China to take stakes in US automakers

It maybe hard to believe but American cars are not doing too bad in China. Chinese automakers are working very hard to “learn” from American car manufactures. While American copy-cat cars may sell in domestic Chinese market but they’ll never be able to export them. Even if they somehow find a loophole and export them, I don’t know about you, but I’m not buying a Great Wall sedan anytime soon. A Ford made in China, however, I may be interested. Contrary to many westerners believe, Chinese made foreign brand cars are highly reliable (same production line, skilled workers, no union, you do the math). I’ll buy a Chinese made Ford over a American made Ford any day. The Chinese are no doubt eyeing to take stakes in the struggling American automakers. The questions can they do it in the next few months? Henry Paulson is China talking things over with the Chinese officials. I have no idea what they actually talk about, but I believe encourage investment by Chinese and American companies in each other should be one of the subjects. China has an over production under consumption problem while America has the exact opposite problem. Chinese auto manufactures buy stakes in US companies to gain instant sales channel into American markets. American banks buy stakes in Chinese banks to tap into their huge saving to bring more liquidity to the market and once the debt and loan markets returned to normal, all kind of business can began to be revitalized.

Ford (F) under $3 and General Moters (GM) under $5 isn’t too bad if the Chinese might buy them. I’ll put down a few thousand dollars on some Mar call options for this trading idea.


IMAX Corporation (IMAX)

IMAX last traded at $3.50. Speculative play, but I feel confidence at this price level. I’m going to backup my truck on this one. If enough IMAX theathers opens next year to reach the tipping point, and IMAX’s digital projection gets trackion, IMAX could be an explosive stock.

Pickup some JAVA

I just brought a small JAVA position for less than $5 a share. Sun Microsystems (JAVA) has a history of making great product and poor profit. Not what I’d like to see as an investor. Sure enough, Sun’s profit dropped and so did its stock price. For $5 dollars a pop, I’m willing to give it another chance. Analysts often underestimate Sun’s potential and rightly so. Sun’s inability to turn good product into profit is not secrete. Current Sun Microsystems is like the Apple before second coming of Steve Jobs. I’m not saying Scott McNealy will comeback and be the one Sun needs to restore its former glory, but I believe a focused leader can guide Sun Microsystems to clean up their acts and reach its full profit potential. I’m going to set my small JAVA position aside and wait for that day to come

Double-Take Software (DBTK)

Double-Take Software (DBTK) is a buyout play. DBTK trading at $7 and change. Forward PE 9.84, and EPS $0.63 is respectable. Virtually no debt and $3.357/share cash on its balance sheet means Double-Take can held its own until the broader market turnaround. That reduces the down-side risk for DBTK. DBTK is small enough and profitable enough to be on bigger competitor’s shopping list once the market turns around.

When stock markets begin to trend up, investors are willing to pay high PE multiples, buying a profitable competitor with low PE in that environment is the fastest way to boost a publicly trading company’s stock price without doing any real work.

Double-Take Software is an established company, by that I mean Double-Take has enough customers paying maintenance and selling enough new licenses to be profitable. For software in Double-Take’s space: data protection, backup and recovery, losing long term customers is not easy. Once data backup/recovery system is installed in production systems, that means every day the user grow more dependent on the software vender because more of the user’s data will be “protected” by the vender’s software. For any competitor to steal Double-Take’s customer, the best way is not to build a better product, but to buy the company.

Trading Strategy:

1. Buy DBTK with $7.50 as reference price.

2. Buy on pull backs.

3. Stop lost at $5 or so.

4. Keep the shares for 1 to 2 years timeframe. 

5. Sell on any rumor of buyout and stock price popped.

INTC is a buy at $15.50

Intel close $15.50, P/E 12.35 today. Analysts have been lowering their earnings estimates to $0.38/share current qtr and $1.25/share for the year. For next year, average analyst estimates is $1.32/share. I’m not skeptical about the current 08 estimates, but I think they may have underestimated 2009’s numbers. In order to trade this idea, I will begin accumulating INTC at this price level. I should start buying 10% of my target quantity now at $15.50, and purchase the rest in 10% chunks over the next few months.

So why do I think Intel will do better than analysts was led to believe? Economic recovery and the upcoming Core i7 (codenamed Nehalem) processor. Analysts, especially those tach analysts rarely able to see past the rearview mirror. They can’t see what’s happing right now, and certainly not able to see what’s happing ahead. They have some intern collect some numbers and plug those into their model, which is nothing more than taking the earnings Intel guided them and add or subtract a small number from it, to come up with their estimates. 

Intel analysts: bad economic…consumers feel poor…no new computers…corporates not profitable…cut IT budget…no computer upgrades…lower Inter earnings estimate. 

Me: bad economic…workers layoff…corporates need productivity boost…invest in IT automation…new computers…Intel profits.

I believe economic is going to see signs of recovery by mid 2009 and things are going to turn around 2010. Companies, smart ones anyway, usually up their investment in productivity-boosting-money-saving IT infaracture in order to get a leg-up on compitiators. There will be a strong upgrade cycle in 2009 driven by economic recory and Core i7. When Intel introduced their Core 2 series of CPUs, they regain lost market shares and mindshares from AMD, and bought Intel time to catch up and blow away AMD in process architecture. The Core i7 is a first Intel architecture to incorporate embeded memory controler and multiple cores on a single CPU die and elimiating the last architecture advantages AMD may have over Intel. Core i7 is designed to help multi-threaded performance scaling. New systems with Core i7 can replace several older Core 2 systems while using less energy. For large datacenters, hardware usually represents a small percentage of the total cost. Electricity and human cost are usually the number one and number two cost in datacenter operations. Sun Microsystem’s UltraSparc T1 and upcoming Rock processors also marketed as multi-threaded performance scaling and energy saving CPU and gotten a lot of attention in the server market. Their are no benchmark for Core i7 I can find, but just from the specs it looks like Core i7 will pack enough punch to spark a new wave of server upgrade.