Clearing out Small Positions (IMAX, LGF)

As time goes by I'm finding it harder to grasp -- and so I'm making a move to save a little bit of it. I've decided to clear some of the smaller positions out of my portfolio.

Essentially, any holding that makes up less than two percent of my portfolio has been put on notice -- if it's not something I'm actively looking to buy more shares of, I'm going to sell the few shares I do own.

To some extent this is a natural outcome of my hyper-diversified portfolio, and of my strategy of usually buying shares in fairly small clumps as I build a position. In most cases, I'll buy a few shares to open a position, then research the company more over the ensuing months and look for opportunities to fill out the position over time.

But sometimes, that first position I buy turns out to be either a mistake, or not as interesting as I thought it would be. In those cases, I'm usually very reluctant to sell these small positions because I want to wait for more information ... which means I get a huge number of small positions building up in my portfolio, all competing for my attention and demanding a certain amount of effort as I track the news and earnings information about these firms.

But life is growing more complicated and there are always interesting new purchase ideas in the back of my mind, so I'm going to focus on being a little quicker to make decisions about these companies that I've taken a small position in and then left to wither.

Two companies that I've actually bought and sold before meet this criteria today: They are small positions, each not much more than 1% of my portfolio, and I'm not interested in buying shares right now. So I'm selling Imax (IMAX) and Lionsgate (LGF).

I don't have strong negative feelings about either of these companies, but neither am I interested enough to buy more ... and there's no point in paying close attention to these in exchange for what is likely to be very limited upside (at least to me, since these are small positions).

Imax has been in a reasonably decent recovery over the last few months, though it has come down about 10% from the recent high near $5.50. I still think the shares are undervalued here, but I don't have enough conviction to buy more and make it worth my while. My primary concern is the company management, which has so far failed to meet reporting standards and mismanaged a "strategic partner" search process. It's quite possible that the big screen company will prosper -- they're certainly doing well with hit films so far this year -- but in order to really thrive they're going to have to expand their base significantly, which is likely to take quite a long time at this rate. They believed that they needed a partnership or a buyer who could push their growth, and I'm inclined to agree -- but with the lack of interest in theater companies right now, I don't know that they'll get it at a fair price. Even Cinemark (CNK), the big international cinema operator which came public just last month, has received a fairly tepid response in the market.

And Lionsgate is, though steadier and more profitable, also unlikely to make any big moves soon. While it's interesting to hold this one and watch to see which of their films are hits and which bomb, it's not interesting enough to make it worth my while. Carl Icahn is still holding shares in this one, though it doesn't appear that he has bought any in quite some time or made any activist overtures toward the company of late, so there's certainly ample reason to hold the shares here. My primary concern is that the shares are a little too expensive to buy, considering the growth rate they've shown over the past two years, and I simply no longer own enough shares to make it worth my while.

These decisions are very personal ones relating to my portfolio composition, so I wouldn't argue that anyone else should consider selling these companies -- I might look back and regret this, but for sanity's sake I need to focus my attention on my filling out positions that I feel more strongly positive about.

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Will Imax Really Make It? (IMAX)

So this continues the week of "so bad they're good" stories -- earlier, it was Chico's that investors finally thought had run out of bad news and begun the turnaround.

And today, I look at Imax, a hugely disappointing stock from my portfolio, and see that it has quietly crept back up to something approximating a respectable share price.

Now, the news is not THAT good -- they're still leagues away from the prices we saw a year ago, or even last August, before they announced that the four rumoured suitors for the compony weren't interested after all ... or at least, not interested at their price (and all the analysts climbed over each other pressing the "sell" button.")

I wrote a fair amount about Imax at the end of last year, noting how I had misjudged the company and also that I believed a fair price had to be a fair tick above where it was then trading down at about $3.50, assuming that you didn't believe the company was headed toward bankruptcy.

Unfortunately, I didn't put my (additional) money where my mouth was at the time, since the earnings miss had forced a plunge in price from $5 to $3.50, and here four months later the shares are going for about $5 again.

And still, I think $5 is too cheap ... but I'm just letting my investment ride, I'm still nervous, primarily about management, and am certainly not putting any more money into this management team.

But the recovery from last fall has been fairly quiet -- the company effectively took itself off the market and said they would grow on their own, which means I expect we won't be trading on those buyout rumours anymore (though one never knows -- maybe the private equity guys will be back once they've bought everything they actually like).

