This week’s special focus is on Transportation. We asked the analysts and CEOS we interviewed to tell us anonymously what they felt were the strongest companies and management teams in their space. Having this kind of information in this space is especially important, according to one analyst, because:

“Transportation is a highly fragmented industry. For every five or six good managements, there are probably 50 or 60 bad ones.”

Here are the picks from our CEOs and analysts this week. One analysts highlighted the railroad area of this space:

“On the railroad side, I’d have to highlight Canadian National Railway (CNI) and Norfolk Southern (NSC). Day in and day out, those two companies do a great job of running very efficient railroads, providing a very good service to their customers, and extracting a full and fair price for those services. From a margin point of view, they do a great job. They have managed their balance sheets very well.”

Another had some recommendations in dry bulk:

“I think on the dry bulk side, Eagle Bank Shipping (EGLE) and Genco Shipping and Trading (GNK) have top management in my coverage universe. I pick them because of their track records, their knowledge not only of the shipping markets but also their knowledge of the investment community. I think you can have very strong management teams who understand assets, sale and purchase activity and who understand the shipping markets, but who don’t understand what it takes to be a successful, publicly listed company. I think Genco and Eagle have proven to be strong on both the operations side and also on the financial side as well.”

For the full off the record issue, including more idea of where to look in the broad space of transportation, click here.

Ascent Solar ASTI (NASDAQ) a renewable energy firm involved in the development of thin film solar power modules announced the resignation of its CEO, Matthew Foster.  Foster had been with the development firm since 2005.  According to the company’spress release,

… the Board and its President and CEO have mutually decided that a

 change of leadership presents the best path forward for the company, as it heads into the manufacturing phase of its development. Effective September 19, 2008, Matthew Foster, its President and Chief Executive Officer, has resigned his position. Dr. Mohan Misra, Ascent Solar’s Chairman and Chief Strategy Officer, will serve as the company’s interim President and Chief Executive Officer until a permanent replacement is found. 

The company’s press release went on to quote Foster upon his resignation in which he stated,

“Ascent Solar is transitioning from a research and development company to a manufacturing and commercially focused organization. I am pleased to have been the leader of Ascent Solar during this initial stage, and I felt that new leadership would be better at leading Ascent Solar’s next phase of growth where operational and manufacturing expertise will be critical. I expect Ascent Solar to continue to grow as a leader in the thin film photovoltaics arena,”

Ascent Solar was also in the news today for a story related to short selling and its impact on renewable energy related firms.  According to a story in Sustainablebusiness.com,

Some renewable energy companies feel their stocks have been illegally targetted by short sellers…. “Not only have financial companies been targeted, but many alternative energy companies, and solar companies in particular, seem to have been favorite targets for this illegal and manipulative naked short selling action,” said Evolution Solar Corporation (Pink Sheets: EVSO) in a release…. According to Evolution Solar, other illegally shorted solar companies on the SHO Threshold List are Akeena Solar (NASDAQ:AKNS), Ascent Solar Technologies (NASDAQ:ASTI), Solar Fun Power Holdings (NASDAQ:SOLF), Sunrise Solar (OTCBB:SSLR), and SunPower Corp (NASDAQ:SPWR), all of which have seen substantial price declines.

While it is possible Ascent stock value may have been impacted by short sellers the fact that the CEO is leaving so suddenly probably means the decline in stock value is more associated to the product and top management.  At a time went renewables are very high profile and the company has been in an extensive development phase investors should keep a close eye on the moves the company makes over the next number of months.  Particular attention should also be paid to the individual the company ultimately finds to permanently replace Foster.Stay tuned

Alcatel-Lucent ALU (NYSE) which recently hired a new CEO and chairman, Ben Verwaayen and Philippe Camus respectively (see earlier blog), have begun to make management related changes.  Supervisory directors Ed Hagenlocker and Jean-Pierre Halbron have resigned.  Hagenlocker’s resignation is effective immediately and Halbron’s resignation will be official shortly.  These changes are only the beginning.  Expect far more as the two top executives begin to get their feet wet and re-examine how to make the firm more effective both business-wise and culturally.

Moving back to our focus this week on semiconductors, we asked the analysts on our roundtable to talk to us a little bit about what they hear from investors in this space. Here’s what they’re hearing about investor interest in semiconductors:

“I think that there is modest interest in this space. I don’t have people calling me and saying, “I have to get long in the semis right now because this is the best sector to be in since sliced bread.” I am certainly not getting that, but I do get people looking more at longs than at shorts.”

