Oscar Buzz (LGF)

I've noticed a lot of attention being drawn to Lionsgate Entertainment (LGF -- click to register for free RT streaming quote) lately. Not only do they have a hit movie on their hands, but Oscar buzz and upcoming plans for their films this year are garnering a lot of press.

There was a nice article on LGF at TheStreet.com today -- calling them the "little studio that could."

And Business Week article yesterday touting the potential for LGF should Crash perform well at the Academy Awards.

It makes sense that everyone wants to write about film studios when the Oscars roll around, and Lionsgate is a great story -- one that's very well illustrated by the Crash story. LGF bought Crash at the Toronto Film Festival when no one else was interested, paying a few million ... and it turned into a huge critical darling and a solid hit with over $60 million at the box office and in DVD even before Oscar night.

That's the Lionsgate template -- find films that don't fit neat Hollywood niches, that don't have stars, or that make big studios uncomfortable, make and/or market them on the cheap, and reap the rewards. When you don't spend hundreds of millions of dollars on marketing and star trailers, it's a lot easier to make a film break even ... and some of them, like Crash, will make huge profits. Others like Lord of War and In the Mix will flop, but even on those high profile disappointments Lionsgate doesn't lose nearly as much as the big studios do on their flops.

And while this year is starting off with a bang with Tyler Perry's Madea's Family Reunion bursting out of the box office gate to win last weekend, it looks like it will end with a bloodletting as Lionsgate has announced that their biggest horror franchise, Saw, will see its third installment on Halloween.

In between, LGF continues to innovate and churn out profitable films and tv series at minimal cost, even as their huge film library continues to pay the bills -- and that library may become even more valuable if the transition to Blu-Ray or to widespread video on demand spurs interest in their titles like Terminator 2 and Dirty Dancing.

I'm eager to see how their first-ever partnership with Starbucks will play out, Starbucks will be promoting Akeelah and the Bee in their stores this Spring, and that might be just what this kind of feel-good word-of-mouth movie might need to get some real attention.

Lionsgate has had a big run since they scared investors back in December, and they've now recovered to close to my purchase price. In my opinion it doesn't matter much whether or not they win any Oscars for Crash this weekend, I think they've got a great business model and should prosper, with hiccups, for years to come.

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A few week-ending thoughts

It has been a pretty interesting week for me in the market. A couple things I'm thinking about:

As I wrote last night, Jack Byrne potentially leaving as chairman of Overstock (OSTK) worries me. I'd like to see more than just this Wall Street Journal article that quotes him as saying he'll "think about it", however ... will see if I can hold on for long enough to get a more definitive answer, or if I decide that it's just not worth it to watch OSTK decline.

I'm thinking about giving Irobot (IRBT) a chance. I've been critical of them and their products since their IPO, don't remember if that criticism was in this space or not, but now I'm thinking that perhaps they have something worth investigating. I think the Scooba is doomed to failure as a floor cleaning robot, and I still am very skeptical of the Roomba even though it certainly has a huge cohort of fans, but maybe I'm thinking of this the wrong way. I listened to the CEO on the radio and found his arguments fairly compelling -- the company is focused on practicality and cost effectiveness in robotics, which certainly makes sense. After all, the stuff on the Jetsons is almost all available to us right now ... if we're billionaires. It's IRBT who has brought the first significant robotic tool for a humdrum daily task into our homes at a reasonable price, so perhaps I shouuld look into it with a less jaundiced eye. I also am convinced that their military robots might show some real promise. Hopefully I'll have a chance to read up on the company in the near future.

CV Therapeutics (CVTX) has had a rough week after earnings -- their lost a little more than expected, which is not a huge cause for concern since they're transitioning to building a sales force, but analysts are sounding warning bells that Ranexa's uptake in the market may be slower than folks are expecting. If it's just "slow", then I might see an opportunity to add to my shares this year before Merlin results hopefully allow for an expanded label ... if it's "slow" because there are actual concerns about the drug in the marketplace among cardiologists that could be a cause for actual concern. We'll see.

And I'm wondering why Formfactor (FORM), a company that has had a huge run, is filing for a secondary share offering that could pull in about $200 million at today's share price. They've got about $5 a share in cash already as far as I can tell and no debt, and they've already completed a large new facility ... I'd hate to see them diluting our shares just because they know they can get a good price for them today, but if they have plans in mind for expansion or acquisitions I'd be interested to hear them.

