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July 02, 2008
July 2008 Model Signals
There were no changes again this month to Northlake's Market Cap and Style models. The signals continue to flash mid cap and growth. As a result, I am maintaining client and personal positions in the S&P 400 Mid Cap (MDY) and the Russell 1000 Growth (IWF) that are dedicated to this strategy.
Both signals weakened slightly this month but stayed firmly in their current recommendations. On RealMoney.com, two contributors who I greatly respect, Bob Marcin and Rev Shark, have been sharing their concerns about small and mid caps needing to catch up on the downside, especially as it relates to beta and risk aversion. However, one thing that goes unsaid in those comments is that there are some previously reliable indicators which are currently suggesting that now is a favorable environment for small and mid caps.
Unusually weak consumer confidence is a contrarian call favoring small caps. Weak coincident indicators are also consistent with future small cap outperformance in a contrarian sense. Historically wide credit spreads also have lined up with small cap outperformance in the past on a contrary basis. The current environment is unusual to say the least so the indicators may be off but not everything is lined up against small and mid caps.
And there are some indicators that clearly suggest caution toward small and mid caps....
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Posted by Steve Birenberg at 09:22 AM in Models
July 01, 2008
Ad Forecast Good News for CETV
Yesterday, I noted that Zenith Optimedia raised its global ad forecast for 2008 due to strength in developing markets. Central and Eastern Europe was one of the regions with particularly good growth for 2008, with a forecast of 17%. With growth in CEE markets holding steady despite some initial impacts from the global credit and inflation issues, I remain quite bullish on Central European Media Enterprises (CETV), which I have been adding to on its current pullback.
CETV has had a positive tone in marketing presentations to investors in the US over the past few weeks. In addition, one of my best contacts recently visited company operations in several Central European countries and came away quite confident about the pace of business. I think 2Q results will be quite favorable and place the company on a trajectory to beat its full year guidance. However, I don’t expect guidance to be raised until the annual analyst meeting which takes place each fall. This year the meeting is in NY.
Also, of interest to CETV investors will be yesterday's announcement of the closing of the deal to up its stake in its Ukrainian operations from 60% to 90%, and importantly, gain full management control....
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Posted by Steve Birenberg at 04:21 PM in CETV
June 30, 2008
US Ads Down, Emerging Markets Up
I want to make sure everyone saw that Zenith Optimedia reduced its forecast for 2008 US advertising growth. Zenith presents its year ahead forecast each December at the UBS Media and Communications Conference. I attend that conference most years and have always been impressed by the Zenith presentation.
The new forecast calls for a gain of 3.4%, down from its revised forecast of 3.7% in March. Zenith is seeing no slowdown in online ads which suggests that all of the reduction is in traditional media. In fact, excluding online, traditional media advertising is now projected to come in around flat. Zenith noted that auto, real estate, and financial continue to be weak but other typically more resilient categories are beginning to weaken Nevertheless, according to the article in the Wall Street Journal, Zenith is not seeing an abrupt slowdown, rather a spokesman characterized the situation as "a slow leaking balloon."
In an interesting twist, despite the drop in its forecast for the US, the world's largest ad market, Zenith actually revised its 2008 global forecast very slightly upward to 6.6% from 6.5%. Strength in developing markets like China and Russia were noted. Also supporting growth is Central and Eastern Europe where Zenith is forecasting 17% growth this year.
Posted by Steve Birenberg at 04:18 PM in Advertising
June 26, 2008
Dreamworks Estimates Begin To Rise
Dreamworks Animation (DWA) shares popped yesterday afternoon. I presume it was due to a report from Jessica Reif of Merrill Lynch which I received after the close. Jessica raised her 2Q08 and 2008 EPS estimates from below to above consensus on the basis of the strength in the Kung Fu Panda box office. She noted strength both in North America, where the film has had three full weekends, and international, where it has only opened in a few major markets.
Rising estimates is the first of several catalysts upon which my long position in DWA, established on June 9th, the Monday after Panda opened, is based. Look for more estimate increases next week, especially if Panda can hold its upcoming weekend-to-weekend box office decline to 40% or less against the opening of the extremely well-reviewed new film from Pixar/Disney, Wall-E....
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Posted by Steve Birenberg at 08:48 AM in DWA
June 24, 2008
Finally Some Good News at American Apparel
APP reached agreement on a new amended credit agreement with its lead bank. Back in early June the stock took a dive on the day the company announced that negotiations were ongoing but that the first deadline had been missed. Not surprisingly the shares are rallying nicely today, up 6.5% right now. Volume is decently above average but not huge.
Beyond clearing this up, a couple of other positives might be inferred. First, the agreement allows for execution of the recently announced stock repurchase announcement. Second, although not a “fact” it is notable that a company without a full-time CFO, in violation of Sarbox, and with admittedly weak finance expertise got the deal done. This might suggest that confidence in the numbers and management team could be a bit higher.
Maybe the tide will turn. More good news might come including (1) June comps, (2) possibly better than expected 2Q results as predicted by the Lazard analyst, (3) the hiring of a full time CFO and/or other senior management, and (4) announcement of progress or even compliance with Sarbox.
Still a risk are the sexual harassment trial against the CEO and founder (although if Dov wins that would be a positive) and a possible restatement of past earnings as a result of a new CFO/achieving Sarbox compliance.
The stock has lots of issues that will keep away most investors and analysts but I think the near-term risk-reward remains favorable and if the good news listed above hits a move back to $10 is very plausible.
Posted by Steve Birenberg at 01:34 PM in eda
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