And the news has been positive, but mild this quarter -- some new installations and orders, particularly overseas, and some buzz about the potential for their Hollywood flicks this year (The Spartan fight flick 300 had a surprisingly great opener on Imax, and Spiderman 3 and another Harry Potter are on the way. That will almost certainly be a nice step up from the series of flops they lucked into last year, including V for Vendetta and Poseidon).

But the biggest news so far came today -- big(ish) new deals with US theater chains, which haven't exactly been closing deals in bunches of late. Imax will now be opening five theaters with Dickinson in the Midwest, and one each in California, Florida and Oregon for Regal.

While the installation backlog even as of the terrible earnings release last November was decent, it's nice to see new deals, and especially nice to see that they expect at least three of those theaters to open this Spring. Imax still makes money mostly on the installations, so the more of those we see actually coming to completion the more will flow to the bottom line.

And it's a little bit of a network effect -- the bigger the installed base, the more competing chains need to show they can get their Imax on, too ... and we get into economies of scale, since Imax is still working from a pretty tiny installed base. The more theaters to distribute to, the cheaper it is to remaster, market and distribute their films. It doesn't take all that much to show good growth when you start out tiny.

The fates seem to be gathering -- the share price is low, contrarians can look at a slate full of sells and holds from the analysts and a pretty big short ratio, the box office should be great this year on the back of some blockbusters, the theater owners are showing a little confidence and placing orders for new systems again ... is anyone else waiting for the other shoe to drop?

disclosure: I do own shares of IMAX.

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Risky moves in 2006 -- my worst decisions

I haven't yet done the math on my whole portfolio, but I expect overall I puttered along somewhere near in line with the S&P in 2006 -- I'll update that here in the coming weeks to continue my full disclosure.

But I do know what some of the smartest and dumbest things I did with my money this year were. Or, to be more charitable, my best and worst decisions.

My worst investment decisions this year all related to the riskiest moves I made -- investing in OTC stocks and buying after hours, both things that I would probably be better off not getting involved with (but sometimes, I just can't resist).

I own three OTC stocks (and a couple pink sheet listings, though those are for big companies that happen to be based overseas and not actively traded here), but only one of them was purchased in 2005. I've owned SpaceDev (SPDV) and Cryo-Cell (CCEL) for well over a year now, and they are two of the worst performers in my portfolio, so they might qualify as big mistakes for 2005, but not 2006.

The worst timing this past year was my purchase of MMC Energy (MMCN) -- shares of which I bought in early December at $1.24, and could now buy for about 80 cents.

MMC Energy shares have been declining because of a big registration for insider selling, which generally wouldn't worry me that much in a brand new company (it doesn't bother me when venture capitalists and insiders want to get paid for their work) ... but in this case, it's a LOT of shares, and a company with a very small float, and those two facts combine to mean that the shares are likely to be under pressure for a while. Add that to the fact that MMC is not yet on the AMEX, an event they predicted to occur by the end of the year, and the steep decline is not that shocking, even in the absence of any bad news about the company's actual operations.

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Regardless, while I still think the rule to avoid penny stocks is generally a good one because of volatility like that experienced by all my OTC shares, I still have hope for all three of these companies -- SPDV and CCEL should be profitable in 2007 if things work moderately well for them, and MMC Energy is in a capital-intensive growth phase that I think has a solid chance of building a good company.

I also know, however, that all the money I put up for these companies is at risk and might all be lost -- that's the price you pay for investing in a tiny company with potential, and I'm willing to be quite patient as these stories play themselves out.

And my second worst investing decision last year was buying shares of a company that reported terrible news in the after hours session. I thought -- and this shows you how smart I am -- that the beating that Imax (IMAX) took following their announcement that they hadn't found a buyer was terribly overdone, so following the news I picked up some shares in the after hours session at about $6. It's never even gotten close to returning to that level since.

So what are the lessons for me?

When investing in OTC stocks that are notoriously hard to value, especially new ones, go in with your eyes wide open and the expectation that you might lose all your money. At this level, you're really investing in business plans and management and potential most of the time, all of which can be a bit ephemeral. I'll continue to wait on these stocks, and to keep them a tiny portion of my diversified portfolio.

And the second lesson, learned after making this mistake several times, is to never ever ever trade in the after hours or pre-open trading. For the few times when an informed investor can make money in these sessions with some lucky timing, you pay with the many times that you had the wrong conviction which, given the time frame allowed for this kind of trading, is almost always going to be based as much on emotion as anything else.

