Internet Infrastructure Pick: Internap

Our other special focus this week is on Internet Infrastructure. We spoke to Mark Kelleher of Canaccord Adams Inc., who told us one of his pick in this space: Internap (INAP).

Mr. Kelleher: Internap is an Internet service provider, and they provide internet connectivity.Internap takes this back to the content delivery side. Internap purchased a company called VitalStream and VitalStream gave them their content delivery network assets. That’s just beginning to start to ramp for them. They are also a colocation provider. There is a pretty big demand right now for colocation, for putting your equipment in someone else’s facilities for one reason or another. Customers will colocate within Internap to get closer to Internap’s connectivity; they will connect you to the Internet. Internap has points of presence all over the country and they can hook you into the Internet pretty nicely. They have a pretty good routing algorithm, an ability to see which carrier is delivering data and move your data quickly through the Internet. That is where they sit in the world.

For the complete interview with Mr. Kelleher, including an overview of the Internet Infrastructure space and a look at what’s ahead, click here.
 

2007: The High and Low in Transportation

In 2007, Transportation was hit hard by predictions made in the first half of year becoming patently untrue in the second. However, there were some bright spots in Transportation in 2007. Analyst John Larkin takes us through the high and low of Transportation in 2007:

The High:

Railroads- Despite soft volume, outstanding pricing and improved fuel surcharge recovery helped railroads maintain and sometimes even expand margins in 2007.

The Low:

Sluggish Freight Demand- Despite much anticipated reports from the first half of the year that freight demand would be way up in the second half, this was not the case. There was no sign of a seasonal peak, and no sign of a demand rebound. 

For the full Transportation issue, including an outlook for what’s to come in 2008, and stock picks, click here. 

Top 5 Five Picks- Common Sense Investing

Portfolio Management firm Anderson Griggs practices something they like to call “common sense investing.” While they do use the latest mathmatical investment models in determining their investment picks, they also “know people.”  Kendall Anderson, a portfolio manager says about their process:

“Well, let’s use our computer modeling for what it can be used for, but we sure as aheck bette have some judmental override.”

Below are our five picks this week, common sense picks from Anderson Griggs:

1. Colgate-Palmolive (CL)- “I don’t know how many different ways you can build a toothbrush, but Colgate has been able to keep doing this year in and year out, and that’s management-driven because they have taken a product that is very easy to duplicate and they are able to redevelop, to create new markets, to change things enough to consistently grow their assets, consistently grow their sales.”
2. Walgreen (WAG)- Walgreen is a wonderful drug company. It’s not only a consistent grower because they are constantly adding stores, but they are also a beneficiary of change in both the retail and the pharmaceutical industry.
3. Monsanto (MON)– Everyone talks about Monsanto today, so that kind of scares me a little bit, but they really are a special situation. They have the ability to create food at a far larger amount per acre than was capable 20 or 30 years ago. Of course, as our population in the world grows they’re just in the right place at the right time with the right scientist doing the right thing.
4. Stryker Corp (SYK)– Twenty-five years ago how many people had a knee replacement? Today, it’s going to become far more common as time goes by. That’s a special situation that we find interesting.
5. IBM (IBM)– IBM for years was considered a premier growth company, but in the last few years they’ve
   kind of had to redevelop themselves. They are in an area that I think in the next 10 years is going to be far better than the last 10 years and that is not hardware-based but software-based. IBM is truly a leader in that.

For the full interview with Mr. Anderson, including a complete overview of Anderson Griggs common sense philosophy, and an overview for 2008, click here.

The Latest in Medical Devices

Our other special focus this week is on the Invest Northwest Conference 2008. We spoke to David Nexon of the Advanced Mecial Technology Association- who handles medical devices and diagonostics, and will be presenting at the conference. He talked to us a little about where medical devices are headed:

TWST: As you look at the field at this point, what’s important? What’s going on that’s kind of changing the face of things at this juncture?

