Street Speculator

Everyone knows, especially those on Wall Street that newspapers and newspaper companies are becoming dinosaurs. Print readership is down drastically as more people go online and to the blogosphere to get their news.

The financials of many newspaper companies are also highly leveraged, including the private entities. News reports of layoffs come in on a weekly basis and the implementation of cost-cutting strategies which include reducing the size of the paper. Nothing seems to be working.

The New York Times Company (Symbol:NYT) is not immune from the current environment. Heralded as one of the most recognized newspaper companies globally, they are not without problems.

The stock currently trades at $7.26/share, off tremendously from their 52-week high of $21.14. The TIMES also has $1.4 billion in debt on its books and advertising revenue for the print edition is down and continues to fall. Yet the company continues to pay an annual dividend to its shareholders (The SPECs have no idea why).

Unlike other media and newspaper companies, the TIMES has an asset it can use to shore up its balance sheet and potentially clear its heavy debt load.

THE DIGITAL/ONLINE BUSINESSES

The TIMES digital businesses include the following assets: nyt.com (New York Times online division), boston.com (Boston Globe online division), about.com, UCompareHealthCare.com, Calorie-Count.com, and consumersearch.com. According to the TIMES 2007 annual report, these assets generated $330 million in revenues, which amount was up 20% from 2006. Digital represents 10% of total revenues of the company.  OUR RECOMMENDATION………….

1.) Take all of the assets in the digital division and spin-off into a new publicly traded company.

2.) Use the IPO money received to pay down debt, debt contributed from the print division.

3.) The print division should only spin-off about 40% of the company, and retain the other 60% (This way “print” can still receive any profits from the online division; similar to what Microsoft [Symbol:MSFT] did with Comcast [Symbol: CMCSA] 10 years ago).

4.) Cut the dividend

SPORTS ASSETS

5.) Keep sports assets bundled with print. Sports assets include a 17.5% interest in New England Sports Ventures (owners of the Boston Red Sox, Fenway Park, and adjacent real estate), 80% of the New England Sports Network (NESN, the regional cable sports network that televises the Red Sox games), and 50% of Roush Fenway Racing (a NASCAR team). For now, the Sports industry does not seem affected by this economy.

These hypotheticals are bold steps, especially since the IPO market is not moving.  And although the TIMES is rapidly developing its “Mobile Internet Platforms” presence for Digital, their is still the perception with a connection to “print”.

If you are a TIMES shareholder, contact Arthur Sulzberger, Jr. (Chairman), and Janet Robinson (CEO) during the next shareholders meeting. Ask them and the other board members to consider this proposal.

The SPECs initially thought the reverse stock split the company is considering would enhance its stature on Wall Street. We did have the company on our previous “Reverse Split” list. Sirius XM (Symbol: SIRI) currently trades at $0.31/share, which removes the stock from being purchased by mutual funds (Mutual Funds are usually prohibited from buying stocks trading under $5.00/share). Sirius however does not generate enough revenue to service its debt obligations and pay for programming costs.

The merger between the two satellite companies has not produced the “cost savings” everyone thought would occur. 2009 will not be a good year for XM Sirius. According to their latest 10 Q, they have a substantial amount of debt due in next year. Look at these numbers:

$250 million credit facility– Matures in May ‘09

$100 million term loan– Matures in May ‘09

$400 million in Convertible Senior Notes– due in December ‘09

$300 million of 2.5% Convertible Notes– Matures in February ‘09

The SPECs would be more optimistic is this wasn’t such a bad credit environment. However, with the virtual stoppage in lending, Sirius XM will probably not be able to refinance any of the above mentioned debt at favorable terms, if they can refinance at all.

This is a direct quote from the Sirius XM 10-Q form: “An inability to access additional sources of liquidity to fund our cash needs in ‘09 or thereafter or to refinance or otherwise fund the repayment of our maturing debt instruments could adversely affect our growth, our financial condition, our results of operations, and our ability to make payments on our debt, and could force us to seek the protection of the bankruptcy laws, which could materially adversely impact our ability to operate our business and to make payments under our debt instruments.”

We did not mention Sirius XM’s other obligations:

Rights fees to MLB for $60 million annually through the year 2012, 5yr. $500 million to Howard Stern (Although some of that money was paid in company stock),

and $18 million annually to Oprah Winfrey (Oprah Winfrey and Friends show) for the next three years.