I've learned lots of other things from my mistakes and victories in the past year, but these two risky areas stand out in terms of what they've cost. I'll share some of the better decisions I made, and what I might have learned from those, in the days to come.

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I Dramatically Misjudged Imax (IMAX)

So, is a company ever too cheap to sell? That's a very apt question for Imax (IMAX) shareholders today. The large-format theater company reported a dismal quarter, bringing shares down dramatically once again (by about 20% this morning).

I had thought that almost any possible bad news was baked into this stock -- clearly I was wrong, as a .30 cent per share loss is a far, far cry from the .05 profit the analysts were predicting. I was shocked that they didn't install a single theater system in the quarter, which was the primary reason for the shortfall (though they did sign some additional deals, particularly overseas, and they continue to have a solid order backlog that will keep them busy with installations at least until the beginning of 2008).

They blame "slippages" in permitting and construction for these delays, but "expect" to install 5-8 systems in the fourth quarter of this year -- which ought to bring revenues back up to where they were in the third quarter of last year, when they installed 6 systems and recognized about $20 million in systems revenue (as opposed to this quarter, when they installed nothing and recognized about $7 million). The ongoing revenue was about the same year over year, even though the film slate was weak with the disappointing Ant Bully not doing much to drive revenue.

I bought these IMAX shares after they announced that they hadn't found a buyer for the company a few months ago -- I fully expected them to step back and accept a somewhat lower price for the company, but one that was higher than the then-bargain price of around $6 (I've since sold the shares that I held before that announcement). I was certainly wrong about that, at least for now -- I don't know whether it's because the company is "damaged goods" with their SEC investigation or just because of the fragility of the movie theater business, but no one is stepping up to buy the company at the moment.

They have authorized their investment bankers to look for bidders at lower valuations, but that reeks of desperation -- the shares are now $8-10 lower than IMAX was hoping to get in a deal, and it seems that any interested buyers can simply bide their time and wait, like vultures circling a lame beast in the desert.

It is probably not really worth it for me to sell my IMAX shares at the moment, since as long as they remain a going concern and don't collapse into bankruptcy the share price is likely to recover at some point as installations pick up, and as the Spider Man 3 and Harry Potter movies mean film revenue is likely to be signficantly improved in 2007 ... but the temptation to sell just so I don't have to look at this red line in my portfolio every day is very hard to resist. They also face a significant risk in changing over to digital projection in 2008, as they plan, which could either really spur sales or drown them in additional development costs.

I don't have much faith in the company at this point, and their high debt levels and very weak reputation on Wall Street make the shares riskier than ever -- but it does seem to me that they ought to be able to hit sales of at least $120 million next year with their order backlog, and I don't see a lot of justification for the company to trade at much less than 1X their sales as long as those installations remain profitable. At those prices, at least a private equity buyer ought to be interested -- although it gives one pause that Imax hasn't gotten a decent buyout price at a time when the markets are awash in cash that's looking for a home.

My reluctance to sell is probably a personal weakness, I feel to some extent as though I'm standing on the deck of the Titanic but focusing more on the abundance of ice cubes -- and I don't want to give anyone the impression that I'd advocate buying shares here.

disclosure: I do, regrettably, own a small (and shrinking) IMAX position.

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Selling some Imax (IMAX)

Everyone knows what's wrong with IMAX today -- they offered the company up for sale, they didn't get a buyer at the price they wanted ($12-14), their accounting is in some dispute with the SEC, and, as a result of those first two, the class action lawyers are circling like sharks.

Which just goes to show you how bad a company can perform even when their business is on track and their profits are growing. And why I'm selling some shares today as part of my overall margin reduction initiative.

I don't like selling IMAX -- I'm still holding the shares that I purchased for a retirement account at $6.20 following the disappointing no-buyout news. I thought those shares were a bargain then, and I still think that's well below a fair price for the company.

But given the confusion about their accounting and the risk that their accounting problem will actually develop into something signficant (at this point, it's just a question of recognizing revenue during construction of their theaters, which is a timing issue that I don't much care about), I can't justify borrowing money to hold the shares in my margin account any longer. The fact that the CFO resigned adds a little more urgency to the situation, and may explain why the shares remain in freefall, but I think it's as likely that he was a sacrificial lamb or that he made a simple mistake as that there was any real chicanery going on.

