This Week’s Tech Earnings Winners and Losers: Ubiquiti, Acme Packet, Anadigics, OCZ and More

Earnings season is upon us in the tech sector. What should investors expect from these reports? What are the key storylines to follow and are these stocks likely to trade higher or lower in the wake of their results?

In’s earnings previews, available free to trial subscribers, key storylines are evaluated, analyst expectations are audited, and in depth valuation analyses are provided to develop fair value ranges for dozens of stocks. Next Inning’s model portfolio has returned 291% since 2002, nearly six times the return of the SP 500.

In its latest earnings preview, Next Inning looks at several popular stocks, including Integrated Device Technology (IDTI – News), PMC-Sierra (PMCS – News), Anadigics (ANAD – News), Broadcom (BRCM – News), Cavium (CAVM – News), Flextronics International (FLEX – News), FormFactor (FORM – News), OCZ Technology Group (OCZ – News), Ubiquiti Networks (UBNT – News), and Acme Packet (APKT – News).

Here is just a tiny sample of what Editor Paul McWilliams wrote about Ubiquiti:

“Analysts estimate Ubiquiti’s fiscal 2012 (ends June 2012) non-GAAP earnings will come in at $1.05. I think this will prove to be a bit too low and expect Ubiquiti to report something in the range of $1.08 to $1.12. My one caveat here is I’m estimating the full year fully diluted share count will be less than 94.5M. The fiscal 2013 non-GAAP earnings consensus is $1.25. I again think this will prove to be a bit too low and that we should anticipate something in the range of $1.30 to $1.40.

“If we base our valuation model off a range of 2013 non-GAAP earnings estimates running from the $1.25 consensus to the high side of my estimated range, $1.40, use a range of valuation multiples that runs from 20 to 22, and add the $0.76 estimated balance sheet value to the results, the estimated three to six month target range runs from…”

The Next Inning model portfolio is up 18% year to date versus 11% for the SP 500. Click here to start your free 21-day trial membership to Next Inning Technology Research and get McWilliams’ in depth reports, earnings previews, and real-time trade alerts.

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Trading The Odds With Arbitrage

I don’t throw darts at a board. I bet on sure things. Read Sun-tzu, The Art of War. Every battle is won before it is ever fought.” Many of you might recognize these words spoken by Gordon Gekko in the movie Wall Street. In the movie, Gekko makes a fortune as a pioneer of arbitrage. Unfortunately, such risk-free trading is not available to everyone; however, there are several other forms of arbitrage that can be used to enhance the odds of executing a successful trade. Here we look at the concept of arbitrage, how market makers utilize “true arbitrage,” and, finally, how retail investors can take advantage of arbitrage opportunities.

SEE: Arbitrage Squeezes Profit From Market Inefficiency

Concepts of Arbitrage
Arbitrage, in its purest form, is defined as the purchase of securities on one market for immediate resale on another market in order to profit from a price discrepancy. This results in immediate risk-free profit.

For example, if a security’s price on the NYSE is trading out of sync with its corresponding futures contract on Chicago’s exchange, a trader could simultaneously sell (short) the more expensive of the two and buy the other, thus profiting on the difference. This type of arbitrage requires the violation of at least one of these three conditions:

1. The same security must trade at the same price on all markets.
2. Two securities with identical cash flows must trade at the same price.
3. A security with a known price in the future (via a futures contract) must trade today at that price discounted by the risk-free rate.

Arbitrage, however, can take other forms. Risk arbitrage (or statistical arbitrage) is the second form of arbitrage that we will discuss. Unlike pure arbitrage, risk arbitrage entails–you guessed it–risk. Although considered “speculation,” risk arbitrage has become one of the most popular (and retail-trader friendly) forms of arbitrage.

Here’s how it works: let’s say Company A is currently trading at $10/share. Company B, which wants to acquire Company A, decides to place a takeover bid on Company A for $15/share. This means that all of Company A’s shares are now worth $15/share, but are trading at only $10/share. Let’s say the early trades (typically not retail trades) bid it up to $14/share. Now, there is still a $1/share difference–an opportunity for risk arbitrage. So, where’s the risk? Well, the acquisition could fall through, in which case the shares would be worth only the original $10/share. Further below we will take a look at how you can gauge risk.