“In the communications space, and more specifically in small cap communications names, there has been very little appetite of late among investors. I think that in these kinds of markets where there is uncertainty, many of the investors that I talk with move toward larger and more defensive positions in companies that have less leverage, but a little more predictable earnings power.”

“My sense is that investors want to get more positive on semiconductors. They want to find reasons to start investing. If you think about it, valuations are pretty attractive and sentiment has been beaten down. These are good elements to the stock thesis now. The problem is demand and the health of the industry and of the end markets. The long-term investors that I talk to are looking for companies out there with compelling technologies that enable share gain and significant growth over time. That is what the longer-term guys are looking for.”

For the complete roundtable forum on semiconductors, including an outlook for this space and stock picks, click here. 

As the shock waves continue to reverberate through Wall Street the mighty continue to fall.  The latest to get walking papers was short term AIG CEO Robert Willumstad (see earlier blog).  After the government’s $85 billion loan (buyout, takeover, dismantling ) Secretary of the Treasury Henry Paulson informed Willumstad he would be replaced.  Paulson has selected Edward Liddy, a former CEO of Allstate and currently a partner in the private equity firm of Clayton, Dubilier & Rice to become AIG’s CEO.  According to a story by James Miller of the Chicago Tribune,Liddy, who formally joined the private-equity firm Clayton, Dubilier & Rice as a partner only four months ago, will succeed Robert Willumstad, according to reports in The Wall Street Journal, Financial Times and Bloomberg news service.

The articles, citing unnamed sources, said the government had demanded the departure of Willumstad — who moved into the top spot at AIG in June after his predecessor was forced out because of the insurance giant’s deepening mortgage-related problems — as a requirement of the Fed’s $85 billion bailout plan.Under that plan the Fed agreed to lend $85 billion to AIG, allowing the company to avoid filing for bankruptcy protection, in exchange for warrants that will provide Uncle Sam with an 80 percent stake in the privately owned company.

Liddy is known by Paulson.  Liddy has been on Goldman’s board since 2003.   He is known as no-nonsense executive.  According to BNET,

… Liddy has a reputation for shaking things up within the managerial ranks. Shortly after becoming Allstate CEO, Liddy swept away many longtime managers, often veterans who had been with the insurer since it was part of Sears Roebuck, and quickly assembled his own team.Liddy also overhauled the Allstate agency network by turning many fulltime insurance agents into company contractors, cutting many agents’ compensation. To this day, Liddy is scorned by those Allstate agents.Moreover, Liddy has shown he can make money in times of great adversity. In 2005, when Hurricane Katrina cost nearly $3 billion in Allstate claims, the company made over $1 billion.

Even with all his previous experience it is difficult to assess how he will fare in his new unprecedented position at the top of AIG which is now controlled by the United States government.  According to a Reuters story in the Guardian by Bill Rigby,

He (Liddy) got the nod to run AIG late on Tuesday, as part of an $85 billion Federal Reserve-sponsored bailout — which effectively makes the New York insurer government property — with a mandate to sell off what parts he can.”He (Liddy) is a very experienced and seasoned professional in the insurance industry,” said Larry Coats, a co-manager of the Oak Value Fund, which has in the past invested in large capitalization insurance stocks.”There’s obviously much work to do at AIG, but he has significant experience and would appear to be up to the task,” he added. Coats’ fund, based in Durham, North Carolina, does not currently hold AIG or Allstate shares.

While at Allstate he slashed costs and employees. According to Rigby’s article,

… he helped the company through the after-effects of the 1994 Northridge earthquake, the 2001 World Trade Center attack, and several hurricanes including Katrina in 2005, all of which cost insurers many billions of dollars in claims.He is not afraid of making unpopular decisions. While in charge at Allstate, he forced the painful transition of many Allstate agents into freelance contracts, and slashed 10 percent of its non-agent staff in a bid to cut costs.Under Liddy, Allstate made its first real steps away from being an old-line insurer dependent on face-to-face policy sales, to a sleeker, modern company using cheaper telephone and Internet sales channels.

His task at AIG is far more complex and he will find himself under far more pressure from a number of different directions.  Job number one is protecting the taxpayers’ money.  After that the real question remains whether he sells off the entire company in pieces or manages to find some formula to keep parts of it functioning?  According to theDeal.com,

(Liddy) may not be staying on for the long term at the embattled insurer; and could return to Clayton, Dubilier & Rice Inc., the private equity firm where he is currently an operating partner.A representative of CD&R source close to the situation told The Deal that the buyout shop “expects that this will be an interim role and that Ed will return to the firm when he fulfills his responsibility to AIG.”