So I'm selling a bit less than half of my overall IMAX holdings, and clearing out all of the shares that I held on margin. This sale brings a loss, of course, so at least it will help me to write off some of the profits I'm taking in other positions.

The Imax shares I'm selling today were purchased at an average price of $7.30, and sold this morning at $4.99 for more than a 30% loss.

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After Hours IMAX Buy (IMAX)

Well, I couldn't resist. I might be grasping for a falling knife, which doesn't often work out that well for me, but I think the reaction to Imax's news this evening was wildly overdone, and I ended up buying a few more shares as the price tumbled by about 35%.

When I saw that Imax had not come to an agreement to be acquired or form a partnership with one of the four bidders who were interested, I certainly expected the shares to lose ground. But in my opinion, the possible deals were so nebulous and the performance of Imax films in the first quarter so weak that there really wasn't much of an acquisition premium built into the shares.

After all, the shares were well above $9, and they were doing pretty well on raised guidance for FY 2005, when they announced they were exploring "strategic alternatives" back in early March -- certainly, everyone who invested in this company since then has been focused on the possible takeover, and on a buyout premium that would drive the price to the neighborhood of $12 to $14.

And if the price had hit $14 before this announcement, the 30%+ decline would make a lot more sense to me.

But it didn't -- the premium never really got priced in, so I guess you can say the market was, very rightly, cautious that a deal would happen at that price ... or at all.

So how does Imax look without being an immediate takeover target (and it still may be in due course -- they are still exploring their options)?

Well, to begin with, they did beat the earnings estimates for this quarter, and they beat on the revenue number as well ... so this reaction to the announcement is clearly just a reaction to the buyout news, the company's operations seem to be fine as far as I can tell.

Analysts are estimating an average of 42 cents in earnings this year and 62 cents next year -- and given the good backlog of installations, the constant announcements of new theater deals, especially overseas, and the great slate of films for next year (Spiderman 3 and the next Harry Potter), I have no reason to question that estimate. Superman Returns has been big for them so far this Summer, and Imax is certainly starting to get more of a push for these simultaneously released blockbusters as studios see the gravy Imax showings can pour onto their box office results.

So I put in a limit order at $6.20 after hours, fully believing that this price, more than ten percent below the low hit in January, wouldn't deliver the shares to me. But I thought it was worth a shot.

And now, surprise, I'm the proud owner of a few more Imax shares. I've said before that this is not my favorite company in the portfolio, and that I would have given up my shares at $13 without a fight. That's still true.

But buying shares of this company, which I believe is growing well and has further growth prospects, at a forward PE of 10, is too good to pass up.

It might be that I'm just being stubborn.

This is certainly a small gamble, and I haven't put a ton of money into it. It's possible that the company will truly suffer in the short term without a deep-pocketed partner or a buyout -- but in my opinion, the risk is that they won't grow as fast as their market will bear if financing is weak, not that they will actually have operational difficulties in continuing to grow at the moderate pace they've kept up so far.

Wall Street is having a hard time believing that Imax is for real, and no one was willing to step up to the plate and pay enough cash for the company to make management recommend a buyout -- so it could be that the company really isn't worth as much as I think it is. But it could also be that the arbitrage rats fleeing the sinking ship are just being short-sighted ... only time will tell.

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Imax Immolated (IMAX)

Now I kind of wish that Imax hadn't told us they were shopping the company around.

In what was clearly a huge shock to the market, Imax announced today that none of the bidders were willing to pay a reasonable price to acquire the company (no mention of what that reasonable price would have been).

So the stock swooned by something like 30% after hours -- and I may even put in a very lowball bid for some shares in after hours trading if this keeps up.

Because while the corporate restructuring news was pretty bad ... the operational news was quite good. Despite a few stinker films earlier this year, Superman Returns was a big hit and they continue to sell plenty of theater installations both here and overseas. They beat on both earnings and revenue.

And at first glance, picking up these shares in the $6 range, which they haven't seen since 2004 (they were in the $8-10 range well before any takeovers were rumored), might be a possibility. At that price, it starts to look like a pretty nice little value-priced grower to me again -- especially when you take into account what might be a couple of significant Imax blockbusters next year in Spiderman 3 and Harry Potter 5 (or is it 4? I lose track).