And finally, it looks like I jumped too soon in taking a flier on my Intel options ... I was guessing that the bad news was out and it wasn't likely to get much worse for this gigantic workhorse trading at a bargain valuation ... but now they've warned that revenues will likely be lighter than estimates and the shares are falling again. I'm still holding a small position in January LEAPs at $20 at a fair loss right now, but on the whole I still think Intel has a good chance to recover in the next several months as folks gear up for the replacement cycle with Vista. So far, Intel's warnings haven't impacted anyone else, and my other semi companies -- WFR and FORM -- have not caught the cold that semi companies typically catch when Intel sneezes, which is good news.

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Step back, Jack (OSTK)

Well, this is disappointing news on first read. I just saw that Overstock Chairman of the Board Jack Byrne is thinking of stepping down.

Normally, you might not think that's a bad idea if there is conflict in the executive suite ... when the CEO and Chairman are at loggerheads, it can be good for business if one of them bows out.

But Jack Byrne is the father of CEO Patrick Byrne, and I'm afraid Jack's presence as chairman was one of the things that was giving me some confidence that Overstock would be able to refocus on their core business and turn things around.

Apparently, the late session traders at least are not of the same mind as I am -- they've bid up OSTK shares by several percent since this story broke. I'm not sure I understand why, unless they think that Jack's public warning that he might step down gives Patrick the kick in the pants that gets him to refocus his energy on the business.

I wrote a couple weeks ago that of the three worst offenders in my portfolio, Overstock was the one I was closest to selling (in the interim, I sold about a third of my Shanda holdings, too). And I wrote that one of the things keeping me in the fold was that I thought Jack would bring the Warren Buffett "focus on the business fundamentals" influence back to Overstock. Perhaps that's too much to ask of a family member and of someone who was already a major owner and board member, but that's what I was hoping -- and it seemed that kind of influence was what Patrick wanted when he bround dad into the chairmanship.

But it's clear after reading his comments that Jack is frustrated with his son and would rather keep a son than keep a job. I can't blame him for that, but I think if he leaves as Chairman it's likely to be bad for Overstock's future. He wouldn't leave entirely, of course, since he still owns close to 10 percent of the company (Overstock is predominantly owned by Patrick's family and friends, which is probably part of why he's so extra mad about the shortsellers selling shares they couldn't possibly get their hands on).

I think the prevailing opinion on Wall Street is that Patrick Byrne, whether you like him or not -- and from what I know, I do like him -- is at best turning into a tragic hero, Don Quixote tilting at windmills. I happen to believe that his case also has some merit and that it's probably good for all of us if the short-selling system, the financial press and the hedge funds get additional scrutiny. But I also think that this crusade may benefit the markets but be terrible for Overstock, which seems to have lost the full-time attention of it's CEO at a very vulnerable point in it's development as a company.

There are still plenty of arguments in favor of Overstock if you think they can right the ship -- it's a compelling business model, and they have very solid sales growth and might even be thought of as a value investment in some ways today (at least according to Geoff Gannon, a value investing blogger).

But if Jack Byrne's shot across the bow doesn't work and he decides to step down, that will be one more reason ... and maybe finally a good enough reason ... for me to sell.

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Click marks the price (CKCM)

Though I wrote a couple months ago that Click Commerce (CKCM -- click to register for free RT streaming quote) would likely get more money from me if their shares fell below $20, I reassessed after their earnings release and decided that today's prices, below $25, marked a good point for me to increase my position.

So, I bought more shares of CKCM today at $24.87.

Even though I nearly fell asleep listening to the littany of financial specifics from the CFO during the conference call last week, the call itself is certainly worthy of a listen to hear CEO Michael Ferro's description of their business plans and recent business -- especially the new Air Force contract that CKCM is a part of along with Oracle and others. And if it's any impetus to get you to listen, the call is very short thanks to the tiny number of analysts followign CKCM.

Click Commerce has been a favorite of mine since I first picked up some shares early last year, even though the stock seems to be subject to the whims of the momentum traders at times. My last detailed writeup on CKCM back when I added to my position in October covers a lot of the reasons why I think this company is an exciting investment.

The story hasn't changed ... Click still has a lot of things going for them, not least of which is growth at over 100% -- fueled by smart acquisitions of small software companies.