Market Makers: True Arbitrage
Market makers have several advantages over retail traders:

  • Far more trading capital
  • Generally more skill
  • Up-to-the-second news
  • Faster computers
  • More complex software
  • Access to the dealing desk

Combined, these factors make it nearly impossible for a retail trader to take advantage of pure arbitrage opportunities. Market makers use complex software that is run on top-of-the-line computers to locate such opportunities constantly. Once found, the differential is typically negligible, and requires a vast amount of capital in order to profit–retail traders would likely get burned by commission costs. Needless to say, it is almost impossible for retail traders to compete in the risk-free genre of arbitrage.

Retail Traders: Risk Arbitrage
Despite the disadvantages in pure arbitrage, risk arbitrage is still accessible to most retail traders. Although this type of arbitrage requires taking on some risk, it is generally considered “playing the odds.” Here we will examine some of the most common forms of arbitrage available to retail traders.

Risk Arbitrage: Takeover and Merger Arbitrage
The example of risk arbitrage we saw above demonstrates takeover and merger arbitrage, and it is probably the most common type of arbitrage. It typically involves locating an undervalued company that has been targeted by another company for a takeover bid. This bid would bring the company to its true, or intrinsic, value. If the merger goes through successfully, all those who took advantage of the opportunity will profit handsomely; however, if the merger falls through, the price may drop.

The key to success in this type of arbitrage is speed; traders who utilize this method usually trade on Level II and have access to streaming market news. The second something is announced, they try to get in on the action before anyone else.

Risk Evaluation
Let’s say you aren’t among the first in, however. How do you know if it is still a good deal? Well, one way is to use Benjamin Graham’s risk-arbitrage formula to determine optimal risk/reward. His equations state the following:

C is the expected chance of success (%).
P is the current price of the security.
L is the expected loss in the event of a failure (usually original price).
Y is the expected holding time in years (usually the time until the merger takes place).
G is the expected gain in the event of a success (usually takeover price).

Granted, this is highly empirical, but it will give you an idea of what to expect before you get into a merger arbitrage situation.

Risk Arbitrage: Liquidation Arbitrage
This is the type of arbitrage Gordon Gekko employed when he bought and sold off companies. Liquidation arbitrage involves estimating the value of the company’s liquidation assets. For example, say Company A has a book (liquidation) value of $10/share and is currently trading at $7/share. If the company decides to liquidate, it presents an opportunity for arbitrage. In Gekko’s case, he took over companies that he felt would provide a profit if he broke them apart and sold them–a practice employed in reality by larger institutions.

A version of Benjamin Graham’s risk arbitrage formula used for takeover and merger arbitrage can be employed here. Simply replace the takeover price with the liquidation price, and holding time with the amount of time before liquidation.

Risk Arbitrage: Pairs Trading
Pairs trading (also known as relative-value arbitrage) is far less common than the two forms discussed above. This form of arbitrage relies on a strong correlation between two related or unrelated securities. It is primarily used during sideways markets as a way to profit.

Here’s how it works. First, you must find “pairs.” Typically, high-probability pairs are big stocks in the same industry with similar long-term trading histories. Look for a high percent correlation. Then, you wait for a divergence in the pairs between 5 to 7% divergence that lasts for an extended period of time (two to three days). Finally, you can go long and/or short on the two securities based on the comparison of their pricing. Then, just wait until the prices come back together.

One example of securities that would be used in a pairs trade is GM and Ford. These two companies have a 94% correlation. You can simply plot these two securities and wait for a significant divergence; then chances are these two prices will eventually return to a higher correlation, offering opportunity in which profit can be attained.

SEE: Finding Profit in Pairs

Find Opportunity
Many of you may be wondering where you can find these accessible arbitrage opportunities. The fact is much of the information can be attained with tools that are available to everyone. Brokers typically provide newswire services that allow you to view news the second it comes out. Level II trading is also an option for individual traders and can give you an edge. Finally, screening software can help you locate undervalued securities (that have appropriate price/book ratio, PEG ratio, etc.).