We'll see ... there clearly were a lot of folks counting on a $13+ buyout bid, and from the looks of the after hours trading they are all desperately trying to sell. I would have been happy to sell at those levels, too, but I have no interest in selling at $6-7. Considering that this is a profitable company that's growing reasonably well on its own, albeit not as nicely as they would if they partnered with some deep pockets, a 30% haircut seems to me to be a significant overreaction.

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Imax Rumors Fleshed Out (IMAX)

It looks like some news might finally be imminent for Imax and their potential takeover/partnership arrangements. Imax's management offered up the company for strategic partnerships months ago, and there has been a several round bidding process taking place behind closed doors to decide what will happen.

Today, news came out in the Globe and Mail (the biggest Canadian newspaper -- Imax is a Canadian company) that the process is possibly nearing completion and that four interested parties are still in the running.

The article, Sony Among Four Chasing Imax, quotes analysts and investment bankers, as the company itself has been mum for months. It really couldn't come at a better time with Superman Returns doing great business at Imax theaters around the world, The Ant Bully on deck to make an impact as a 3D animated Imax, and the news that Spiderman III will be a simultaneous Imax release next summer.

Essentially this will come down to whether Imax prefers a private equity buyout that might keep management in place, or a merger/acquisition or very deep partnership with a studio that would give them less independence but a stronger industry presence. The Globe asserts that there are two private equity funds and two companies involved right now, which ought to be enough to get some good terms.

I'm not committed to Imax in the long term -- I think they represent great potential for the theater business and are undervalued based on that potential, but I'd be happy to sell out at a nice premium. The rumor mill has a buyout at between $600-700 million, which would be a nice spike over their current enterprise value of just over $530 million (market cap of $430+ million and about $100 million in net debt). That translates to at least $12 a share, possibly as much as $14 or 15 ... and analysts now believe that we're entering the final innings, so we might see some real news on this by the time they release earnings in about two weeks.

The price today reflects that newspaper article, with a nice 8% bump, but the market is clearly still discounting this -- if a deal happens, the pop will be very quick and significant, if it doesn't happen and no news comes from the company in August we're probably back to $9.

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Not Entertaining Enough (DWA, MVL, IMAX, LGF)

I sold my small position in Dreamworks Animation (DWA) this morning, offloading the shares at $23.25 for a loss of about 35% (average purchase price was about $35, I unfortunately bought shares over a year ago, before and during the Shrek 2 DVD fiasco.

This represents a significant change of heart from my last note about DWA, back in December -- at that time I thought 2006 would be a buying opportunity as we await 2007's Shrek the Third and Jerry Seinfeld's Bee Story film, then Jack Black's Kung Fu Panda and maybe a Puss-in-Boots movie in 2008.

That's still entirely possible, and several analysts see it that way. But after taking a closer look at my portfolio I've decided that I'm uncomfortable with the size and scope of my basket of entertainment stocks. I also own shares in Imax (IMAX) , Lionsgate (LGF) , and Marvel Entertainment (MVL) and I've decided both that I've got too much hit-reliance and entertainment in my portfolio, and that I prefer the other three over Dreamworks. DWA was also the smallest position in this group, so this move also helps with my effort to consolidate and focus more of my time and energy on my larger holdings.

But the size of the position wasn't enough of a reason to sell it -- each of those three entertainment companies has a more compelling upside, I think, than does Dreamworks, though it's also possible that they are also higher risk.

I'm a little concerned about Imax given their very poor luck at choosing their first two films this year (V for Vendetta and Poseidon were tough on them), but I see potential catalysts in the Superman movie and, more importantly, in their possible acquisition or reinvigoration in partnership with someone. That's a large part of the reason I prefer holding IMAX to DWA -- I'm waiting to see what happens as the company "explores its options" with regard to a possible tighter partnership with a big studio or an outright sale of the operation.

Lionsgate, likewise, had a rough Spring -- its highest profile film was the Starbucks-partnered Akeelah and the Bee, which never was able to capitalize on the feel-good word-of-mouth marketing from Starbucks and break through into the public consciousness. Still, Lionsgate has a few things going for them that Dreamworks does not -- they have a huge film library that makes them a very enticing acquisition target if all else fails; they have several franchises that are very profitable (Saw, Tyler Perry); and they have a corporate commitment to profitability, not hitmaking -- they're willing to make or release anything for film or TV as long as they think they can make it profitable, they don't rely on "winning the weekend" for each of their releases (though their low-cost horror and "urban" films have occasionally done just that). This seems a safer bet, and more compelling opportunities for profit, than a hit-reliant animation studio that has so far had trouble even turning hits into profit (which makes me quite nervous about the impact a serious flop would have on DWA).