CKCM is pushing RFID as one of their main growth engines moving forward, and they recently opened a center to help with RFID advancement and began a seminar series to educate their current and prospective customers, but they are not completely subject to RFID growth for their success. This "software as service" company helps with all kinds of data and supply chain management and has a huge range of offerings for such a small company -- from supply chain management, to research management in health care and academic institutions, to customer order management, parts and service management (which is what the Air Force contract is for), and management consulting. They're also now partnering with UNOVA to get into grid computing to handle the massive data handling that full rollout of RFID will require, though that part of their business is just now beginning and was just announced on the conference call.

Click Commerce fell quite a bit after their earnings release, partly due to the fact that they didn't "blow out" the numbers or issue blowout guidance, and the momentum folks were undoubtedly bored enough to move on to the next big thing ... but they did grow at a huge rate and beat the estimates of the two (I think) small analysts who follow them.

Due to taxes, it's predicted that their earnings for next year will be a bit lower than in the past year, but that still means we're getting a company growing at tremendous speed in an expanding sector at a bargain PE of just about 16 (forward) or 15 (trailing).

There are certainly plenty of risks that it would be worth anyone's time to investigate. This is a tiny company, and while they have a strong roster of customers and I'm confident that they'll be able to grow much bigger they could suffer if larger companies tried to drum them out of business. Frankly, I think it's more likely that they would be bought by Oracle or one of the other large players.

And there is a lot of competition in this space, and the hype surrounding RFID might be overdone. In my opinion, RFID is not going to go away, but it might take longer to be fully rolled out than any current hype would expect. I'm willing to wait if that's the case, and I like that Click has a huge and flexible array of products to sell aside from those that are tied in directly to RFID -- though RFID certainly makes many of their software solutions more valuable to their customers.

And finally, they are run by a charismatic CEO with a large personal stake -- Michael Ferro owns more than 20% of the company and has seen it touch bottom and nearly disappear, then recover over the past couple of years and become a strong, growing, going concern. He might make some dumb decisions, or he might decide to sell more of his shares, and either could disrupt the stock's progress. With very low institutional ownership of under 20%, the CEO has very little check on his control -- with his track record at this point, that's fine with me. And I think that it's safe to believe him when he says he has completed his recent selling of a small part of his holdings and has no plans to sell more this year.

So I recognize the risks of investing in this sector, with heavy competition, and in this particular company -- but I am very impressed with their execution, especially their fairly smooth integration of so many different small acquisitions over the years, and I really like the growth potential I'm buying at what I consider is still a bargain price ... even if it does again drop down to my last entry point under $15 sometime in the near future.

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Slip into something less comfortable (CHS)

Well, it had to happen eventually ... Chico's (CHS -- click to register for free RT streaming quote) finally missed and disappointed, and the Street decided to take back the extra billion dollars or so of market cap that CHS had picked up over the past month of torrid growth. While I'm surprised to see such a drop on a minor miss of a penny, I haven't heard anything to argue against my long-term rationale for owning this wonderful company.

Those of you who have watched Chico's at all over the years know that this is the single best performer in the stock market over the past ten years -- a truly remarkable run that has included many moments like this when investors suddenly lost faith in their ability to continue growing at a rapid rate.

Of course, at some point they will slow down markedly ... but I'm not so sure that this moment has come. I bought into Chico's at about $35 last year because I was delighted to see the stock dip into what I considered a reasonable price range. We're looking at the single best retailer in the US -- highest margins, two great concepts that appeal to people who will always want to shop, and a management team that has earned the respect of everyone in retailing with their uncanny ability to merchandise, attract and retain customers, and control costs.

So is this a buying opportunity? Not yet for me ... I still love the company, but I'm not interested in adding to my position just yet. If some actual bad news comes along (not just a one penny "miss"), then hopefully we'd see a more significant decline that would make a purchase worthwhile. Above $40, I'm happy to just hold my shares -- I expect that over the long term Chico's will continue both build new concepts and acquire and boost undermanaged brands (like White House Black Market, which they revitalized with incredible speed, and hopefully Fitigues in the coming years) and build out their empire. Unlike the Gap, which has nowhere left to expand in my opinion, Chico's various concepts have a tremendous amount of potential. Even if Chico's itself is (arguably) starting to reach saturation, the other brands are still just getting going.

And on that last point -- every time we begin to think Chico's has saturated the market, they find a way to continue to improve their business ... not only are sales still climbing but margins and earnings for 2005 climbed even faster than sales. The fact that they were able to increase their operating margins without sacrificing sales tells me all I need to know about their excellent management team.

