What’s so great about Crocs?

In footwear, the big name today is Crocs (CROX). With over $825 million dollars in sales, and a growth of 35% to 40% expected next year, according to the company’s estitmates for 2008, Crocs seems to be here to stay.

What is that has made Crocs so popular and kept competition at bay? According to analyst James Maher of Thinkequity Partners, part of it is the actual material that the shoes are made of:

“I think the Croslite material that they make the shoes from has an advantage; it is very light. I don’t know if you wear a pair, but these are very light shoes, they clean up easily, they’re antimicrobial, and they’re very durable. “

In addition to the material, Maher points out that the pricepoint for crocs, in addition to numerous licensing agreements, is what really gives Crocs it’s edge:

“I think the biggest edge, especially with the children, is this tie-in with all of the license agreements they’ve got and the fact that the price point is not that high. So we’re not looking at people coming in with a generic model at $10 when you’re trying to retail at $50 or $60. We’ve got a shoe that for children is $25 and for adults $30 and they have agreements with over 100 universities. So if you can get your shoe with your alma mater or your mascot on it or something of that sort, it’s really not a very high price point.”

For the full interview with James Maher, including a complete overview of the apparel and footwear industry, an in depth look at where Crocs is going, and stock picks, click here.
 

Semiconductors this Year

One of our special focuses this year is on Semiconductors. We spoke with analyst Tristan Gerra of Robert W. Baird & Co. Inc., to give us a general outlook for Semiconductors. As the stocks have been pretty strong since June, Mr. Gerra gave us a sense of what was driving force behind this:

1. “Basically, the catalyst for technology and semiconductor stocks this year so far has been the prospect of faster than average revenue and profit growth. Particularly in an environment where potentially the economy is slowing, people tend to retrench into companies where profits can outpace GDP growth.”




2. “Another catalyst has been the fact that a lot of semiconductor companies are very international in nature, relying more than average on international demand. Clearly China, India and a lot of other developing economies have acted as a driver for consumer electronics items and that has benefited US-based semiconductor companies.”




3. “We’ve also seen a return to normal valuations. There has been a pretty consistent contraction in multiples for semiconductor stocks over the past few years, and we think that the risk/reward in terms of growth relative to valuation is now much more attractive.”

For the full interview with Mr. Gerra, including a complete overview of the Semiconductors area and stocks picks, click here.

Building Infrastructure in the Developing World

Without a doubt, one of the hottest topics around today is the development of emerging markets- from China to India, emerging markets are presenting a wealth of new opportunities to investors.

In developing these emerging markets, one of the key components is developing infrastructure that can sustain them. While some may point to water and energy as key components of any emerging infrastructure, analyst Jim Kelleher points to communications are a fundamental building block:

There is nothing that quite gets the economy moving like the ability to take your cell phone off your hip and call your supplier in Mumbai and order two more truckloads of grain or two more truckloads of timber and to do so immediately. So I think the importance of communication infrastructure is right up there with water, power and energy.

In the long term, according to Mr. Kelleher, these opportunities in emerging markets are going to mean big business for telecommunications equipment companies.

For the full interview with Mr. Kelleher, including an overview of telecommunications in the short term and stock picks, click here.

Socially Responsible Investing

One of our more interesting portfolio manager interviews in recent weeks was with Robert Leech and George Rue of the Presbytarian Church (USA) Foundation.  They talked to us a little bit about their investment style- socially responsible investing.

TWST: How would you describe the socially responsible nature of the portfolio investment and what does it entail?

Mr. Rue: There are two main approaches to our SRI strategy. The first approach and the most visible is negative screens. We screen companies that have a majority of their revenues in alcohol, gambling, tobacco and firearms, as well as a limited number of defense companies. We work together with the Presbyterian Church and a broad group of Presbyterians to develop a social witness policy that can also identify other companies we may want to preclude from investment. More important, as a socially responsible investor, we focus on corporate engagement, working ecumenically with other faith-based investors to engage corporations in dialogue concerning their practices on issues relating to the environment, access to capital, human rights policies, labor policies and workplace issues. Our corporate engagement takes a variety of forms from corporate dialogue to writing letters and sponsoring shareholder resolutions.

For the full interview with George Rue and Robert Leech, including a complete analysis of the market for a socially responsible perspective, click here.

Why not Mobile TV?

One area of telecommunication technology that has been in development throughout 2007 is the area of mobile TV. Verizon (VZ) in conjunction with QUALCOMM (QCOM) launched mobile TV services earlier this year featuring eight different channels. However, it hasn’t quite caught on. Lawrence Harris, analyst with Oppenheimer & Co., explains why:

 TWST: Why hasn’t it caught on? Is it too expensive or there’s not enough programming? What seems to be the problem?

Mr. Harris: I think you have identified one of the issues. The MediaFLO service does have the capability, designed by Qualcomm, to have up to 20 channels. Right now it has eight, so part of it may actually deal with the viewing habits of younger consumers. There is a certain number of people who download videos onto their iPod. They certainly have the capability of downloading videos from the Apple iTunes store onto their iPhone. Live TV may not have the same cachet, frankly, as video downloads, but it is still early in the process.

