Every week here at TWST, we speak to a variety of Portfolio managers about how they invest. With so many managers out there, it can sometimes be hard to distinguish what makes a particular management firm distinct. That’s why we here at TWST make sure to ask them that questions directly. What gives you your edge?

1. Frederic Burke, Johnston Lemon Asset Management (invests in Undervalued Large Cap Stocks) - “We have deployed our investment discipline in a consistent manner for over 10 years. Clients understand our investment process and how different securities fit into the asset allocation puzzle. Our competitive advantage is in our performance and level of service. We are very proactive with our clients. We continually work to explain our process and skills and to understand client goals and objectives. The resulting relationship defines our value proposition. Finally, I think that the individuals who are employed by Johnston Lemon Asset Management are very talented, understand the markets and know how to communicate the position of the organization to our clientele.”




2. Eric Heyman- Olstein Capital Management (shareholder activist value investing)- “We approach every situation opportunistically. We look at every situation from the point of view that we own 100% of that company. As a 100% owner, what would we do? How would we achieve our value? I think a truly unique part of our process that makes us different is our analysis rooted in forensic accounting. Robert Olstein, who founded Olstein Capital Management, previously co-authored the Quality of Earnings Report, a research service that undertook an inferential analysis of financial statements and footnotes to alert institutional investors to deviations between reported earnings and a company’s economic reality. This same approach is the foundation of our analysis and allows us to assess the quality of earnings that a company is reporting. We want to differentiate between companies with aggressive and conservative accounting practices and believe that companies using aggressive accounting practices may be prone to future earnings and revenue shocks, whereas companies pursuing conservative accounting practices may not only have more of a cushion regarding such surprises but may be managed in a way that values its shareholders.”
3. Doug McPeek- Nottinghill Investment Advisers (value and growth blend)- “I think two things. First of all, we are highly disciplined. This is a highly disciplined way to manage money. Second and probably even more important is this combination of value and growth in the same portfolio — two diametrically opposed ways of viewing the investment world. We incorporate both in the portfolio, and the advantages to a client are the fact that we not only have the opportunity to beat the popular market averages, we can do it on a more
   consistent basis.”

For the full investment strategies report, including full interviews with each of these portfolio managers regarding their investment strategy, outlook for the future and stock picks, click here.

Stephen Singer wrote a story that appeared in Business Week that examined the recent organizational changes at General Electric GE (NYSE).  GE announced recently it would reduce the company into four businesses from six as a way to ultimately increase efficiency and improve shareholder value. The gist of the article focused on the explanations given by John Rice, GE’s vice chairman and president of the newly created GE Technology Infrastructure unit about the purposes behind the latest reorganization.  Rice, a star at GE, is being touted by some as a possible successor at some point to current CEO, Jeffrey Immelt.  Immelt has found himself under increasing pressure from shareholders (see earlier blog).  Check out the Business Week story for a sense of Rice’s talent. 

The Children’s Place PLCE (NASDAQ) continues to face management unease.  The company’s CFO, Richard Paradise, who has been in his job for less than one year, announced he would be leaving August 1, to pursue another business opportunity.  He joined the company back in November 2007.  Paradise joined the firm soon after the company’s former CEO and largest shareholder, Ezra Dabah, was pushed out of his job.  Since the CEO change at the firm back in September 2007, the company has faced a number of  executive changes and growing financial pressures (see earlier blogs). Dabah, despite being out as CEO has taken steps to try and take over the firm.  According to Reuters,

Children’s Place has been weighing a possible sale of the company under pressure from its largest shareholder, board member and former Chief Executive Ezra Dabah, who owns a 17 percent stake in the company. 

After a difficult period following Dabah’s resignation as CEO, the company has managed to stabilize.  Paradise’s resignation announcement raises another potential red flag.  Susan Riley, the EVP for Finance and Administration would takeover Paradise’s position and would continue to perform her other responsibilities.  Keep a close eye on the company.For more:Just-StyleMarketWatch

One of our special focuses this week is on gaming and online games. As a part of this special focus, TWST spoke to analyst Tian Hou- who talked to us a little bit about the online games part of this space- and specifically in her region of coverage: China. She gave us a few ideas about what company’s to look at in this space:

• Perfect World (PWRD)- “The name I like the most is Perfect World because this company has become the biggest game exporter of all the Chinese game developers. They develop what we call 3D games, and normally they can come out with a game in six months with a $0.5 million R&D cost. It is the best R&D team in the world. 3D games take other game developers two or three years and $3 million to $5 million to develop worldwide, so you can see how fast this company is and how good they are. They have been exporting games to many countries. One game they export to 14 countries, another game they export to seven countries — you add them all together, it’s 37 countries. Nineteen of them have already had a commercial launch. There are 18 more to come, and next year if all those games can be fully operational, we’re looking at a huge licensing revenue for this company that has been underestimated by the Street.”
• Netease (NTES)- “The other company I like is NetEase. They run games with the time-based model and they have figured out how to grow a time-based model game recently. It grew rapidly in 1Q08. In addition, they also have some smaller games added to the portfolio, so we expect the existing games along with the newer games to make contributions to growth going forward. “
• Shanda Interactive Entertainment (SNDA)- “The other company we like is Shanda. It is not strong in in-house R&D, but it is very strong in operating a game. We do think that eventually this company may
  become an operator rather than a game developer, as the China game market becomes more segmented or specialized”

For the complete interview with Ms. Hou, including a complete overview of this space, its growth potential in the immediate future, and more stock picks, click here.