Mr. Nexon: First of all, there is, as you know, a revolution in our basic understanding of biology and the life sciences and that obviously impacts a highly technological very innovative industry like ours. We’re producing ever more sophisticated products to deal with the many illnesses that affect humanity. In addition, in the broader context of the health system, there are increased pressures for cost containment in the United States, and we’re anticipating a big effort for a sweeping health reform next year. Every country in the world is looking at cost containment issues. So certainly it’s important for our industry to make the point that we’re not a problem in the medical care system, we’re really a part of the solution. It’s our products that fuel the medical progress that so many American patients, current and future, hope for and depend on.

Worldwide, I think some of the trends that are important are the growth of a number of emerging markets, which are really just in the process of formulating their regulatory and reimbursement systems and working with them at the formative stage is terribly important for the long-term future of the industry. I’m thinking particularly of China and India, but there are other emerging markets around the world too. In terms of volume and sales right now, they’re still relatively small, but they’re clearly where the future lies.

For the complete interview with Mr. Nexon, including an overview of how medical devices will change with the change of adminstration,  and stock picks, click here. 

Life Insurance Growth Areas

Our special focus this week is on insurance and insurance brokers. We spoke with several analysts in this broad space. One them, Colin Devine of Citigroup Investment Research, talked to us a little bit about his feelings as to where growth opportunites lay in the life insurance space:

Mr. Devine: I think the growth opportunities are going to continue to be centered on the evolution of post-retirement income protection types of products within both domestic and international markets. That can be variable annuities with living benefits, both deferred and immediate. Sun Life (SLF) introduced a great feature last year on their contract, which allows the annuity to store up their income draws if they don’t use them. We believe it provides the income flexibility people will need in retirement and expect all of the leading competitors will be forced to copy it.

For the complete interview with Mr. Devine, including an assement of where risks lie in this space and stock picks, click here.

Semiconductor Equipment Winners

While generally nothing is certain in the world of investing, today’s market is particularly volatile. In our special focus this week on semiconductor equipment, analyst Ben Pang talks to us a little bit about how to recognize a winner in the semiconductor equipment spaces.

TWST: How do you identify the companies that are going to be the winners?

Mr. Pang: The best way really is to look at who is winning at the leading chip companies. You really have four or five leaders in the chip industry — Intel (INTC) for logic CPU, Taiwan Semiconductor Manufacturing Company (TSM) for foundries, Samsung for NAND flash and DRAM, and Toshiba for NAND flash. These four companies are probably still above one generation ahead of the rest of the world. The equipment companies that are able to gain share at these technology leaders would be the best predictor for what will happen to overall market share.

For the full interview with Mr. Pang, including a look at what 2008 holds for semiconductor equipment and stock picks, click here.

What’s your Sell Process?

During this tumultous time in the market, knowing when to sell is of prime importance. We talked to several portfolio managers this week about how they determine when is right time to sell in their portfolios:

• Gary Chapman, Guardian Capital: “The main reason [to sell] would be if the driving forces of growth that we bought it for are no longer there. They may have played themselves out, they may have petered out, we may have simply been wrong. If the drivers of growth are no longer there, we’ll sell a name. Another reason to sell a name is simply the valuation getting out of line relative to the growth factors.Also, when running a relatively concentrated portfolio, what we like to do when we look at a new name is to look down on our list and see what we have less confidence in; so it’s an add a name, sell a name kind of idea. Those are the main reasons for selling. Clearly, balance sheet, since quality is an issue for us — if the balance sheet deteriorates, that’s a reason to trim a name and perhaps sell the entire name. If there’s a management change or the management integrity isn’t what we thought it was, that would be a reason to sell a name. Those would be the main factors.”
•  Mark Petrie, Hokanson Associates:  “A number of things can trigger a sale. A stock hitting the price target is certainly one of them. Stryker is a recent example of a stock hitting our price target. Sometimes, we’ll just trim a holding when it hits our price target, especially when it’s a company of as high quality as Stryker. Other times we’ll sell the position outright, but only after considering the tax consequences for our clients. An investment thesis that is no longer intact is another reason to sell a stock. An additional reason might be that a top-down decision to shift from one sector or asset class to another sometimes necessitates a sale as we seek to lower the weight in one area and increase the exposure to another.”
• Christopher White, Fiduciary Trust Company: “We do look closely at valuation. In that regard, if the prices advance beyond our price targets, then yes, we will advise our officers to start trimming or scaling back on positions. We also have targets in terms of portfolio weights since we do not want to see a position grow too large if it has been successful. We also look very actively at the investment thesis for our holdings to make sure that, in fact, it is still valid and we look carefully at the quality of management. If we see deterioration or loss of confidence in management, then that will also trigger a sell.”

