After Yahoo! (YHOO) failed to merge with Microsoft (MSFT) last year, the company’s shares took a nosedive. But now, according to analyst Youssef Squali of Jefferies & Co., this is a time to reexamine Yahoo!:

Mr. Squali: We’re recommending it because we feel that the core fundamentals — the search business of the company — has actually stabilized in the last four months. Yahoo! has gained some market share and the feedback we’re getting from a number of online agencies and advertisers that work with Yahoo! is that the Yahoo! search platform has actually improved recently and they’re spending incrementally more money on it, which I think is significant and not recognized by the market. On the display side, things are not improving just yet, but frankly we think the weakness in the display side is already well baked into Yahoo!’s estimates and valuation at 5 times forward cash flow. Longer term, we see display as a major source of revenue growth for Yahoo! as vertical content becomes the place to be again. 

For the complete Internet Services issue, including the full interview with Mr. Squali, as well as CEOs from top Internet Services companies, click here.  

Dealbreaker early today, prior to Citi’s shareholder meeting, talked about speculation that Vikram Pandit, Citgroup’s CEO, could be forced out should the bank have to go back to the government trough for further funds.  According to a story in the Financial Times referred to in the Dealbreaker piece,

… senior officials at the FDIC have been talking Pandito replacements, in the event the bank needs more cash-money. Apparently successors include new CFO Ned Kelly, old CFO Gary Crittenden, and an unnamed new board member.

I suspect Pandit will be around at Citi for a while.  Unlike Lewis at the Bank of America, Pandit while not demonstrating extraordinary leadership talent has not made the kind of blunders Lewis has been saddled with.  Time will tell.

The April 20th issue of the Wall Street Transcript features a special focus on Oilfield Services. We spoke to analyst Collin Gerry of Raymond James & Associates as part of this issue, to tell us a little bit about where the past quarter has lead the Oilfield Services sector, and where it’s headed. Mr. Gerry estimates that natural gas will be at record lows in Q3. Here’s why:

Mr. Gerry: It’s a combination of things. Yes, the poor economy is decreasing demand, but the bigger problem is we are going to have more than enough gas to fill storage — we believe the market could theoretically end summer anywhere from 500 Bcf to 750 Bcf oversupplied. Just as a framework, gas is a storage market. We use it in the winter and we store it in the summer. The phenomenon that we have had recently is that, if you don’t have enough demand or if you have excess supply, you fill storage too early in the summer and have to shut in production. Then, you have gas on gas competition which just kills the price. In the past, we’ve seen 1-2 Bcf/day get shut in for a month or two. As we look at our model, we think you will have to shut in 500 to 750 Bcf of gas. That’s 10 Bcf/day for a couple months, which is a train wreck! In the past, natural gas prices cratered in the Rockies and Mid-Continent areas. However, shutting in such a large amount of gas could affect prices at Henry Hub, which is the gas price that you see on your screen. So you could see gas prices meaningfully worse than what we have seen in the past couple of years.

For the full Oilfield Services/Pipelines & Distributors report, including a roundtable discussion of the space, and a complete interview with Mr. Gerry, click here.

Our recently published Gaming and Leisure Report, featured an interview with Hayley Beth Wolff of Rochdale Securities who pointed to Cedar Fair as a bright spot in this horrible environment;

Ms. Wolff: The only bright spot that I’ve seen in this space has been with Cedar Fair (FUN), the theme park company, which supports the staycation trend. They actually grew their business in a horrible environment, particularly since they are very Midwest-centric. So they are in an area where employment was most challenged, but 22.7 million guests visited, 3% more than the prior year.

Americans still want to enjoy recreation activities they just want to do it at a lower price point and companies that realize that will capitalize in this roller coaster economy.

In our discussion this week with portfolio manager Roland Manarin of Manarin Investment Counsel, LTD.  He talked a little bit about the culture of fear that investors find themselves in these days, or as he calls it the “market bottom stew:

Mr. Manarin: There used to be an old recipe that I had called “market bottom stew” and it’s pretty much adding all of these negative ingredients that we’re deluged with by the media and when everybody is thoroughly disgusted, panicking and selling out of sheer fear – that’s usually the market bottom environment. I think we’re in the midst of brewing a wonderful batch of “market bottom stew” right now and all you have to do for ingredients is turn on CNBC or the other 24/7 news outfits in the morning, and you’re going to get a good bowl of “market bottom stew.”

However, despite this, Mr. Manarin urges investors not to give in to the current economic climate, and to look for signs of life in the economy:

Mr. Manarin: There are signs of life. The money supply has soared, money velocity is starting to increase and the yield curve is positive. Credit markets are thawing from last fall’s panic levels as shown in the three month LIBOR. Lower energy prices are a stimulus for consumers and the combination of lower price and lower mortgage rates seems to be putting a bottom in the housing market. Retail sales ex-autos have been positive for January and February. The Baltic Dry Index has more than doubled from its lows, the PPI and CPI have increased for two months, and the ISM manufacturing index and the ISM services index have increased from their lows. Stock valuations such as price to earnings and price to book are lower than they have been in years, and regulators are finally talking about bringing back the uptick rule and modifying mark-to-market accounting.