Analyst downgrades and a warning that they'll be pressured a bit on gross margins have brought us this decline ... but I'm not worried just yet, they can afford to give back some margin in the short term and I trust this management more than any other in the industry to manage those margins and their growth effectively. If we do make it back down near my original purchase price over the coming months I'll have to consider whether another buy is warranted.

Previous Chico's articles:

Chico's buys more growth potential
Annual Checkup -- CHS
Chico's for the Man

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Cryo-Cell -- investing for the future (CCEL)

I've been a shareholder in Cryo-Cell (CCEL -- click to register for free RT streaming quote) for a relatively brief time -- I first bought shares and posted my argument for doing so back in November. Success has so far not come my way on this one, but that's not very surprising.

CCEL is an over the counter stock, not yet returned to the national markets -- though they hope to apply for relisting this year if possible (their share price has to maintain $4 for a while before they qualify).

But today I'm thinking about them a bit because they just released their earnings, for the oddly timed fiscal year that ended in November. The stock has tumbled slightly, though the news wasn't particularly bad.

Cryo-Cell is an investment in the future -- both for customers and for investors.

If you decide to bank your child's umbilical cord blood privately, you're effectively taking out an insurance policy and hoping that if your child or a family member does get a horrible disease, stem cells from that cord blood might be an effective treatment. So far, a large number of parents are opting to use this service -- though it's still a tiny minority of the total births in the US. But if you can afford it and believe that stem cells will ultimately become much more useful in the treatment of heart disease, cancer or diabetes, it seems a reasonable bet for those who can afford it.

For investors, we're betting that stem cell research will continue to illuminate new uses for these incredible little cells. The tease that placental stem cells may cure diabetes in mice, or the few examples of stem cells treating leukemia in siblings, or similar stories all have us wondering when this research will become mainstream enough that cord blood banking will be a recommendation of every obstetrician.

Cryo-Cell had a fine year but not a great one, largely because their expenses increased pretty dramatically -- they have rolled out more selling expenses, as well as incurring some significant expenses for their new facilty and accreditations. I'll be watching to see if they can keep their costs in control as they grow customers, because the near 20% revenue growth certainly makes for a solid top line.

But this company is an interesting beast, with three things that stand out for me as important reasons why I've invested in them ... and this also stands as a list of three things I'm trying to watch closely for this company:

• Unlike some of its competitors like Viacord, CCEL doesn't do stem cell research, which helps to keep the volatility down (no clinical trials to worry about) ... if their service continues to grow, the recurring revenue stream from annual storage fees could become a single good enough reason to own this company.
  
• CCEL will be the only private bank in the US to offer harvesting and storage of Plureon placental stem cells when they roll out that service offering sometime this year. This is a bit of a gamble since those cells are even further along than umbilical cord cells in the path to general acceptance ... but overall, I like this because it differentiates their service.
• And CCEL may have a purely stock-related catalyst this year, in that the company's turnaround appears to be well underway and some continued solid financial performance should enable them to be relisted on a major exchange, re-entering the mainstream investing universe.

This is a very risky investment and questions about the long term health of the industry or this specific company weren't likely to be released in this week's earnings report ... but I've invested in this company both as a parent (and CCEL customer) and as an investor. I think it has a good chance of paying off, but I also think it might take many years for that to happen and I intend to be patient.

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Don't know what to do about Shanda (SNDA)

Okay, so I've been probably too patient with Shanda Interactive Entertainment (SNDA -- click to register for free RT streaming quote). Clearly, the market was hoping for something a bit more optimistic when they released their earnings this week, and so was I. That 20% decline in the stock should tell us something about how well their earnings went.

And now the question is, do I sell my shares, or part of my shares? Or do I look at the value proposition and the possible turnaround the Shanda is now embarked on and decide that it's worth sticking with it?

I'm tempted to sell my taxable shares, and let the shares that I hold in a Roth IRA stay where they are for the long term as a bet that this turnaround will really work. I re-read the conference call transcript and the earnings releases and I was struck by a few things:

First, of their two new games expected to be in release fairly soon, one will use their free-play system and one will require a subscription payment. That's the downside of working with licensed games instead of coming up with your own, you don't get to decide how to distribute them. Still, both games have the potential to be successful so it might be a useful test to see which model is more effective in China. Already most of the big games in Korea, which is a more mature market, are free to play with avatar add-ons bringing in the money, and Chen Tiangtiao is clearly betting that the Chinese market will follow the Korean lead.

Second, although their major game franchises have matured their two new games should be strong contenders by the end of this year, with the possibility that the free play system will help to launch Archlord, at least, with some fanfare.