And finally Marvel ... as a kid who grew up reading Spiderman and X-Men comics I may be simply letting nostalgia firm up MVL's place in my portfolio -- but I don't think so. What I like about Marvel at this point is just the same thing that some, including Jim Cramer, don't like -- they're adding more risk and greater potential reward to their business plan.

Marvel, like Dreamworks, is hit-driven. It was Avi Arad's work to build Hollywood franchises for X-Men and Spiderman that allowed the company to recover and attain profitability over the past several years, and it will be successful films and similar entertainment properties that drive the bus forward. I very much like that Marvel has chosen to continue with their licensed film production -- which will build on the monster hit X-Men 3 to bring us Spiderman 3 next year, and a Wolverine film probably by 2008 -- but to also build a parallel production capacity to bring more Marvel heroes to the silver screen.

This will mean more risk, as Marvel has entered into a $500 million financing agreement to put these films together starting in 2008, but it will also mean much more reward if they can continue building hits based on more of their characters -- instead of a few percentage points of the gross like they get with their older deals for X-Men and Spidey, they'll be pocketing all the profit after paying off debt and covering Paramount's distribution fees. Of course, that means that if the films flop or fail to pay off the debt nut, they'll be in trouble -- but the company will survive, thanks to what I think is very clever non-recourse financing that puts up only the characters themselves as collateral. A flop of a film will mean, if Marvel can't pay the bank, that they lose the right to make any more movies with that character -- that seems fair to me.

The two things that make me a little nervous about Marvel are their penchant for adding debt right now for no good reason (they're borrowing money to buy back shares, which seems foolish to me -- much less sensible than borrowing money to make movies), and the changing nature of their relationship with Avi Arad. Avi was the one who brought Marvel to Hollywood and made it work, but now he's moved on to create his own independent production company that will subcontract to product Marvel's films. This is fine if it just means he has more time to focus on the films, but I'm not crazy about adding another middle man company that will siphon off a bit more profit from Marvel. Avi has done great things for Marvel, but he's also the one who put together the laughable Nick Fury film with David Hasselhof a number of years ago, so he's not infallible.

So four stocks, among which Marvel is the only one I'm holding at a paper profit right now, and I'm offloading one. It should be an interesting couple of years (or months, even) for some of these companies as hits emerge and recede, takeovers are rumored or offered for Imax and Lionsgate, the DVD format war heats up, and online and cable film offerings become more and more flexible and, hopefully, create new revenue streams for Marvel and Lionsgate.

Dreamworks Animation may well have a very good 2007 at the box office, but I'm not convinced that they'll profit from it or that they'll be able to stand out in an increasingly competitive animation landscape. I could very well be wrong, but right now I'm more confident in the prospects for my other entertainment holdings.

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Movie Investing Blahs (IMAX, LGF, MVL, DWA)

The movie industry investments in my portfolio have been a bit disappointing of late ... weak box office and dragging financial results from Lionsgate and Imax are causing a small sector of red in my portfolio.

I'm standing by these companies at the moment, but they're not making me stand up and cheer just yet.

I was clearly a little too optimistic about Lionsgate Entertainment (LGF) and their push to copromote Akeelah and the Bee with Starbucks. It looks like even the might of Starbucks couldn't pull this one anywhere near the top of the box office standings, and I can vouch for the fact that they definitely tried -- every Starbucks I've seen in the last month from DC to California has been plastered with spelling bee paraphernalia and Akeelah soundtrack CDs.

It' s still possible that this will build into a word-of-mouth hit as it hits more theaters around the country, but with the marketing push from Starbucks I definitely expected a bigger splash ... and with the notorious impaticience of theater owners I don't imagine Akeelah will keep its theater slots for long if performance doesn't turn around quick.

Now that's definitely not going to sink Lionsgate -- they can have a few stinkers every year and still do well, and I think Saw III and the next Tyler Perry movie will be successful, along with some films that will come out of the woodwork to make money. Lionsgate isn't built on megablockbusters, as I've written before, and in the long run I think this dip on weak Akeelah news might be another buying opportunity.