There are also several paid services that locate these arbitrage opportunities for you. Such services are especially useful for pairs trading, which can involve more effort to find correlations between securities. Usually, these services will provide you with a daily or weekly spreadsheet outlining opportunities that you can utilize to profit.

The Bottom Line

Arbitrage is a very broad form of trading that encompasses many strategies; however, they all seek to take advantage of increased chances of success. Although the risk-free forms of pure arbitrage are typically unavailable to retail traders, there are several high-probability forms of risk arbitrage that offer retail traders many opportunities to profit.

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6 Ways To Keep Aggressive Debt Collectors At Bay

Debt collectors are a lot like vultures. Once they sense that you’re in trouble, they’ll keep picking at you until there’s nothing left. They shamelessly (and often illegally) harass consumers into paying their debt, ruining hundreds of innocent lives in the process. For consumers, debt is bad enough, but the unrelentingly aggressive and demeaning phone calls from company collectors or third-party agencies can make you feel like you’ve got a serious stalker. Anyone who’s ever been in that position will tell you it’s somewhere they never want to be again in their lives.

SEE: What You Need To Know About Bankruptcy

If you’re in debt and the birds of prey are circling, there are a few things you can do to beat them off. You have rights as an American citizen – rights that debt collection agencies cannot infringe upon no matter how much money you owe. The next time the collectors come calling, use these techniques to keep them at bay.

Get Everything on Paper
A debt collector can’t legally pursue you unless he or she gives you a written statement outlining your debt within five days of contacting you. You don’t have to say anything to him or her over the phone until that letter arrives. If the letter doesn’t arrive within five days, you could have grounds to sue him or her for harassment.

Write a Cease and Desist Letter
In-house collection agents for banks and credit card companies are forthcoming about their identities. Third party collectors who buy your debt from your credit issuer are not. They’ll try to keep their identities a secret, because they know that the Fair Debt Collection Act gives you the power to demand, in writing, that they stop calling you. Force him or her to give up his or her name and address. Once he or she does, write him or her multiple certified letters demanding that he or she cease calling you. It’s important to make sure all your letters are certified, because otherwise the collectors will try to deny that they received the letters.

Know Your Rights
Never, ever believe anything a debt collector tells you. Multiple collection agencies have been slammed by the FTC recently for deceiving consumers into believing that they owed money when they really didn’t. Since debtors’ rights vary by state, it’s up to you to do your research and keep yourself informed. A working knowledge of your rights is your best defense against a collection agency’s lies.

SEE: Are You Living Too Close To The Edge?

Negotiate Your Debt Down
Debt collectors are aggressive about pursuing their money partly because they’re desperate themselves. They need your debt if they’re going to stay afloat in this economy, and that need makes many of them open to compromise. Don’t accept any of their payment plan offers when they call. Instead, offer to pay 10% to 15% of what you owe. Tell them you can’t afford any more, and stand firm if they don’t accept. If you haggle with them every step of the way, they’re likely to let you off for a fraction of your total debt. Just remember to keep the next rule in mind when making any agreement with your collection agency.

Record Everything
As soon as your debt collector starts calling, record everything he or she says. When he or she calls, inform him or her that he or she is being monitored and start taping. When you make an agreement with him or her, get it in writing and keep the letter on file. Think of it as gathering evidence. If the collection agency ever crosses the line, you’ll have a strong enough case to take the agency to court. Sometimes, even a small clerical error is enough to get your debt completely erased. You can only win the battle if you’ve got enough bullets.

Contact an Attorney
If a collection agency refuses to stop overstepping its bounds to contact you, then you should strongly consider contacting an attorney. If you’ve been recording evidence of after-hours calls and verbal harassment, you could be able to file a lawsuit. Who knows, you might even be able to clear your debts through a settlement.

SEE: Saving Your Home From Foreclosure

The Bottom Line
Debt collection agencies walk all over consumers because they think they can get away with it. Consumer inaction has led them to believe that they can infringe on a debtor’s rights through intimidation and deception. Don’t let yourself become another victim of illegal collection practices. If the vultures are after your debt, use these tips to shoot them down. The chances of getting some or all of your debt forgiven are much higher than you’d believe.

