With all the gloom and doom on Wall Street, and the Feds trying to get an economic stimulus package passed as soon as possible, what’s an investor to do? Portfolio Managers Lou Holtz and Yossi Lispker of Engemann Asset Management, an investment firm specializing in small and micro cap stocks, have an idea:

Mr. Lipsker: I think there’s opportunity. There’s always opportunity in the market. If something goes wrong in one area that just means that it opens up an opportunity somewhere else. Our goal is to go out and find opportunities to make positive returns for our clients.   

Here’s a few of Lipsker and Holtz opportunities for 2008:

1.   LKQ Corp. (LKQX)- ”This company is a dominant provider of salvaged parts and recycled parts for the automotive market… LKQ has done a good job of buying up smaller shops and putting together a national network for what had been a very fragmented market. There is a major benefit to the new, larger size. Due to their broad reach, they are able to identify the parts they need and thus are smarter buyers of parts. This leads to better inventory turnover, which is a key component of return on invested capital in this industry.”

 

2. Cogent Communications (CCOI) - “They’re a provider of broadband Internet service to enterprises. They have one major key advantage and it’s called price. They are the cheapest provider out there by about 70%, something like $10 per megabit is their price, I think, and I don’t know that you can get anything for less than $15 or $20 from some of the big providers like Verizon (VZ) and AT&T (T).”

 

3. Ramtron (RMTR)- It’s been in business since the 1980s and it’s the biggest provider of what’s called FRAM memory. FRAM memory is an alternative to other memory providers such as Flash and what’s called EEPROM. It’s a non-volatile semiconductor memory, which means you can write and rewrite to the semiconductor chip and it can save the data even when the power is off on the device. Ramtron’s customers include the metering and automobile industries where there is a need for semiconductor chips that can take in data and store it even when the power is turned off…there are not really any competitors to Ramtron in the FRAM space. In its little niche area of the world, it dominates what it does and we like that fact.”

For the full interview with Mr. Holtz and Mr. Lipsker, including a complete overview of their investment process, from buy to sell, and more stock picks, click here.   

In talking to analysts about our special focus on steel this week, we came across two analysts who had very different perspectives about where the steel space is headed in 2008. Dana Guido of Lehman Brothers Inc., while seeing some positives in 2008, is still neutral on steel while Mark Parr of KeyBanc Capital Markets sees the possibility of dynamic opportunities in steel in 2008. Mark Parr, Keybanc Capital Management:

“If you look at our current pricing levels in the global context, US pricing right now for flat-rolled products is lower than it is in China and it’s significantly lower than it is in Southern Europe. So there is plenty of room for pricing to move here in the US without any economic pickup and if the economy continues to stumble along, we are going to see higher prices emerge in 2008 and stronger volume from the mills. If we do get an economic pickup in the first part or, say, toward the middle of 2008, this could  become a very, very dynamic situation for the domestic producers.      

Dana Guido, Leman Brothers, Inc.:   

“We are neutral on steel for 2008. While the supply side looks good with low inventories and low imports, we have concerns on the demand side. Lehman Brothers is forecasting US GDP growth to average about 1.9% in 2008, down from 2.2% in 2007. In addition, our autos analyst is expecting a 5% decline in auto production in 2008. So while we believe that supply fundamentals can support steel prices at current levels, soft demand may diminish service center restocking and limit price increases.”    

For the full Steel report, including interview with analysts from a wide range of perspectives and stock picks, click here.  

Moving back to our focus this week on Restaurants, analyst Jeff Bernstein spoke to us a little bit about the crunch in casual dining restaurants. Unlike quick service restaurants, casual dining restaurants aren’t franchises, and handle all operating costs themselves. Mr. Bernstein details how those costs have changed in the last year:

TWST: You mentioned the cost side of the equation. How bad is it?

Mr. Bernstein: We’ve seen double-digit increases in a number of core commodities. The biggest increases have come from grain, wheat and cheese prices, which obviously impact a lot of our sandwich makers from the bread side and pizza players from the cheese side. Across the board, we’ve seen increases on center of the plate commodities such as beef and chicken. It doesn’t seem to be abating as quickly as we would like, so the companies are forced to be more aggressive in terms of menu pricing to help to offset some of those cost pressures.

