The following is an excerpt from TWST’s interview with Charlie Mills, a UK-based managing director at Credit Suisse.

TWST: Looking specifically at Cadbury and Nestle, how have their candy sales held up during the recession?
Mr. Mills: Candy does very well in a recession. It’s basically viewed, if you like, as a cheap treat. A quick candy bar, a Milky Way bar, Mars bar or Snickers always makes you feel a little bit better. It’s a sufficiently low-priced item that is not particularly price sensitive, which is certainly true of the developed world. There is no real indication from what we have seen, or if you go back historically, there has never been any indication of confectionery suffering in economically tough times.

TWST: If you look at Nestle as a whole, how have their candy brands performed in comparison to their other brands? Is that an area of growth for them right now?
Mr. Mills: That depends on the time frame you’re talking about, actually. Traditionally, Nestle (NSRGY.PK)’s mantra is that it is a health, wellness and nutrition company. They really got into actual confectionery meaningfully back in about 1988, I think it was when they bought Rowntree. Since then, confectionery has actually been quite a problem area for them. It’s not been in decline, but if you look at the organic growth of confectionery, it’s been rather low by their own high standards that you see in the rest of the business.

TWST: What are the cost pressures on candy companies right now?
Mr. Mills: Well, actually pricing is quite good. I mean, principal inputs are milk and coco. Milk prices, as you’re probably aware, went ballistic 12 to 18 months ago. They went from $2,000 to $5,000 a ton and back again. So there was a substantial amount of pressure. Coco prices are still very high. So there has been quite a bit of inflation in that business, which the confectioneries would like to pass on. But they are pretty good with their pricing generally

The following is an excerpt from TWST’s interview with Michael Pachter, managing director and equity research analyst at Wedbush Securities, where he provides coverage of the entertainment software, entertainment retail, and movies and entertainment sectors.

TWST: What are your favorite names in the video game space and why?
Mr. Pachter: The group has gotten just crushed this past year because as we had a decline in sales, I think investors tried to rationalize the decline as being evidence that we actually are seeing a secular decline in interest in video games. And I don’t believe that to be true, but the investment community does. So we’ve seen multiples for the group that have always been a premium to the market multiple - the S&P 500 multiple - decline to a discount of about 25% to the market multiple. We’ve always seen these guys trade at 25% to 50% above the market multiple. I think that as soon as investors figure out that I’m right and that growth is coming back, and that growth is sustainable, you’ll see multiples in the group expand dramatically. They will literally go from about 11x forward earnings, which is a discount of 25%, to call it 18x, which is a premium of about 20%. And that’s more than 50% appreciation. I think the whole group is going up 50%, so it’s kind of hard to have any of the stocks that I don’t like. I think the ones that will move first and farthest are the guys that actually show earnings growth, and that’s very clearly going to be Activision (ATVI); less clearly, Electronic Arts (ERTS), but I think they’ll do it; and less clearly, Ubisoft (UBSFY), but I think they’ll do it. It’s not clear that you’ll get earnings growth out of Take-Two (TTWO). They’ve already guided to a loss next year, so I don’t think that’s moving up on fundamentals any time soon. In terms of THQ (THQI), it’s not clear if they are going to grow earnings either, so I don’t think it’s going to trade up as much as the others. But I think the rising tide will lift all of them.

TWST: Any particular laggards?
Mr. Pachter: Nintendo’s (NTODY.PK) a little bit challenged because people are still trying to make sense out of this whole decline in casual game sales, and attach rates have been poor. The DS, I think, is just getting old; it’s going to be in its seventh year next year, so it’s kind of hard to believe that that thing keeps going as well. So I think that’s ultimately going to drop. I think the software sales are going to be challenged by iPod Touch games; not 50% declines, but a 5% decline or something. There will be some cannibalization of the market because an iPod Touch is an acceptable alternative for a kid to a DS. So I think Nintendo may remain kind of a laggard for a while. It’s hard to tell what Majesco’s (COOL) going to do.

Robert Kelley, the CEO of Bank of New York Mellon, who at one point was speculated to be a candidate to replace Ken Lewis as CEO at Bank of America, apparently may finds his own position at risk.  Kelley, whose candidacy for the Bank of America CEO position was a frequent on-off affair, was ultimately forced out of consideration for the BofA position, according to a number of analysts, when news came out that he would need to get an exorbitant deal to take the job at Bank of America.  There was no way in this current atmosphere that BofA would have been able to move forward with a large compensation/buyout package.  Now according to story by American Banking News,

… many are questioning Kelly’s commitment to Bank of New York Mellon, since a lack of pay restrictions might have catapulted him to Charlotte. BNY Mellon spokesperson Rob Gruendl commented that “Bank of America pursued Bob Kelly and they never really got close.” However, this should not ease the concerns of investors. Bove rhetorically asks “Is he here for the duration or will he jump if some other institution, not as influenced by the government, meets his price?”

I have placed Kelley on the CEO Watch List but remain skeptical his position at Bank of NY Mellon is truly at risk.