For the full investing strategies report, including interviews with each of these portfolio managers, and overview of current conditions for investing and stock picks, click here.

“As pessimistic as I need to be.”

We spoke to a portfolio manager this week who was, to say the least, very negative about the current state of the economy. Scott B. Williams, of Clutinger, Williams & Verhoye, has this to say to investors in the market today:

 Mr. Williams: The advice that we’re giving our clients is that there are major problems in the credit market, there are major problems in the mortgage market and it is going to affect the economy. We’re going to have a recession, so it is time to lower your equity exposure. For more aggressive clients, you can use the exchange traded ultra-shorts as a way to either hedge your equity position or in a more exaggerated stance make money while the market goes down. For more conservative clients, US Treasuries are a great place to be until our outlook turns around.

TWST: Is there anything that you want to add?

Mr. Williams: No, I think I was as pessimistic as I need to be.

For the complete interview with Mr. Williams, including an outlook for 2008 and a look back at what happened in 2007, click here.

Biotech Pic: Gilead Sciences

Continuing our special focus on Biotech this week, we spoke to analyst Dr. Yaron Werber of Citi Investment Research, who talked a little bit about one of his pic in the Biotech space: Gilead Sciences (GILD).

 Dr. Werber: Gilead is one of the well-known large cap biotech companies that is specifically playing in the HIV, hepatitis, and now in the pulmonary arterial hypertension (PAH) spaces. The reason to like Gilead, even though this company is fairly well understood, is that the sellside consensus estimates do not fully reflect the magnitude of growth that is still available globally to the HIV franchise. The growth is driven by organic market growth, geographical expansion and pricing.
We also believe that the company is highly focused so they have terrific leverage on expenses. We continue to believe that the bottom line numbers on the Street are too conservative and investors are not really looking at the ongoing operating margin expansion.

For the full interview with Dr. Werber, including a complete overview of his sector of coverage in the Biotech space and more stock picks, click here.

Two Doctors’ Prescription for Ailing Biotech

Among the many investing sectors hit hard in ’07, biotech was not immune. The analysts we spoke to this week said that 2007 was a very tough year for biotech, leading many investors to pull out of the space.

We asked two of them, Dr. Jason Kantor of RBC Capital Markets and Dr. Thomas Shrader of Rodman & Renshaw, what it would take to get investors to  look back at Biotech in ’08: 

Dr. Kantor: I think we need to see more clinical successes. We have already begun to see some clinical trials coming off of this year with positive reads. Biogen (BIIB) and Genentech had positive results for Rituxan in rheumatoid arthritis, and Genentech and Roche (RHHGY) reported positive results of Avastin in metastatic breast cancer. One of the major catalysts for some of the big stocks as well as the little stocks is major Phase III readouts. Those are the kinds of events that can get investors more confident in the market.

Dr. Shrader: I will answer the question treating biotech as just another tech sector. What drives people into these riskier stocks is a need for differentiated returns. The people who comprise the buy side essentially compete against one another. As low risk stocks become more and more expensive and the potential for return gets worse and worse, it forces people to look for investment returns in other places. I think the need to differentiate returns is one of the things that drives non-specialists to look into biotech. In addition, one of the most common ways for people to turn back to the sector is for something really miraculous to happen with a drug or technology or platform — something that gets people really excited about the whole sector. Non-specialist investors hear pieces of the news start to creep back in emotionally and monetarily.

For the full Biotech report, including stock picks and interviews with CEOs from a wide variety of biotech companies, click here.