Probably a year overdue (see earlier blogs), the CEO and Chairman of French telecommunications giant Alcatel-Lucent ALU (NYSE), Patricia Russo and Serge Tchuruk have announced their resignations.  Chairman Tchuruk will step down as of October 1 and CEO Russo will leave by the end of the year or earlier should a replacement be found.  Along with the departure of Russo and Tchuruk, will be board member Henry Schacht, a former Lucent CEO.  Alcatel-Lucent which merged in late 2006 has been struggling since its inception.  The company just announced its sixth straight quarterly loss.  According to Information-Age,

…the company revealed that it lost €1.1 billion during its second financial quarter of the year – its sixth consecutive quarterly loss. That is roughly three times the €336 million loss that Alcatel-Lucent reported in the same quarter of last year.Alcatel-Lucent’s ill-fated CDMA division continues to be its biggest loser. The company wrote down the value of its division that sells technology based on the wireless transfer protocol by €810 million.

Stacey Higginbotham from the GigaOm blog summed up the company’s situation succinctly,

Alcatel-Lucent is seeing falling demand for its equipment while its carrier customers contemplate the slow migration to 4G technologies such as LTE and WiMax. The next generation networks are coming, but are still se

veral quarters out with LTE networks coming on line in 2010 and full deployment closer to 2012. 

WiMax is growing now, but is a smaller market. Another wrinkle is that some carriers such as Vodafone in the UK are content with their 3.5G networks, and don’t plan to move to LTE for even longer.

Russo who is known as a strong figure continues to make a case for herself.  She was quoted in today’s corporate press release as follows,

“I am very pleased with the progress we are making especially in light of a difficult market environment,” …  “Our strategy is taking hold and our results are demonstrating good operational progress.  That said, I believe it is the right time for me to step down.  The company will benefit from new leadership aligned with a newly composed Board to bring a fresh and independent perspective that will take Alcatel-Lucent to its next level of growth and development in a rapidly changing global market. “

While there may be positive news about the company it is very small and limited.  Chairman Tchuruk also gave his own pitch for the work the two have performed particularly in relation to the giant merger.  He is quoted in the press release in which he states,

“The merger phase is now behind us.  I am proud that Alcatel-Lucent has become a world leader in a technology which is transforming our society.  It is now time that the company acquires a personality of its own, independent from its two predecessors.  The Board must also evolve and the Chairman should give the first example, which I have decided to do,”…

For the moment, the market was very happy to see the announced executive changes.  In early trading the company stock was up.  The real question is who the company can find to replace the two.  Today’s management change announcements can be viewed as acknowledgement of the merger’s failure.  While so far, both Russo and Tchuruk failed to right the ship and get the real savings from the merger they intended, the problems facing the telecommunications sector still mean there is potential for this merger to succeed.  Hopefully, the right management may still have a chance to turn the company around.Keep a close eye on who the company chooses to replace the Russo and Tchuruk.  The company needs to find executives with deep knowledge and expertise in the telecom sector.  While financial expertise is essential Telecom expertise is paramount.  Stay tuned.For more:ReutersMarketWatchYahooTheStreet.comPC WorldAFPTimes OnlineInternational Business TimesBloggingStocks

Michael Bush of AdAge.com wrote a well thought out piece on the unusual nature of Apple and its famed CEO, Steve Jobs. While the news on Jobs’ health appears far better lately than was thought even a week ago (read earlier blog), the company needs to develop a succession plan.  The question remains how can it do it in light of the current circumstances and the fact that Apple previously pushed Steve Jobs out as CEO once before.  The piece is a worthwhile read.

Today- July 28, 2008- marks the 30th Anniversary of the landmark teen comedy, Animal House- starring John Belushi. This was the first film venture for the company National Lampoon (NLN). The film grossed more $140 million- a record at the time.

Read TWST’s exclusive interview with the current CEO of National Lampoon, Daniel Laikin.In it, Laikin talks about the company’s history, licensing strategy, online businesses and plans for the future.