Gretchen Morgenson, the New York Times’ well known business reporter has done it again.  Sunday’s business section included a story by Morgenson entitled,  What Iceberg? Just Glide to the Next Boardroom, in which she examined many of the board members that were pushed out of their positions after the financial crisis of 08′ and 09′ and how they managed to get new board positions elsewhere.  One would assume this is exactly the kind of circumstance that would not occur but it did.

Three large public companies provide excellent examples. They are Sunoco, the oil company; Paccar Inc., a truck manufacturer; and Tetra Tech Inc., a management consulting and technical services concern. Each of these companies has two directors who, until recently, were on the boards of institutions that were centrally involved in the mortgage meltdown.

… The main reason for director dysfunction is that board members have little fear of being fired for incompetence or sleepwalking through meetings. Because of the way director elections are structured, board members can win their seats if they receive just one vote of support. And even if a majority of shareholders withholds support from directors at annual elections, the directors who are singled out are often allowed to stay. 

Anyone interested in corporate governance must read the Morgenson story.

The following is an excerpt from TWST’s interview with Chris Marangi, associate portfolio manager of the Gabelli Value Fund at GAMCO Investors, Inc. Having joined GAMCO in 2003 as an analyst covering the cable, satellite and entertainment sectors, Mr. Marangi has since appeared on Bloomberg television and radio, and been quoted in publications such as The Wall Street Journal, New York Times, Barrons, Newsday, Bloomberg, Variety and Broadcasting & Cable.

TWST: In general, what is the status of the entertainment sector?
Mr. Marangi: All media companies are being affected by both cyclical and secular dynamics. On the cyclical side, there has been a severe reduction in advertising across all media and continued pressure on consumers’ pocket books, which has contributed to a decline in home entertainment purchases.

TWST: And what is the secular side?
Mr. Marangi: The secular issues in entertainment include changing patterns of consumption of entertainment, i.e., more consumers getting their news and entertainment through the Internet, through mobile applications versus traditional television, radio and newspapers.

TWST: What actions are the companies taking to remain competitive in this environment?
Mr. Marangi: Most of the big entertainment companies are experimenting with new business models. That’s become more urgent as the move to the Web in particular has accelerated. And we think that some of cyclical dynamics as well as improvements in digital distribution, such as faster broadband speed, have contributed to an acceleration of that movement. So as consumers have shown that they are willing to pay for high-quality content, the content owners need to figure out how they can best monetize it in a world in which consumers behave differently.

TWST: What is the status of the cable companies?
Mr. Marangi: All the multi-channel video distributors have been affected to varying degrees and to a lesser extent than the content companies by cyclical trends. A reduction in household income, increases in empty houses, down-tiering have all impacted the growth of video subscriptions. There is also a competitive element in cable with video expansion by AT&T (T) and Verizon (VZ), in particular. But on the other hand, the cable broadband product continues to sell very well. Penetration is still increasing and pricing has held firm.

Rapid growth in the emerging video game areas of social networking and iPhone games, as well as easy year-over-year growth comparisons thanks to 2009’s negative sales outcome paint a picture of a video game industry that is actually healthier than much of today’s data would suggest.

“At this early point, we are forecasting mid-single-digit growth for the industry, although we could paint a more upbeat scenario as consumers demonstrate whether they are willing to spend their hard-earned money on the robust lineup scheduled for the year,” said Colin A. Sebastian, senior vice president of equity research at Lazard Capital Markets. “We expect ongoing headwinds for the Nintendo Wii, but 2010 could really turn out to the breakout year for Sony and the PS3. We also expect another good year for the Xbox 360. That’s the console business.”

With a full year a lower price point, Sony’s PS3 also has a large number of games in the pipeline, a burgeoning online and media distribution service, as well as the Blue-Ray platform, setting the console up for success in 2010.

“Also on the hardware side, we would not be surprised to hear about new portable gaming devices from Sony and Nintendo, partly due to the increasing popularity of the iPhone to access and consume content, including games,” said Sebastian, adding that more and more consumer will look for portable video games as demand for on-the-go content continues to increase.

“I would highlight to investors that one part of the market where we’re seeing tremendous growth is social networking games. In fact, I have never seen growth as fast as what we’ve witnessed over the past two years in the market for Facebook games,” he said. “For the year ahead, investors should expect more clarity on how these companies fit within the industry, how important social gaming is for the entire ecosystem of interactive entertainment. And we think they will become a bigger force, particularly as the Internet continues to emerge as the next big platform for games.”

Mexican brewers FEMSA (FMX) and Grupo Modelo (GPMCF.PK) are likely acquisition targets moving forward, given the favorable stock performance and valuations investors have seen from Latin American brewing companies.

“Within the industry, it’s been well discussed that if consolidation is to continue in the beer space, which we believe it will, Mexico is the next region that is attractive,” said HSBC Securities Analyst Lauren Torres, adding that recent press surrounding discussions with FEMSA leads investors to believe a deal will happen sooner rather than later. “It is a profitable market, per-capita consumption is high; it’s still growing.”

Torres points to SABMiller (SBMRY.PK) and Anheuser-Busch InBev (BUD) as likely acquirers, citing both companies’ size and interest in Mexico as obvious motives for such a transaction.