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Is A Major Market Top Forming?

Ring- Ring. Investors got a wake-up call, but is it serious enough to get out of stocks (VTI – News) or can we hit the snooze button and expect new rally highs?

Spot a Market Top

Spotting a market top is tougher than a bottom. Why? The predominant emotion found at tops is optimism and complacency. The overriding emotion at bottoms is fear and capitulation.

Fear is a much stronger emotion, often expressed in swift capitulation moves. Tops, on the other hand, are a process that lulls investors asleep; therefore the term ‘topping process’.

I find bottoms to be easier to call than tops. Even though calling market bottoms and giving buy signals is ironic for a guy who’s more of a long-term bear, I feel a smidget of pride for calling the October 4, 2011 and March 6, 2009 bottoms within 2-4 days (buy signals were published in the ETF Profit Strategy Newsletter and sent to subscribers).

Despite much uncertainty, hunting for market tops is still worthwhile. Once a top is in place, the ensuing decline tends to sport a trajectory that’s much deeper than most rallies (2010 Flash Crash and 2011 summer crash).

I use a composite of technicals, seasonality, sentiment and most importantly, support/resistance levels, to identify and narrow down a top in the making. Support/resistance levels work like subway stations. The subway could stop anywhere, but it’s most likely to stop at a station. Stocks too could react anywhere, but they are most likely to react at important support/resistance levels.

Targets and Resistance

The March 16 ETF Profit Strategy Newsletter identified one such “station” on March 16 when it stated that: “The SP has surpassed the 1,364 – 1,382 resistance range. This resistance cluster was strong and the break above is bullish. The next resistance levels are 1,425 and 1,4xx (reserved for subscribers).” 

The SP got within a couple of points of 1,425 (April SP high was 1,422) before reversing. Resistance at 1,425 was obviously strong enough to repel the SP (SPY – News), but since the reversal occurred before actual resistance was hit, it’s prudent to allow for the possibility of another attempt to make new highs.


The March 16, ETF Profit Strategy Newsletter brought out that all but one top since 2007 saw a divergence between RSI and price on the weekly chart. There was no such divergence back in March.

At the early April highs there was a small but noticeable divergence between price and RSI on the weekly chart of the SP (^GSPC – News), Nasdaq (^IXIC – News) and Dow Jones (^DJI – News).

The divergences are not as pronounced as I’d like to see them, but they do fulfill the minimum requirement, and with seasonality turning bearish (who doesn’t know about “sell in May, go away”?) it would be short-sighted not to be prepared for prices to turn lower.

First, The Topping Process Continues

Navigating the current ups and downs with support and resistance levels is (in my humble opinion) the most effective way to stay out of trouble and identify the next profit opportunity.

As long as stocks remain above support, we will allow for higher prices, but as soon as stocks drop below resistance, it’s time to buckle down and/or go short.

The ETF Profit Strategy Newsletter outlines the new target level for this rally and pinpoints the resistance level that – once broken – would lead to much lower prices and quite possibly to a 2010 or 2011-like meltdown.

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Wall Street down; S&P on track for monthly loss

By Angela Moon

NEW YORK (Reuters) – U.S. stocks fell on Monday, putting the SP 500 on track for its first monthly decline since November, after data hinted the U.S. economic recovery is stalling and Spain’s fall back into recession underscored nagging euro zone stresses.

The SP’s four-day rally was in jeopardy as it fell below the technically important 1,400 level. The SP closed above 1,400 for the first time in three weeks on Friday and that point has been a key resistance for weeks.

A merely modest boost in U.S. consumer spending last month and a private industry gauge showing a much sharper-than expected decline in Midwestern business activity in April suggested the economy entered the second quarter with less steam.

Spain’s economy sank into recession in the first quarter as deep government spending cuts to reduce a massive deficit and troubles in the banking sector likely delayed any return to growth.

“We have a multiple of issues here. Spain is casting a negative tone in the market here, but after last week’s rally, the market was set for some profit taking,” said Tim Ghriskey, chief investment officer at Solaris Asset Management, Bedford Hills, New York.

