Recessionary-Resistant is a strong sentiment but according to Jeff Blaeser  Senior Vice President & Analyst at Morgan Joseph & Co., Inc. with the average vehicle age and year-over-year declines in new car sales as a result of the recession, these factors help contribute to the success of the auto parts sector. When asked for his top picks he mentioned two;

Mr. Blaeser: I have buy rating on both Pep Boys and Advance Auto. So, yes, I’m very bullish on the sector itself, par­ticularly if you have remaining broader economic concerns on the country’s near-term prospects for recovery. From an investment standpoint, automotive aftermarket companies typically generate strong free cash flow, in both good and bad times, with free cash flow yields typically ranging between the high single digits to dou­ble digits. In addition, the profit margins are typically above retail average and its balance sheets are solid.

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In our recent 57-page Education Report  we spoke to Robert L. Craig and Jerry R. Herman of Stifel Nicolaus focusing on the OUTLOOK FOR EDUCATION & E-LEARNING and what Investors should be looking at;

Mr. Craig: We continue to be positive on the group. We don’t follow every company in the sector, we follow most of them and most of those quite frankly are rated buy and have been rated buy for some time. We think these valuations are attractive and there are various ways you can play this group. If you take a longer-term perspective, then in our opinion, the best attributes to look for are relative nascency or small size, quality as measured by student outcomes and satisfaction and value proposition for the student. Valuation is of secondary importance. On a nearterm basis, if valuation is what drives your investment decision, then there is an awful lot to work with here because, in our opinion, PE’s are very attractive relative to sustainable rates of growth.

Also the impact of the current Administration on the Industry is discussed;

Mr. Herman: Given the backdrop and the vision of this Administration, there are certain companies clearly positioned to be part of the solution to the problem of the shortage of post-secondary education capacity. Companies that we believe are positioned to help solve that problem and also have good student outcomes and academic performance include the likes of DeVry and Strayer and Capella, and even Apollo. Those companies have generally very solid metrics.

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Late today it was announced that the often embattled Morgan Stanley MS (NYSE) CEO John Mack would be replaced in January by the firm’s c0-president James Gorman. Often considered Mack’s possible replacement, Gorman will soon be in the captain’s seat.  Mack will continue as chairman.   According to a Reuters story by Dan Wichins and Christian Plumb,

Morgan Stanley (MS.N) Chief Executive John Mack is stepping down and will be replaced by retail brokerage head James Gorman, signaling the storied bank is embracing stable businesses after losing big on risky ones.

… “Gorman has really earned his stripes,” said Anton Schutz, president of Mendon Capital Advisors in Rochester, New York, which owns Morgan Stanley shares. “He did a great job at Merrill, he’s doing a good job at Morgan Stanley, and the timing for a change seems to be good, because we’ve made it through the worst of the crisis.”

Many of the street’s analysts are convinced the change at Morgan is related to the issues of risk the bank experienced during the financial crisis and the change at the top is intended to ameliorate that risk going forward.  It may be far too early to make that kind of the prediction, we will have to wait and see.For more:MarketplaceWall Street JournalBloombergNew York TimesWall Street JournalFootnoted.org

Insight Enterprises, Inc’s. NSIT (NASDAQ) board Monday September 8 ousted its CEO, Richard Fennesy.  Fennesy had been in charge of the firm since 2004.  Insight, a distributor of computer hardware and software in North America, carrying thousands of products from major manufacturers, selected a current board member Anthony Ibarguen to serve as the firm’s interim CEO until a successor is chosen.  According to Insight, Ibarguen has more than 25 years of IT industry experience including serving as President, Chief Operating Officer and a director of Tech Data Corporation (TECD). Additionally, he served Executive Vice President of Sales and Marketing at Entex Information Services. He also served as President and Chief Executive Officer of Alliance Consulting Group, a privately held IT consulting and software solutions firm.According to a story by Patrick O’Grady for the Phoenix Business Journal,

co-founder and Chairman Tim Crown during a conference call said …“It was with this focus that the board determined that now is the right time to make a change in the CEO position,”

… Crown said there is no one thing that led the board to decide a change of direction is in order, but the company has been buffeted this year having to restate about $61.2 million in earnings related to accounting for certain aged transactions. The restatement involved transactions going back to 1996.

The abrupt change at Insight may augur some positive results for the firm once the dust settles and the firm focuses its business strategy.  Keep a close eye on the interm CEO’s moves and the firm’s ultimate choice for a permanent CEO.

As part of our recent 53 page Investing Strategies report we spoke with Catherine Friend White of FinArc, LLC Investment Management about Environmental, Social & Governance Investing and how they evaluate companies;

Ms. White: “We’re trying to parse everything out, and a poor environmental record can have a very large effect on the firm’s profitability. It also says something about the management of a firm. If they have a problem, whether it’s a social problem, an environmental issue, or governance problems, how do they respond? Do they say “we need to tighten up our procedures here? Are they willing to be forward-thinking on those types of issues?”

She says that socially responsible investing is a very important part of her work at FinArc, with two-thirds of clients asking her to use environmental, social and governance (ESG) for their portfolios. One issue that has become more serious of late is corporate governance, making sure that the top executives have the right kind of compensation, and examining the credentials of board members.