“So when you look at these smaller [Mexican] brewers and realize that they want to compete on a global scale, which is where the industry is going, it appears that they need to be more closely aligned with the bigger brewers,” Torres said. “They do have relationships now with bigger brewers, but I think if there’s an opportunity for bigger brewers to actually step in and buy them at prices that would be attractive for the companies, then this could materialize.”

Insight enterprises, Inc. NSIT (NASDAQ), a distributor of computer hardware and software, pushed out its former CEO, Richard Fennesy, back in early September of this year (see earlier commentary).   Last week, the company finally selected a new president and CEO to take Fennesy’s place, Kenneth Lamneck.  Lamneck will also join the company’s board.  He will replace the current interim CEO, Tony Ibarguen who seemed to be hoping to get the position permanently. Prior to his new position, Lamneck was president of Tech Data America’s division.   According to a story by Andrew Johnson for the Arizona Tech Republic,

Chief among his (Lamneck) tasks as the Fortune 500 firm’s new leader will be addressing internal operational challenges stemming from recent acquisitions and distractions from a major accounting restatement early this year.

The article goes on to quote the chairman and co-founder, Timothy Crown, from a phone conversation in which he referred to Lamneck’s previous work,

“By putting up good numbers quarter after quarter, . . . it gives me confidence that he’s the right guy for us,”

Appointing a CEO from the outside is the right move for Insight.  It is very early to determine, however, whether Lamneck is the right guy.  The Arizona Tech article mentioned a few analysts that question his specific expertise forInsight’s business approach and products.

The fact that most of Lamneck’s experience has been in IT distribution could be a challenge for the new executive, according to Matthew Sheerin, an analyst with Thomas Weisel Partners in New York.

Unlike Insight, which typically sells hardware and software directly to businesses that use it, Arrow and Tech Data distribute technology to resellers like Insight or manufacturers that integrate components into finished products.

Lamneck faces real challenges in making his new position a success.  According to Scott Campbell, who wrote a story for ChannelWeb,

Next year, Lamneck will also tackle starting up a hardware business in Europe, where Insight has a strong software presence after acquiring Software Spectrum. “I’ll be spending a good amount of time understanding how to address that. That’s a big opportunity and it’s an important part of the early agenda,” he said.

In addition, Lamneck faces hurdles trying to integrate Insight’s legacy product business with more value-added services, such as those picked up by Insight’s acquisition of networking solution provider and managed services provider Calence.

One thing for sure, Lamneck is eager to take on the challenge.  Stay tuned.

Recent signs of improving luxury goods sales may be an indicator of a broader consumer spending trend: a quicker rebound among higher-income individuals.

According to Oppenheimer & Co. Senior Analyst Brian Nagel, despite easy comparisons to last year’s retail lows, one of the biggest drivers of better spending among consumers with more discretionary income this holiday season will be the stock market.

“We’ve seen the stock market have a pretty amazing run since its March lows, that I think helps to improve confidence broadly and really helps improve this spending ability of higher-income consumers,” said Nagel, whose luxury coverage universe includes Tiffany & Co. (TIF) and Williams-Sonoma (WSM).

Nagel is particularly positive on Tiffany, highlighting the luxury retailer’s cost-controlling measures and brand protection throughout the downturn.

“They didn’t resort to discounting and thereby did not train their customers to look for discounts in stores. They really protected the brand. So from a sales perspective, they basically just took their lumps,” said Nagel, who has a $50 price target for TIF stock.” When you look at comp store sales in the U.S., they’re tracking down to 30%-plus, so they took the lumps. They offset some of it with better cost controls. And then the cost controls, they actually protected operating margins probably by about two percentage points.”

Investor interest in the natural gas space seems to have grown over the last six months, as crude oil prices increased to $80 per barrel and natural gas went down to about $4.50/Mcf.

According to ThinkEquity, LLC, Research Analyst David Woodburn, the natural gas investment story is one that touches on several themes, most importantly a compelling green initiative that also makes financial sense.

“One is a way to invest in the economy because once the economy picks up, fleets are going to be replacing trucks and looking at their fuel prices a lot closer; this is the way to take advantage of that. This is more of a question of ‘when,’ and not ‘if,’” Woodburn says. “The other theme is watching the potential for increased federal incentives for natural gas transportation.”

Although Woodburn predicts the U.S. passenger market won’t be the first priority for natural gas infrastructure installation, he does foresee high-volume fuel users, such as municipal fleets, private fleets and also heavy-duty trucks, as the best starting point for natural gas introduction.

“Westport (WPRT) has technology to enable traditional engines to burn natural gas instead of diesel fuel. There is also Clean Energy Fuels (CLNE). They design, build and operate natural gas fueling stations for municipalities or private fleets,” says Woodburn, naming the companies that have the most potential profit to gain from increased heavy-duty truck sales and government incentives. “Lastly, there’s Fuel Systems Solutions (FSYS). They have a transportation business that enables passenger vehicles and light-duty commercial vehicles to run on gasoline or natural gas/LP gas.”