Now that Wachovia has it’s new CEO, Robert K. Steel, in place (see earlier blog)  more top management changes have already begun.  Yesterday, long-time employee and current CFO, Thomas J. Wurtz, announced he would be stepping down as soon as his replacement was found.  Steel, who is under intense pressure to find ways to right the ship, is already hard at work putting his his own on stamp on the firm.  One can expect continued management changes at the top as Steel looks to get his own team in charge.  According to a story by David Mildenberg of Bloomberg,

“Wurtz is part of the collateral damage at Wachovia and I expect more is coming,” said Gerard Cassidy, an analyst at RBC Capital Markets.Former chief financial officer Robert Kelly, who was Wurtz’s predecessor, “could stand up to Ken Thompson but the analyst community never had that feeling with Tom Wurtz.” 

Paul Davis of the American Banker stated,

Wurtz was a key public defender of the company’s October 2006 acquisition of Golden West Financial Corp., a transaction that largely contributed to G. Kennedy Thompson’s ouster as Wachovia’s chief executive officer in June. 

As executive and lower level changes continue at Wachovia there is a great deal more needed to right this ship.  Stay tuned.For more:ReutersTimes OnlineOrlando SentinelTampa Bay JournalMarketWatch

As Microsoft’s MSFT (NASDAQ) Web plans continue to flounder (Yahoo, search, etc.,) more complications have  appeared.  The primary person behind Microsoft’s efforts to acquire Yahoo, Kevin Johnson, The Platforms and Services Division President will be leaving after sixteen years with Microsoft to become Juniper Network’s JNPR (NASDAQ) new CEO.  Was he pushed or did he jump?  According to Zachary Rodgers of ClickZ Networks,

Johnson may have taken the fall for Microsoft’s unsuccessful (to date) exertions to acquire Yahoo. The Wall Street Journal reported late yesterday that CEO Ballmer has grown increasingly frustrated with his own senior executive management’s maneuverings throughout the negotiation process, and Kevin Johnson has been fingered as a major shaker in that process.   

According to Kara Swisher of the Wall Street Journal’s All Things Digital,

As the president of its Platforms and Services Division, the smooth Johnson has been trying, without much success, to beef up the software giant’s efforts in the Web space, especially in the online advertising arena.He and Microsoft have had a little problem with that, largely due to an immovable object called Google. In an attempt to make an end run around the search behemoth, Johnson led Microsoft’s attempt to take over Yahoo, the #2 player in the search and search advertising space.The six-month effort, according to many sources at Microsoft, has led to a great deal of unrest at the company, including ire aimed directly at Johnson because of his perceived influence on CEO Steve Ballmer.  

With Johnson’s departure, Steve Ballmer, Microsoft’s CEO, announced a new reorganization of the Windows and Online Services Divisions (see press release for details).  The Online Services division will now stand on its own.  According to the release,

Effective immediately, senior vice presidents Steven Sinofsky, Jon DeVaan and Bill Veghte will report directly to Ballmer to lead Windows/Windows Live…

In the Online Services Business, Microsoft will create a new senior lead position and will conduct a search … In the meantime, Senior Vice President Satya Nadella will continue to lead Microsoft’s search, MSN and ad platform engineering efforts…

In addition, Senior Vice President Brian McAndrews will continue to lead the Advertiser & Publisher Solutions Group (APS)…  McAndrews will continue to focus on the display advertising opportunity for Microsoft, driving execution and integration of advertising assets, including recent acquisitions such as Massive Inc., Navic Networks, ScreenTonic SA and YaData Ltd.   

Microsoft has been looking rather anemic of late.  We will just have to see how this all plays out.  Speculation is already beginning to appear as to who will replace Johnson at Microsoft.  Kevin Liu of Reuters wrote piece in which Jon Miller, the former AOL executive and a possible Icahn candidate to replace Jerry Yang at Yahoo should he ultimately prevail, might be considered for Johnson’s former job.  Whatever the choice for now, Google must be singing a happy tune. For more:PC ProBarron’s BlogCNN MoneyGuardianSeeking Alpha 

Our roundtable this week at TWST focused on Telecom Services. We asked the analysts on the panel to tell us a little about the ongoing battle between cable operators and telecom services in terms of providing services. Donna Jaegers of Janco Partners talked about the possibility of a complete shift in the service model in the near future:

“As opposed to seeing the economic recovery as a V or a U, I think it’s shaped more like an L. Unless oil prices come down dramatically, the consumer will take a long time to reliquify their balance sheet. That may push people to really think about how much they are spending on video programming in their household and is it really worth it, when they could just download the stuff they want off of the Web…

You have players like Qwest Communications (Q), that are just offering higher speeds and don’t have a IPTV-like product yet. As long as you have a high-speed connection and more and more of the programs moving over the  Internet, you may get the model really shifting for the cable companies and putting them in tough waters. This is similar to how craigslist has eaten up the  want ads from the newspapers and has pushed them into a real secular change…

Long term, the cable guys are going to have to think about how they are going to repackage and remerchandize their video programming because people aren’t necessarily just going to assume that they need to pay $50 plus per month for video. They are going to look at the other sources they have available to them.”

For the complete Telecom Services roundtable, including an overview of the last year in Telecom Services and stock picks, click here.