For the complete Investing Strategies report, including a full interview with Mr. Manarin, and a wide variety of other portfolio managers, click here. 

Eliot Spitzer, you remember him, just wrote a piece for Slate that examined a recent opinion by Richard Posner, a federal judge for the 7th circuit court, on executive compensation.  Posner, a well known conservative judge, shocked Spitzer with regard to what he wrote about CEO executive compensation.  According to Spitzer,

Posner wrote that there are growing indications that CEO compensation “is excessive because of the feeble incentives of board of directors to police compensation. … Directors are often CEOs of other companies and naturally think that CEOs should be well paid. And often they are picked by the CEO.” He then examined the conflicts inherent in the process of CEO compensation determination, concluding that “[c]ompetition … can’t be counted on to solve the problem because the same structure of incentives operates on all large corporations and similar entities, including mutual funds” [emphasis added].

Anyone interested in the issue of executive compensation should read Spitzer’s piece and check out Judge Posner’s opinion.

For more:

Freakonomics (NYT)

In a recent interview with Adam Krejcik of Roth Capital Partners, LLC, for our Gaming & Leisure Report, we discussed the growth opportunity for the Online Gaming Industry in China.

Mr. Krejcik: The industry has been growing at a pretty staggering rate. I think the five-year CAGR through 2008 was 60%. Going forward we expect the industry to grow at an annual rate of 20%-30%, which is still very impressive. The two main drivers of the industry are, one, a growing Internet population and two, an increase in consumer disposable income. The number of Internet users has been growing at a rapid pace in China and now exceeds that of the US despite a penetration rate well below ours. We see no real slowdown in Internet growth in the next five years. Number two, GDP growth is leading to a rise in the standard of living, which should translate into to greater levels of disposable discretionary income. This will eventually lead to higher price points and user spending within online games. So we think the macro trends are pretty favorable, and while you could argue that the spending levels may slow down here in the near term depending on how severe this economic downturn is, we believe the longer-term trends are very promising.

Valuations are very depressed right now but the companies have a significant amount of cash on their balance sheets and no debt, so for investors trying to avoid companies that are overlevered or facing financing issues, this sector fits that profile.

As part of our special focus this week on Medical Devices, we spoke with analyst Junaid Husain of Soleil Securities Group, Inc. Husain focuses his research on a wide variety of topics, but one of he monitors closely is Radiation Oncology. His top pick in this space is a company called Varian Medical System (VAR). Here’s why:

Mr. Husain: Varian invested in new technology and they have what I like to refer to as one of the best product rollouts in radiation oncology history with their RapidArc software. This is a software that is bolted onto their radiation oncology box. Basically what RapidArc does is that it makes radiation oncology that much more efficient; you can get 50% more patients through the radiation oncology suites than before. So in this tough hospital spending environment, when a Varian sales rep goes into a hospital and says to the CFO, “I can improve your patient throughput in your big box radiation oncology suite to the tune of 50% or more,” that’s a very compelling sales pitch. So I think that Varian has had a lot of success with RapidArc. The RapidArc launch has been very good for them and I continue to expect this rollout to proceed well. 

For the complete Medical Devices report, including a full interview with Mr. Husain and interviews with a variety of other portfolio managers, click here. 

In a recent interview with Spencer Nam of Summer Street Research Partners we discussed the newest Cardiovascular devices to hit the market. He considered Thoratec’s Heartmate II the front runner for late-stage heart failure;

Mr. Nam: In the LVAD space targeting the late-stage heart failure patients, there are several products, but the frontrunner is Thoratec’s (THOR) Heartmate II (HM II) LVAD. They just received an FDA pre-market approval (PMA) for use of HM II among patients waiting for heart transplant. We call that bridge-to-transplant indication, literally implying bridging the gap between the time when a patient becomes a candidate for a heart transplant and when the patient receives the heart transplant.

The space for LVADs or LVAD-like products seems to be a very active space with five to six other companies conducting trials

We recently spoke with Matt Dolan of Roth Capital Partners about Small Cap Medical Device Companies as part of our Medical Devices Report. When discussing his list of interesting companies at the peak of his list was Volacno Corporation;

Mr. Dolan: … we believe one interesting company is Volcano Corporation (VOLC), which sells into the cath lab where a number of minimally invasive cardiovascular procedures are performed. Diagnostic catheterizations and stent procedures remain a significant area of medical care today, and Volcano provides imaging modalities that provide feedback to the physician as to the type of lesion being assessed and improve a physician’s ability to place a stent appropriately. Clinical outcomes have supported the use of the company’s IVUS (Intravascular Ultrasound) imaging and functional measurement (FM) devices, suggesting that these technologies can improve patient outcomes significantly. We think this is particularly important, considering some of the recent concerns surrounding stent safety, with issues like late stent thrombosis and in-stent restenosis often being debated at medical conferences. One could also make an argument that this technology reduces the cost of care by improving patient outcomes and allowing physicians to use stents more selectively, which speaks to some of the issues regarding cost effectiveness that we discussed earlier.

With the company generating 75% of it revenue on a recurring basis through disposable catheters and a growth rate of 20% expected Volcano could be a acquisition target over time, and any company that sells catheters and would name themselves Volcano can’t be half bad.