I do not envy him.  Let’s hope he does a yeoman’s job.  

Our special focus this week at TWST is on Semiconductors. We asked the people we interviewed to give us an idea of which companies and management teams they think remain strong in this turbulent economic time.

One analyst talked a little bit about recent management shifts as a trend throughout this space:

“In my sector, there have been a number of changeovers. You have seen some of the senior members of these teams move to their chairmanships and out of the day-to-day operating. You have seen, in some instances, management teams swap out completely and you have seen some resign or move to the sidelines. So there are still a lot of moving pieces in my companies and it should be interesting to  see who rises to the top as we exit the end of the year and who can address the seasonality and who can address the different challenges that will come up.”

But in terms of specific picks, here are two that analysts in the Semiconductor space picked this week:

• Intel (INTC) -

“I think that Otellini over at Intel has done a fantastic job of turning that company around. There were a lot of skeptics a couple of years ago who thought that that move to a marketing kind of guy from more of an engineering-oriented Craig Barrett or Andy Grove was risky, but he has proven the skeptics and critics wrong.”

“I think that Intel has done a really, really good job of rolling out some of the best products they have had in    years and widening their lead over AMD.”

• Silicon Labs (SLAB): 

“I will go with Silicon Labs. I think that there are a couple that are probably equal but I think that the quality of this management team is probably underestimated so I’ll choose it.”

“”I have to mention Silicon Labs. A relatively new CEO and CFO have come in over the last two or three years and done a really good job of transforming that business.”

For the full Off the Record interview, including more stock picks from expert analysts and CEOs, click here.

Back in December 2007 Richard Welding the CEO of street sweeper, fire truck and emergency products manufacturer Federal Signal Corporation’s FSS (NYSE) (see previous blog) resigned.  Since that time the company was led by an interim CEO James Goodwin, a former CEO of United Airlines.  After a long and extensive search the company has finally selected a new CEO.  William Osborne a former top executive at Ford Motor Company who had been with the firm for 18 years has been picked to run the company.   He will take the CEO position immediately.  According to a piece by Bob Tita for the Chicago Business Journal,

(Osborne) resigned from Ford earlier this month after 18 years with the Dearborn, Mich.-based company.Mr. Osborne had been head of Ford’s Australian business in recent months and led the automaker’s Canadian operations from 2005 to 2008. He also worked at automakers Chrysler and General Motors before joining Ford.

The search to find a permanent replacement for Richard Welding was often characterized by a high degree of acrimony and confusion.  An activist shareholder Warren Kanders who owns nearly 6% of the firm and was formerly the chairman and CEO of Armor Holdings  has been putting a great deal of pressure on Federal’s board particularly as it relates to management. According to a story by James Miller of the Chicago Tribune back in August,

(Kanders) has been a vocal critic of Federal Signal Corp’s management and the company’s recent actions, called publicly for the resignation of Chairman James C. Janning , saying there is “reason to believe” that Janning and possibly several other current board members “may have been involved in a cover-up of insider trading” by family members of former Chairman and Chief Executive Joseph J. Ross.The alleged cover-up, Kanders asserts in a letter to Federal’s board, which he made public today, may be the reason for Janning’s “sudden ‘retirement’ in November 2003.”Kanders, in his letter, said Federal signal’s board “has no alternative but to call for Mr. Janning’s immediate resignation” and to mount an investigation into Ross’ “so-called ‘retirement.’ “Kanders disclosed in June that he had compiled a 5.7 percent stake in Oak Brook-based Federal Signal, and not long afterward, launched a public campaign to be named CEO of the company.

The most prominent aspect of Kanders’ complaints was his active attempt to become Federal Signal’s new CEO.  The board was opposed to Kander as CEO and ultimately made it known that Kanders was never seriously under consideration.  The newly appointed CEO, William Osborne, appears to be a good choice.  He has vast experience with a durable goods manufacturer and understands the needs of a manufacturers’ customers and what is needed to make a large manufacturing operation succeed.  Stay tuned to the continuing drama.  See what steps Osborne takes to possibly placate Kanders and what he does to make Federal Signal improve overall results.For more:RTT NewsAOL  Money

Moving back to our special focus this week on Pharmaceuticals, we spoke to two analysts who talked to us a little bit about where they’re pointing investors during this turbulent time.