“The 1,400 level is a bit of an issue too. It’s creating that resistance.”

Banks were among the top decliners on Wall Street after Standard Poor’s cut the credit ratings of 11 Spanish banks on Monday, following its downgrade of Spain last week.

The SP 500 financial sector index (.GSPF) fell 0.7 percent while Bank of America Corp (BAC.N) dropped 1.2 percent to $8.15.

The Dow Jones industrial average (DJI:^DJI) was down 29.33 points, or 0.22 percent, at 13,198.98. The Standard Poor’s 500 Index (MXP:^SPX) was down 6.57 points, or 0.47 percent, at 1,396.79. The Nasdaq Composite Index (NAS:^COMP) was down 19.74 points, or 0.64 percent, at 3,049.46.

Humana Inc (HUM) declined 8.6 percent to $80.31 after the company, one of the largest providers of Medicare insurance for the elderly, posted a 21 percent drop in profit. The Morgan Stanley healthcare payor index (PSE:^HMO) declined 2.3 percent.

Exchange operator NYSE Euronext (NYX) reported its quarterly profit fell by almost one-third due to a difficult trading environment and costs from its failed merger with Deutsche Boerse (DB1Gn.DE). Its shares were off 5.5 percent to $25.57.

According to Thomson Reuters data through Monday morning, of the 297 SP 500 companies that have reported quarterly results so far, 72 percent topped estimates. A strong earnings season helped lift the benchmark SP index to its best week since mid-March on Friday.

On the positive side, shares of Sunoco Inc (SUN) jumped 19.5 percent to $48.87 after pipeline operator Energy Transfer Partners LP (ETP) said it would buy the company for $5.35 billion in stock and cash.

Barnes Noble Inc (BKS) surged about 60 percent to $22.05 after Microsoft Corp (MSFT) agreed to invest $300 million in the bookseller’s digital and college operations. The deal values the Nook and textbook businesses at $1.7 billion.

(Editing by Leslie Adler)

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NYSE Euronext results falter on failed merger

NEW YORK (AP) — The exchange operator NYSE Euronext said Monday that its first-quarter earnings tumbled 44 percent on weaker trading and its failed combination with Deutsche Boerse AG.

Its shares fell nearly 6 percent in afternoon trading.

CEO Duncan L. Niederauer said on a conference call that there has been “modest improvement in economic indicators around the world, which would generally bode well for our business.”

“But unfortunately, we are still waiting for signs that trading volumes will return to the levels we have witnessed in 2010 and 2011,” he told analysts.

The owner of the New York Stock Exchange reported its net income fell to $87 million, or 34 cents per share, for the January-March period from $155 million, or 59 cents per share, a year earlier.

Revenue slid 17 percent to $952 million from $1.15 billion in the first quarter of 2011.

The company said that lower volume hurt across the board, but most notably in European derivatives. A weaker European economy also hurt sales. Derivatives revenue fell 25 percent in the quarter.

Cash trading and listings revenue was also impacted by lower volume, falling 7 percent.

Sales in the Information Services and Technology Solutions unit rose 4 percent on an acquisition and higher connectivity revenue from a New Jersey data center.

Merger and exit costs for its failed combination with Deutsche Boerse also dragged down its results.

The combination would have created the world’s largest exchange operator. The European Commission blocked the deal on Feb. 1, saying the pair’s derivatives exchanges would have given the company a monopoly. Derivatives are complex financial instruments that allow investors to bet on changes in many areas, including interest rates, stock indexes or the price of oil.

Deutsche Boerse is suing to reverse the regulator’s decision to block the $10 billion deal.

NYSE Euronext shares dropped $1.60 to $25.47 per share in afternoon trading after falling as low as $25.45 earlier in the session. The company’s shares are still 21 percent above their 52-week low of $21.80 set on early October. They peaked at $41.60 almost a year ago.

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Research: $1.5 Trillion In Mobile Revenues In 2012, U.S. Accounting For 40% Of All Smartphone Sales

mobile pile

The mobile industry will reel in more than $1.5 trillion in revenues in 2012, with 28 percent of that, $400 billion, attributable to mobile data, according to new research out from analyst Chetan Sharma.