For the full interview with Mr. Bernstein, including a complete overview of the current market climate in the restaurant sector, and stock picks, click here.

In our talks with portfolio managers this week, we spoke to Peter Swan of Managed Asset Portfolios- an asset management company out of Rochester, Michigan that takes a multi-cap approach and looks for low price to earnings ratio, high return on assets, and high return on equities. He gave us five picks from his sector of coverage, International Stocks:

1.  Guinness Anchor Berhad (Malaysia)-  “It’s got a 8.4% dividend yield and trades at around 12 times forward numbers; essentially you’re looking at return on assets of about 21% there, return on equity at 30%, and the company’s debt free.”

 

2. Lotte Confectionery (China)- “Lotte has a pretty interesting partnership right now with Hershey (HSY) and they’ve done a good job on the candy side throughout the Asian region…It’s trading at about 15 times forward numbers, 1.7 times sales, 1.2 times book, and they also have a portfolio of other assets including interests in some of the other Lotte assets, which include things like shopping centers and retail stores.”

 

3. Paris Orleans (France)- “What you’re getting there is a piece of a great financial services business, some spectacular wine assets along with a variety of other investments.”

 

4. Lafarge (France)- “On the cement side and aggregate side, Lafarge, with their recent announced acquisition of Orascom, really seems to have the ball rolling, so we think that’s a name that makes a lot of sense. Also the construction business and the overall infrastructure play make a lot of sense to us globally.”

 

5. Oishi Group PCL (Thailand)- ”This company is involved in tea products; they make ready to drink tea products and they also have a restaurant division, which is involved in operating a Japanese buffet under the Oishi name…In the big scheme of things, they’ve done a very good job on the beverage side with green tea products and the stock’s not overly expensive either, trading at roughly 10 times forward numbers. That one has a yield of 5% in Thai baht and you’re talking about a company that has virtually no debt at all and a pretty solid return on equity and return on assets.” 

For the full investing strategies report, including interviews with portfolio managers from a variety of firms, and stock picks, click here.

Our other special focus this week is on Steel. We talked with analyst Bob Richard with Longbow Research, who told us about what steel pricing was going to do in the immediate future, given the lessening in demand:

TWST: With the slack demand, has the industry pretty much maintained pricing discipline?

Mr. Richard: Yes, they have. Pricing came down in the back half of 2007, but we didn’t see severe volume discounts. Eight years ago, producers would fight each other tooth and nail on steel pricing and then undercut the other guy the following week. Now, with a restructured industry, with the much lesser pension obligations, you don’t have the cash requirements that you had before the 2001 restructuring. The producers are therefore able to exhibit much more pricing discipline than they were at the beginning of this decade.

For the full Steel report, including interviews with a variety of analysts, as well as an outlook for 2008 in the steel industry, click here.

With the market crash this morning, it may be hard for many investors seeing much of a silver-lining to the doom cloud that 2008 seems to be so far.Our special focus this week on restauraunts continues this trend, with senior analysts predicting a fairly negative outlook for 2008:Bryan Elliot, Raymond James & Associates:

TWST: Bryan, what is your outlook for 2008 at this point?Mr. Elliott: Very uncertain. We have entered a tunnel from a consumer spending standpoint. Essentially the purchasing power of consumers overall is very uncertain right here. We are in the dark part of the initial entry into the tunnel. We don’t know if we have five S-curves in front of us or if we are going to have a pretty straight line and pretty soon we will see the little pinpoint of light at the other end of the tunnel. It is truly unknowable, in my view, at this time.

Lynne Collier, Keybanc Capital Management:

TWST: Lynne, what is your take on the outlook?Ms. Collier: Looking into, 2008, I think QSR will outperform. The casual dining players, in an effort to combat higher input costs, have been raising prices fairly aggressively. So I believe that we will likely see negative traffic again in 2008. Again, in terms of casual dining performance, the more differentiated companies that have superior price value will be better positioned to outperform in 2008. I think the cost outlook is a little better in terms of the comparisons being easier. On the demand side of the equation for 2008, I think it is going to continue to be difficult, especially for casual dining.