Third, they remain a huge presence in the fastest growing gaming and internet market in the world ... even as their biggest games cycle down from their peaks and competitors take market share. If you add in their 20% stake in SINA that they may eventually be able to use to build some synergies, there is great potential for Shanda to continue to reach more and more people ... which would have an impact as soon as they can figure out how to get those people monetized through advertising or direct purchases.

And fourth, this EZ system is starting to make me fairly nervous. I'm still not sure I really understand the concept, but they have the various hardware devices that include portable set-top boxes, portable PSP clones, and a remote that runs a home network of some kind. Shanda is aiming to license the software and sell a subscription package of content. I guess the real things to remember here are that the game boxes that otherwise dominate world markets aren't widely available in China (piracy concerns), and that there isn't a strongly entrenched Cable TV infrastructure that will compete with Shanda to deliver IPTV content, so they do have some opportunity here. I can't say with any certainty that I understand the scope of their opportunity, but I do believe that those of us in the West are a bit handicapped by not really clearly understanding the Chinese marketplace and I'm willing to give some benefit of the doubt to Shanda's management. One analyst reportedly is saying the he doesn't expect any impact from EZ until 2007, but I don't mind if it grows slowly as long as it actually develops into a real service -- it still seems more like an idea than a product, which is the heart of the reason for my unease with EZ.

But what it really comes down to is whether or not we trust CEO Chen Tiangtiao and believe that his massive turning of the good ship Shanda is going to get them pointed in the right direction, at the right time. He continues to maintain that Shanda is aiming to become "China’s leading interactive entertainment media company" ... can they do it?

I may well be making a mistake, but I think I've talked myself into it. I'll offload some shares to harvest a bit of a loss on some holdings I have that were on a bit of margin and in a taxable account, but hold on to the remainder of my shares to see how the story develops. I was surprised that the downside was as strong as it was with the relatively tepid news, but if internet and game advertising builds into a significant business in China -- as I believe it will -- I think Shanda has a good chance to again be on the front lines ... eventually.

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Him with his Google in his Mouth

Boy, one thing you can say for Google (GOOG -- click to register for free RT streaming quote) -- they definitely don't know how to do guidance.

This has been the worst overall day I've had in the market in quite some time -- the portfolio was down by about 2.5% today, thanks in large part to Google but also due to a pretty wide selloff in many of my holdings. Shanda I'll have to write about when I've had more time to review the release and the conference call, but that was a pretty ugly fall, too. PDL Biopharma released more good earnings but no huge news, which is what we ought to have expected, and their shares are doing just fine today. Marvel is performing very well, too, so maybe folks are coming around to my assessment that it's time to look at 2007.

But most everything else had an awful day. Google really has a headlock on market sentiment, it seems, and the bad consumer confidence numbers and rebounding economic growth seem to have everyone totally confused and, for the most part today, heading for the exits.

I'm a little shocked, frankly, that Google sold off as much as it did following the CFO's comments about the growth rate declining, and about the need for Google to tap new markets -- there wasn't any surprise in there, though I suppose hearing anything out of such a tight-lipped company impacts the market.

Of course, their growth will slow down -- that falls into the "duh" category. It's already slowing down, they've bumped down from 100%+ growth to 80% to whatever it is now, I think something between 40-50%. I still love the company and have no idea whether the shares are really worth $300 or $500 right now, but I know they will continue to grow their business even though the growth rate will decelerate.

And of course, they need to expand into new markets. A look at Google Labs, or the Google Pack, or Google Video or the new Google payment system will tell you what any investor should want to hear: They're trying out a lot of new things, and they're letting their huge brain trust of engineering talent throw new ideas at the wall to see what sticks. I'm fairly confident that some of these services and ideas will bear fruit, and that Google will be able to monetize some of the great things they do outside of search and advertising ... eventually. And don't forget -- new markets doesn't just mean "not search advertising" ... it also means, the rest of the world. The Internet is not yet everywhere, and neither is Google.

And perhaps I'm swimming against the tide, but I'd prefer they maintain their Wall Street silence instead of trying to sneak out the partial guidance trial balloons they've been doing since their last earnings release. I liked them a lot better when they were thumbing off Wall Street.

My advice to the Googlers, not that they're listening: Don't worry about making life any easier for the analysts, just do your job, follow through on your commitment to do right by long term shareholders, and grow the business.

And my reminder to myself: Stay diversified.

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