For the full interview with Mr. Harris, including a complete overview of all aspects of the telecommunications equipment space and stock picks, click here.

Two Reason for Disappointment

Our special focus this week is on Telecommunications Equipment. We spoke to Raimundo Archibold, of Kaufman Brothers, who spoke to us a little bit about his disappointment in the space this year. He cited two reasons why the space had dissappointed: AT & T’s low capital spending and a decline in wireless spending in general.

Mr. Archibold: Generally, speaking we’ve seen disappointing results for the most part, largely as a consequence of two factors.

1. In North America in particular, AT&T (T) capital spending has been below plan through the first three quarters of the year, particularly in wireless as well as in their BellSouth franchise. AT&T is about 25% of the cap ex budget in North America. 
2. There has been some deceleration in wireless spending in general, largely because a significant part of 3G deployments have occurred.

 Now what you are seeing is generally incremental expansion of network coverage as well as capacity buying and that has caused some deceleration in growth. We’ve seen that also among many of the companies exposed to telecom equipment, actually wireless sectors such as Ericsson (ERIC), but in particular Tellabs (TLAB). From that perspective, it has been somewhat disappointing in the telecom space in general. On the cable side, it has been pretty much as expected with continued expansion of voice services benefiting some of the cable equipment vendors, especially Arris (ARRS).

For the full telecommunications equipment issue, including interviews CEO of top telecommunications equipment companies, and stock picks, click here.

What’s your Investment Philosophy?

This week’s portfolio managers run the gamut of styles and philosophies. Here’s an idea of how they are managing their clients money:

•  Jason Kiss, Bartlett & Co.: ” For most of our clients, we manage all or a vast majority of their assets and so our value methodology tends to be a bit more wide-ranging than any strict definition might allow. We look to have some sort of a discount on the typical valuation metrics that go along with value investing such as the p/e and a higher dividend yield; but we’re not going to be at an extremely steep discount to the S&P 500 or the Russell 1000. With the Index at a 15 p/e we’re not going to be at 10; we’re more likely to be at a 13.5 to 14.0 level simply because we don’t feel it’s prudent to take such a big style bet with our client
  assets.”
• Martin Anstee, Stone Asset Managemnt: “The overall philosophy is attuned toward looking for growth situations. I look for growth and the other portfolio managers also look for growth. We have a lot of income-based products as well, which are mainly my products, but they are based not totally on dividend yield; they are based on growth as well.”
• Steve Wilson, Lapides Asset Management: “We do research-differentiated value investing. I’d characterize our research as exceptionally deep. It’s also global; we travel around the world to understand our companies, even though all of our investments are domiciled in the US. We have one investment philosophy and process that drives three portfolios, which are segmented by concentration and capitalization. Our process is long-term oriented, opportunistic and contrarian. We focus exclusively on investing in smaller companies, those with capitalizations that range from $50 million to $10 billion. ”

For the full investment strategies issue, including complete interviews with all these portfolio managers, and more, click here.

Hennessy’s Picks

Our picks this week come from Neil Hennessy, president and portfolio manager of Hennessy Funds. The Hennessy funds consist of six no-load mutual funds that use a “time-tested, quantatitative investment formula.” Here’s what they pick this week:

• Dick’s Sporting Goods (DKS)- “Their earnings are higher than the previous year, their price to sale ratio is .95, and so you are vuying a $1 of renue for $.95.”
• Warnaco (WRNC) “They make intimate apprel jeans wear, swim wear, etc. What pople don’t realize is that Calvin Klein is one their brands and Speedo is also one of their brands.”

For the full interview with Mr. Hennessy, including a complete profile of their unique Focus 30 fund, click here.

Too Old to be Wild?

When you think of Harley-Davidson (HOG), you might think of the kind of person who lives hard and dies young. This, however, is not the case.

According to analyst James Hardiman, the heavyweight center of Harley-Davidson’s business are middle-aged white males between the ages of 45 to 55 these days. The challenge that Harley-Davidson faces in the near future is where to turn when these customers become to too old to making a motorcycle riding lifestyle feasible.

Harley-Davidson’s solution is to start initatives that reach out to other markets- to “target a younger consumer, a minority consumer, a female consumer.” While Harley-Davidson has been on these iniatives for some time, and some success in Europe, according to Mr. Hardiman, it’s not quite a news story yet. But for the future success of Harley-Davidson, the company is going to have find other kinds of people are “born to be wild.”

For the full interview with Mr. Hardiman, including a complete overview of the leisure space and stock picks, click here.

Lodging Supply Side

Moving back to our special focus on Lodging this week, we spoke briefly to analysts William Truelove who had a few things to say about the supply side of the lodging sector:

• “You have a fantastic outlook [on the supply side] the more urban you get. “
• “The more urban you get, the more relevant it becomes to public hotel companies, because that is where they tend to own or manage hotels”
• “When you start talking about the suburban highway stuff, the franchise companies, like Marriott (MAR), Choice (CHH), Starwood (HOT) or even Hilton…are benefiting there from the supply in the suburban hotel.”
• “I think the conerns over the next year’s economy, whether or not it is going to be a recession, have really put a lid on stocks in the near term.”

For the full lodging issue, including a full sector overview and stock picks, click here.