For the full roundtable, including an overview of 2007 , and here to look going into 2008, click here.

Atrial fibrillation is the second largest cardiac disease treated in the US, with nearly 2.2 million people suffering from it, and 600,000 or 700,000 diagnosed each year. As such, there is a huge market for products dealing with atrial fibrillation- a multi-billion dollar market. Anaylst Dr. Jan Wald talks a little bit about stock picks in that market:

“If we divide the market into endocardial and surgical segments, and we speak about the endocardial segment first, the two companies that have full product lines are Johnson & Johnson (JNJ) and St. Jude (STJ)…I think St. Jude is probably the best positioned in the market to succeed.”

“There is a company we follow called AtriCure (ATRC), which is developing surgical ablation  tools. We think AtriCure is currently the leader in the market, the best in class.  There is another company, CryoCor (CRYO), which is using an endovascular approach, a percutaneous approach using cryoenergy, which we think is interesting.”

For the full interview with Dr. Wald, including a complete overview of the cardiac care space and more stock picks, click here.

A new year means a new realm of possibility. Despite the grim outlook at present, our portfolio managers are still speculating what might happen once the market rebounds. Portfolio Manager Kenneth Solow has his ideas:

Mr. Solow: Looking forward into 2008, we are wondering, if the economy does rebound, if we’ll get something other than what the consensus expects. If we get some kind of a pickup in growth in the second half of 2008, if it turns out that bonds are pretty much over-bought and we get a reversal in the fixed income portion of the portfolio, can we get returns out of the alternative section of our portfolio? Today, our alternatives include a number of different securities, one of which is a commodity futures fund that mimics the Dow Jones-AIG Commodity Futures Index…. We also own international real estate through a mutual fund. …Whether these positions will continue to actually add value in these volatile markets, and whether they will continue to reduce portfolio volatility while doing so, is to me, a key theme going forward, and we will be watching very carefully to see if that portion of the portfolio continues to work for us in 2008.

For the full investment strategy issue, including an outlook for 2008 from a variety of investors and stock picks, click here.

Looking at a company’s performance may seem to many like an ideal method to evaluate whether or not to invest in a particular company. A company is doing well, so you invest in them. David Hay, of Evergreen Capital Management, thinks differently, however.

Mr. Hay supports a theory called “Right Cycle Investing”, a process that relies more on the inherent cyclical nature of the market:

“In the financial markets…[there is an] inherent cyclicality and reversion to the mean. If you rely exclusively on recent performance, it’s going to work for a while but when it’s wrong, it’s so wrong and you can end up giving all your profits back and then some, in a relatively short period of time.”

As you might imagine, this kind of approach requires a very personal approach to portfolio management- as following performance is so ingrained in our minds:

“You need to do some handholding basically to keep the clients with the strategy long term and of course, usually when it’s looking its worst is about when it’s ready to shift to a positive. A good example is in 2007 when large cap growth had just been lagging and lagging and a lot of people were giving up on the concept, but now it’s a leader…It is this re-education process away from the way that human beings are wired to behave that was great when it came to running away from a saber-toothed tiger but not very good in dealing with bull and bear markets.”

For the full interview with Mr. Hay, including a complete overview of “Right Cycle Investing” and stock picks, click here.

I know what you’re thinking and no, this has nothing to do with the Presidential Primary in Michigan today. This has to do with our second special focus this week, Cardiac Care.

 Analyst Ed Shenkan of Needham & Company spoke to us briefly about a new technology in Cardiac Care- the robotic surgery platform- that will create a huge new market which started in 2007, and which will continue to grow in 2008.

The robotic surgery platform, first developed by Hansen Medical (HNSN), with competitor Stereotaxis (STXS) following closely behind. The robotic surgery platform has a number of advantages to typical catheter surgery. The robot platform’s control gives a greater ease of manipulation versus a typical catheter, and greater degree of “inter-operator variablity”.

Additionally, with the use of the robotic surgery platform, physicians can perform operations outside of the radiation field in adjacent rooms- which is good, as most busy physicians reach the maximum allowable level of radiation after 10-14 years of practice.

For the full Cardiac Care Report, including full coverage of new and growing technologies in ‘08 and stock picks, click here.