Davidson & Co., gives some insight into the continuing demand for commercial aircrafts. 

TWST: What’s driving it[the demand for commercial aircrafts]? Is it just the need to replace aircraft?

Mr. Groh: It is a mix of business, but it is being driven more by growth markets. Higher fuel costs have compressed the economic life of an aircraft, so carriers have started to replace inefficient models. But most of the demand is coming from growth markets, places like India, China and the Middle East. Thus far you haven’t seen a lot of participation from the domestic carriers or more mature markets. I think of the market for new aircraft in two segments. The first is mature travel markets like North America, where most demand is driven by replacement. That’s highly cyclical. And the second is growth markets like India, China, etc., where purchase decisions are being driven by the need to expand the travel infrastructure.

For more information, click here

Here at TWST, we also provide on-demand software for event registration.  We serve most of the investment banks who do not (wisely) choose to build their won – and a lot of the Companies Analyst Days too.    So we can echo every word here spoken by Bradley Mook Technology Analyst at Boenning & Scattergood.

TWST: Are there barriers to entry here or is it a free for all?

Mr. Mook: It’s still a bit of a free for all. Certainly expertise is necessary in the application area. You have to know what you’re designing the application for and be able to code it, and there are intricacies involved with hosting and maintaining the software. It is a lower-cost entry, though, so that does make it easier for competitors to enter the market. That and low customer switching costs actually keep the software companies on their toes. It means they need to continue to innovate and provide good service.

TWST: It sounds like a successful model. What’s the risk in the space?

Mr. Mook: At the end of the day, the software needs to do what it says it is going to do, because with low switching costs for customers, the software vendor is more easily held accountable. Also, as a software buyer .. there’s complexities for buyers. Do I choose the small best-of-breed provider that has a great application or do I go with the more established vendor that has a broader vision, but may not be the best in the individual application areas? You don’t just go out and buy Oracle (ORCL) – now you’ve got to figure out how to invest in this space.

This is from our Computer Software Report this week.