Sirius XM’s main source of revenue comes from subscription fees, including the prepaid subscriptions paid by auto manufacturers (Those free 6-months of satellite radio you get when purchasing a new car is actually paid by the auto manufacturer). However, with the slowdown in auto finance and purchasing, this source of revenue will diminish substantially. Also, as people cut discretionary spending, satellite radio services may not be one of the “necessary items” purchased from retail stores.

Sirius XM does not have many options if any. A reverse stock split would only look good on paper. This option is not a definite, but just an option. But, the SPECs believe Sirius XM will file bankruptcy to get favorable terms on its outstanding debt obligations (They will not be able to do so in this current environment).

If you want to profit off of Sirius XM, buy the corporate bonds and not the stock. At least bondholders have some input into the future strategy of the company post-bankruptcy, which also may include an attempt to reduce some of the programming fees paid to MLB, Howard, and Oprah.

YAHOO (Symbol:YHOO) has been the Wall Street whipping boy for the past year. Sure Google (Symbol:GOOG) has taken their luster in internet search and popularity (The word “Yahoo” is not yet a verb). But, in the mid to late 90’s Yahoo was the new “cool”.

When the Internet started to gain global popularity, even to the point where it became a “necessity”, I would use Yahoo exclusively to conduct web searches. Now I use Google. That is not a knock against Yahoo but rather a compliment to Google. However when looking for financial news, Yahoo! Finance is my EXCLUSIVE provider.

The SPECs create this report on Yahoo to bring investors back to reality. Sure they are being pursued by Big Brother Microsoft (Symbol:MSFT). Wall Street analysts thinks this merger would be good for Microsoft as Yahoo does not seem to show any significant growth potential in the future. In other words, they are calling Yahoo! a DINOSAUR.

Ignore this and BUY YAHOO!!! The closing price today was $12.10/share. This price is a great opportunity was small investors (Those with $500 + in liquid cash). They recently reported 3rd quarter earnings of $54.3 million. This is down from 3rd quarter ‘07 of $151 million. But, Yahoo! has U.S. $3.2 billion in cash, NO DEBT!! and they are somewhat feeling the economic crisis with everyone else.

We highlight the “U.S.” because of Yahoo’s use of an accounting procedure (Other 500 co.’s use the same procedure) when calculating its international revenue, REPATRIATION. Repatriation is the process of converting foreign currency into the currency of one’s own country (Investopedia). In layman’s terms, what Yahoo! does is 1st set-up foreign country subsidiaries. These entities control revenue generated by Yahoo! outside of the United States. This international revenue is free of U.S. taxation as long as it never enters the U.S.  Ex: All revenue generated from Yahoo! Japan and Yahoo! Canada are more than likely held in the banks located outside of the United States. Yahoo! (the one you and I know and hear about daily) however remains the parent company.

So, as long as Yahoo! does not bring this earned revenue into the U.S., they pay no corporate taxes on this money. This money can be used to invest in its other international subsidiaries, issue dividends, and invest in other securities.

Yahoo’s 2007 annual report states that it had over $1billion held by its foreign subsidiaries. Yahoo’s international revenue constitute about 40% of its total. That amount is likely to increase as emerging market countries continuously develop internet infrastructure which will bring more of its citizens online and further enhance revenue for Yahoo! and other internet companies.

Ignore the analysts and put this stock on your “buy” list. They will never need a government bailout nor an economic stimulus. Yahoo! has one of the most sound financial books of all publicly traded companies. They escaped the so-called “Internet Bubble” and operate a few of the top 5 internet destinations (Yahoo! Finance, and Yahoo! Sports).

Look at this feature of their initial entry into Interactive Entertainment:

Online Videos by Veoh.com

Some time ago the SPECs reported on what a Reverse Stock Split was and how current shareholders could potentially be impacted. Since that report, it seems there are a substantial number of public companies considering the Reverse….

Today we want to report a “potential” profit driven investment strategy. Like anything we present, it is highly SPECULATIVE. So, stick to the fundamentals as usual, do your research, and contact us with any additional recommendations.

InvestorDictionary.com defines a Reverse Stock Split as: a decrease in the number of a company’s shares outstanding. A 1-for-3 reverse stock split would reduce the amount of shares owned by a shareholder to one, for every three owned before the split. A company will generally use a reverse split to boost its stock price, which is sometimes instituted by companies to avoid being delisted from an exchange. Reverse splits are usually not looked at positively by investors.