But it certainly isn't good news if Akeelah really stinks up the joint -- not for Lionsgate, and perhaps even more so not for the Starbucks entertainment division, which is trying to convince Hollywood that they can help build a hit. I'm guessing nobody in Tinseltown is that impressed yet, though that probably won't turn them off their double-skinny-soy-vanilla-mocha-half-caff-lattes.

Imax (IMAX) is another story ... and another one that's a little disappointing. The large format film company has been slowly trending down since they got a pop from announcing that they were looking for partners or buyers to help ramp up growth.

No news on those partners yet, though several folks are reporting that they've got some preliminary offers and are working with some of the more promising ones ... no real timeline I've seen yet.

Performance was a little weak for the first big Hollywood release on Imax this year -- V for Vendetta, which I don't think anyone liked much in the regular theaters, either. Hopefully Poseidon will be a bigger hit next week, but it's a guessing game which of the popcorn movies Imax partners with will actually achieve blockbuster results. Their non-Hollywood film, Deep Sea 3D, apparently did very well, so the core Imax business appears fine.

The Fool had a nice article out on the potential for Imax in moving to digital, so it's nice to see that they're not being left behind on that trend ... and might even make up some ground, since they believe their operators can make a digital transition pay off much faster than conventional theaters can. They also have a good backlog of installations, including many that are underway now and should hit the earnings book soon.

In the short run, though, until we hear about what the company's going to do -- sell themselves, get a well-heeled partner, etc. -- the stock is more likely to trend down than up. I expect they're probably anxious to get some answers, so I think we're likely to hear something in the next month or two and am willing to be patient. But until that happens, Imax is probably just going to drift, regardless of earnings and movie performance ... even Superman, who will be hitting Imax this summer in 3D, may have to wait in line behind the private equity firms and Hollywood titans if he wants to impact IMAX's stock price.

And as for Dreamworks Animation (DWA) and Marvel (MVL), to close out this note on my movie industry investments ... well, in the short term we're going to have to see if people line up for Over the Hedge and XMen 3, respectively, but both of these companies have much stronger film slates in 2007 than 2006 -- so any opening weekend weakness might bring more buying opportunities there, as well.

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Analyst Rollercoaster (IMAX)

I just noticed that the ridiculously active analyst for IMAX over at SunTrust has made yet another move. Thought it might be interesting to look at what his moves have been since they started covering this stock back in September -- roughly six months of coverage, during which the stock has not moved particularly dramatically compared to its past performance, and the only really big news in that time (in my opinion) was the news out today that they may be selling the company.

• SunTrust initiated coverage with a Buy on IMAX on September 14, a day when the price opened at $9.47
• Then they downgraded IMAX to Neutral on December 19, when it opened at $8.29 (and quickly dropped thanks to the downgrade)
• And re-upgraded it again to Buy a month later on January 26, when the price was $7.79
• And today, with the shares at about $10 (I don't know when the downgrade went out, but that seems a fair price), they have again downgraded them to Neutral according to a Marketwatch story.

What an exhausting round trip! I find it remarkable that an analyst who is purportedly issuing research reports that will allow people to invest for at least some semblance of the long term (not day traders, at least), is urging such active trading (since almost no analyst ever says "sell", you'd have to assume that "neutral" means "get out now!").

It is true that if you were on the ball and trading in and out on these recommendations you might have made a little money before taxes, depending on the size of your trades and your commissions -- you would have had to be lucky, though, and caught a good price on December 19 because the downgrade drove a dip and the shares closed at $7.61. If you bought and sold at average prices on the days of those recommendations, you could have easily lost money even before commissions.

During the time he went in, out, in, then back out again, no other analyst (there seem to be six active ones in IMAX coverage) has made a change to his IMAX call. ... which is reasonable, since during that time the underlying business maintained a pretty steady and uneventful (for them) growth trajectory.

I think what I'm most surprised by is an analyst having such an itchy trigger finger. That can't be good for anyone. If you take out the two swings in the middle, when a very quick trader could have made some money if he was lucky and right, we've got an initiated coverage at a buy, then a downgrade six months later after a 5% increase in price brought the shares too close to his price target. Sheesh -- that definitely doesn't seem worth it. If you think the shares of a very small and volatile stock will advance less than 10%, why on earth did you have a buy on it in the first place?

I don't mean to pick on the analyst for SunTrust too much ... but next time I'm on the verge of being swayed by an analyst call, I think I'll look at those numbers again.

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