David Windley, analyst with Jefferies & Company, covers the small cap and specialty pharmaceutical space. Here’s what he had to say:

Mr. Windley: “We have a few select buy ratings on companies where generic risk is relatively low in the next few years, very low on several companies, where the key franchises are relatively stable and where there are new franchises coming on to generate some growth now. Those would be Cephalon (CEPH) and Forest Laboratories (FRX). And then in one case, a drug delivery play, Durect Corporation (DRRX), which does have a horse in this abuse deterrent opioid space among its several products that are licensed but and still has licensing opportunities that could create some catalysts. So that’s how we are picking stocks — where can we go where threat to the existing revenue base is low and opportunity for new revenue to come on is reasonably visible? And those situations are not that abundant.”

A fairly bleak picture in small cap. Moving to a separate space, Martha Freitag of Argus Research Company covers the large cap portion of pharmaceuticals. Here’s her advice:

Ms. Freitag: “I continue to like Abbott Laboratories (ABT) and Johnson & Johnson (JNJ). Their diversification across businesses — medical devices, diagnostics and, in the case of J&J, consumer — has given the companies stability. Growth in medical devices and other businesses has offset some of the challenges in the pharmaceuticals area. Abbott, in addition, while it is facing generic competition for Depakote, doesn’t have the amount or the degree of exposure to generics that some of the other companies have. The company is seeing strong growth for Humira and its cardiovascular drugs like Niaspan appear to have benefitted from Vytorin’s problems. I think these companies also have cultures of innovation, particularly Johnson & Johnson, along with strong financial discipline.”

For the complete pharmaceuticals report, including full interviews with each of these analysts giving their views on the space, as well as interviews with CEOs of leading pharmaceutical companies, click here.

Old Mutual plc OML (LSE) the British insurer originally formed in South Africa announced today that its CEO, Jim Sutcliffe would resign with immediate effect. Sutcliffe’s resignation comes shortly after the announcement over the weekend of the U.S. government’s decision to support Fannie Mae and Old Mutual’s admission according to The Guardian,

it lost $135 million through the nationalisation of Fannie Mae and Freddie Mac. … Last month it admitted losing over £100m through failing to properly hedge itself against falls in Asian stock markets. At the time Sutcliffe blamed certain employees at its US Life arm for “not doing their jobs properly”.

The company immediately announced Sutcliffe’s replacement, Julian Roberts, the head of Old Mutual’s Skandia operations and was previously finance director of Old Mutual. Besides the problems associated with Fannie Mae and Freddie Mac according to the Financial Times’ Alphaville blog,

US Life also has a continuing problem with the variable annuity guarantees it has been writing, which have become painfully unprofitable amid the hike in equity market volatility and the recovery of the dollar. That’s led to a further $155m being set aside and the injection of $250m of capital to support its Bermuda-based guarantee-writer.

While Sutcliffe’s departure was viewed with surprise by some, according to the Business Times,

In recent weeks, there has been a groundswell in investment circles – among sell and buy-side analysts, portfolio managers, equity sales teams and investment bankers, to name a few – clamouring for Sutcliffe’s departure. They want change, and they want it now. They point to Old Mutual’s indifferent equity market performance and a litany of troublesome acquisitions and the associated snowballing goodwill.

The real question remains, what will Roberts do that might be different from Sutcliffe? Will the insurer find itself a takeover target or are the problems still in need of correction before this even becomes a possiblility? Old Mutual should be able to weather the storm if the right moves are made.

Sty tuned.

For more:

Reuters Africa
Business Week
Bloomberg
MarketWatch

Yesterday VMware VMW (NYSE) announced its chief scientist and co-founder Mendel Rosenblum would be leaving the firm.  Rosenblum was a co-founder of the firm with his wife Diane Greene (see earlier blog), the former CEO who was recently forced out and replaced by former top Microsoft executive Paul Maritz.  Maritz is known as a close a associate of EMC CEO Paul Tucci and the parent firm of VMware.  Tucci was known to be unhappy with Greene.  According to TheStreet.com,

Rosenblum stepped down just one week ahead of the virtualization leader’s annual user conference. 

VMware continues to face a significant brain drain as Maritz takes over the reigns.  Keep a close eye on his forthcoming moves and management replacements. For more:New York TimesReutersTheStreet.comVnunet.comRedmond Channel Partners