As part of our recent Specialty Retail report we spoke with Christine Chen Principal & Senior Research Analyst Needham & Company, LLC  had this to say about True Religion (TRLG);

Ms. Chen: Their jeans are the brand that’s extremely, extremely hot with teenagers, older customers, international cus­tomers. But I think the most important thing is they continue to in­novate their product, meaning they look different from any other premium denim brand out there. I have mentioned consolidation. Premium denim is one of the areas where there probably will be a lot of consolidation and True Religion continues to take market share in this environment because the product looks better than the competition. The product also looks different from what they tried to sell you last year. That’s a very important point because in this environment, if you try to sell the customer something at $260 or at $10 that she already has in her closet, she is just not going to buy it. It has to be something new. A lot of the other premium denim brands out there that are selling more basic merchandise that looks too similar to what they tried to sell you last year – even if it’s only $160 – she is just not buying it. She already has it.

Ms. Chen expects to see increased stability in the specialty retail sector as companies enter into the second half of 2009. Inventories should fall in line with demand and previous cost-cutting measures should have left retailers with lower fixed leverage points, which could lead to margin improvement in 2010.

Companies mentioned: Urban Outfitters Inc. (URBN); True Religion Apparel Inc. (TRLG); GUESS? Inc. (GES); American Eagle Outfitters (AEO); VF Corp. (VFC); Aeropostale Inc. (ARO) and Abercrombie & Fitch Co. (ANF).

As part of our exclusive 57 page education report we conducted a roundtable forum with BRANDON DOBELL of  William Blair & Company, LLC  and COREY GREENDALE of First Analysis Securities Corporation . Mr Greendale gave this advice to investors;

Mr. Greendale: Overall, we think the valuations in the sector are still suppressed by regulatory concerns that we think are overblown. We think there are a lot of things going for the sector. The community colleges are underfunded, all the economic factors we talked about that are driving people back to school, funding sources are increasing, like the Pell Grant and the new GI bill. So we think it’s a good time to be investing in the education sector. While there are some variations by company, the valuations are still attractive by historical standards because of all these potential regulatory concerns that we think are overblown.

Both believe postsecondary companies will continue to grow even as the economy begins to recover, emphasizing that many who have lost their jobs in the last two or three years were in positions that may take a long time to come back, thus accelerating or exacerbating the need for re-skilling. Both also underline the need for for-profit education companies to be more transparent and forthcoming with data regarding outcomes. Given a secular trend towards more education and today’s knowledge- and information-based economy, Mr. Dobell and Mr. Greendale are both very positive on this sector and believe this group will see increasing numbers over the next 12 months.

Companies mentioned: SkillSoft plc (SKIL); Rosetta Stone Inc. (RST); American Public Education Inc. (APEI); Apollo Group Inc. (APOL); Bridgepoint Education Inc. (BPI); Career Education Corp. (CECO); Capella Education Co. (CPLA); DeVry Inc. (DV); ITT Education Services Inc. (ESI); Grand Canyon Education Inc. (LOPE); Strayer Education Inc. (STRA); Blackboard Inc. (BBBB) and Universal Technical Institute Inc. (UTI).

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In July as CIT continued to risk bankruptcy I placed Jeffrey Peek on Liberum’s CEO Watch list.  Earlier today it was announced that CIT extended Peek’s contract for another year.  In a Reuters story earlier today by Juan Lagorio,

CIT Group Inc said it has extended the contract of Chief Executive Jeffrey Peek for one year, even though his decisions to expand into risky businesses helped to push the lender to the brink of bankruptcy.

… “Keeping him (Peek) on board would minimize any distractions as the company tries to complete its restructuring,” said Sameer Gokhale, an analyst at KBW.

… “Getting a new CEO at this point in time wouldn’t really accomplish anything because the company is dealing with funding, liquidity and capital challenges, and that is not something a new CEO can fix easily,” Gokhale said.

The circumstances surrounding Peek’s contract extension are somewhat similar to many companies today.  Boards remain reluctant, particularly during difficult times, to change the “captain of the ship” even while the ship is sinking or floundering.   Stay tuned.

Robert Gillette, a former CEO of Honeywell’s Aerospace, was selected as First Solar’s FSLR (NASDAQ) new CEO.  Gillette succeeds Michael Ahearn who will remain as the firm’s executive chairman.  Gillette’s selection appears to be a terrific choice.  Stay tuned.

For more:

Reuters

The title says it all. In a recent interview with Colby Synesael Senior Analyst Kaufman Bros., L.P.  as part of our Data Hosting & Data Storage Services Report. Here is his take on the group;

Mr. Synesael: I’m positive on the group. Out of the four subsectors I cover within telecom and data ser­vices, the two that I’m most favorable on are neutral co-location providers like Equinix (EQIX) and Switch & Data (SDXC), as well as managed hosting providers like Savvis (SVVS) and Terremark (TMRK). In terms of why I’m positive, from a modeling perspective, I like the fact that they’re recurring revenue-based models. I think that that gives a lot of visibility for shareholders.

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