Enclosed is a portfolio of stocks whom are trading under $1/share and considering a Reverse…. to boost the share price and prevent delisting. The SPECs suggest you put these companies on your watch list. Then capitalize after the Reverse… buy purchasing the PUT options (Capitalize when the price of a stock drops). Buy the PUT options immediately following the Reverse…

SPECs Reverse… PUT option Portfolio:

Six Flags (Symbol: SIX): Trading at $0.40/share; has over $2 billion in debt; recently decided NOT to pay the dividend on its outstanding preferred shares. Reason: A Reverse… will not help Six Flags. Six Flags is cyclical, generating most of its revenue during the “warm months”. Plus, the current economic environment will definitely hit its bottom line as consumers reduce discretionary spending.

Sirius XM Radio (Symbol: SIRI): Trading at $0.37/share; has over $1 billion in debt; rumor is that they will default on debt payments as SIRI is having to sell assets to ATTEMPT to make future debt payments. Reason: A Reverse… will not help Sirius. Most sales are generated from car sale services, but cars are not selling now and there is virtually no “financing” for the purchase of cars (New or Used).

Charter Communications (Symbol: CHTR): Trading at $0.40/share; has $20 billion in debt. Reason: A Reverse… will not help Charter. The debt load is outrageous. They probably won’t produce enough cash to cover future interest payments. Charter could fall victim to the credit crisis from a reduction in consumer spending.

Others to consider include: Rite Aid Corporation (Symbol: RAD), trading at $.71/share and Citadel Broadcasting (Symbol: CDL), trading at $.20/share.

Note: Although these companies have mentioned the Reverse… as an option, they can still file bankruptcy prior to initiating the Reverse…. We recommended NOT purchasing any common shares. Catch the drop in share price after the Reverse.. is initiated and completed.

If there are any alternative investment ideas, do not hesitate to let us know.

The SPEC’s has just figured out the key to grow the U.S. economy. The U.S. needs to promote Engineering and Science disciplines to our students at a younger age. The promotion needs to be swift, focused, and calculated. And more important than anything else, the promoters need not be “failed lawyers” (We meant to say Politicians). Ironically, one of the SPEC’s happens to be an attorney!

What do they know anyhow. The last time we checked, and correct us if we are wrong, there are no former Medical Doctors, Engineers or Scientists (Any discipline in Engineering and Science)in either Congressional body. There are also no Economists either. Congressmen and women basically listen to whatever the lobbyists tell them, grab a microphone and disperse this information to the American public.

Get back to the fundamentals. Yes, the economy is not doing so well, BUT only in certain sectors (Financial, Retail, Automotive, and Airline industries). TECH, however, is booming.

Most U.S. based tech companies are investing billions of dollars into new Research & Development centers in Asian nations (Which nations also happen to graduate 60% more Science and Engineering degree disciplines than does the U.S.). These companies include Intel (Symbol: INTC), IBM (Symbol: IBM), Cisco Systems (Symbol: CSCO), GOOGLE (Symbol: GOOG) and Microsoft (Symbol: MSFT). When you get the opportunity, go to the website of these companies and look at the number of technical jobs they have available; positions they CANNOT fill because of a lack of qualified candidates.

The balance sheets of these companies are a dream come true to any active investor. Ignore the low stock prices. Stock prices always fluctuate. Plus, these companies would survive if their stock were trading at $1/share. Look at these balance sheet numbers:

Pharmaceutical/Medical Group:

Pfizer (Symbol: PFE)  $26 billion in cash

Johnson & Johnson (Symbol: JNJ)  $13 billion in cash

Merck & Co. (Symbol: MRK)  $9.9 billion in cash

Tech Companies:

eBay (Symbol: EBAY)  $4 billion in cash, NO DEBT

Google (Symbol: GOOG) $12 billion in cash, NO DEBT

Microsoft (Symbol: MSFT) $21 billion in cash, NO DEBT

Need we say more! Remember, these are not “DOT-COM” companies.

Not that it matters one bit but China will control more than our financial markets in the near future (The People’s Republic of China is one of the largest purchasers of U.S. Treasury Bonds). They have the power to also control a larger portion of the U.S. economy through innovation and production. With the high number of engineers, the number of U.S. patents from Chinese enterprises is sure to increase as well.

Conclusion: Science and Technology education needs to be taken seriously. The popular social networks and electronic products we all love were created by future SCIENTISTS and not solely Entrepreneurial minds.