He notes that within the revenues expected for mobile data, non-messaging revenues led by apps, mobile web browsing and streaming media have finally overtaken those of traditional messaging like SMS as smartphone usage continues to grow. Non-messaging, he says, will account for 53 percent of the total: in other words, some $212 billion will come from apps, music and video streaming, games and mobile web browsing.

Still voice is still accounting for a huge part of the value in mobile, and “OTT” services provided by third parties — be they Apple or others — are still only a small piece of the pie:

Sharma’s report also notes in the U.S. smartphones now account for 69 percent of all mobiles sold — the highest rate with the global average at about half that, 32 percent. He notes that some operators are even more bullish than that and expect 90-95 percent of all sales to be smartphones this year (O2 in the UK led that charge last year as you can see in the slides below). In the meantime, the adoption rate will lead the U.S. finally to be able to claim that more than half of all consumers will own smartphones. The U.S. is also, overall, accounting for about 40 percent of all smartphone sales worldwide.

The total worldwide base of mobile subscribers now stands at 6 billion, and while it took 20 years to reach the first billion, the speed at which this has accelerated is pretty remarkable: Sharma notes that it took only 15 months for that number to go from 5 billion to 6 billion.

As you would expect, a lot of the growth now is coming from developing countries but still the numbers are astounding. He notes that together China and India are adding 75 million new subscribers every quarter to the global base, and points out that China alone already has 1 billion mobile subscribers, the first country to reach that milestone, and that India currently has the highest subscriber growth rate.

But India may, at best, be an opportunity for the future rather than today. Sharma points out that India monthly ARPU is an “anemic” $2.50. “Even with a signficant subscriber base, there is going to be a general lack of opportunity in the market for the next couple of years relative to other markets,” he writes.

In contrast, the early adopters of Japan have helped that country remain in the lead for mobile data usage, with some 60 percent of ARPUs attributable to data. And because the U.S. has nearly the same proportion, but is significantly bigger, it is currently leading the world in terms of data revenues as well as overall ARPU revenues.

Still, the tide is turning: A number of emerging nations are now in top 10 mobile nations by subscribers, he says. They include Brazil, India, Russia, Indonesia, Pakistan, Mexico, while Korea, UK, Italy and Germany “have dropped off or slipped in rankings.”

Patents. Although we’ve had a lot of noise about patent acquisitions, purchases and lawsuits around internet and (specifically) social media patents, Sharma points out the mobile continues to lead the field with patent applications, and that mobile companies are filing more in the U.S. than in Europe — on average 1.7 times more. He notes that in the U.S., the biggest patent holders are IBM, Microsoft and Nokia. In Europe they are Alcatel-Lucent, Nokia and Samsung. Nokia also appears in the list for top-three device patent holders, along with Samsung and Sony. And among carriers, ATT, NTT Docomo and Sprint lead the charge.

That gives pause for thought about what Nokia has and what kind of value the company holds, beyond the cash that has been mentioned several times in the last week as ratings companies continue to downgrade the company.

Full slide deck here:

Annual state of_global_mobile_industry_2012_Chetan_Sharma_Consulting

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Rovio: Angry Birds Space Downloaded 50 Million Times In 35 Days


Rovio to Houston. The Mighty Eagle as landed. Big time.

Rovio just took to Twitter to announce that its latest Angry Birds installment, Angry Birds Space, was downloaded 50 million times in 35 days. As the company brags, that makes Angry Birds Space the fastest growing mobile game in history. People clearly cannot get enough of flinging upset birds at moderately evil (or perhaps, misunderstood) pigs.

Angry Birds Space launched on March 22 with much fanfare. Rovio had been on a sort of media tour, hyping the gaming to astronomical levels. And for good reason. It had been a full year since a new Angry Birds game hit. Angry Birds Rio launched on March 22, 2011. Rovio had to hype not only the new title, but also the franchise. But, 35 short days later, Angry Birds Space hit the record books, shattering previous benchmarks.

Rovio isn’t going to wait another year this time around. In an interview with TechCrunch Mr. Angry Bird himself, Peter Vesterbacka, promised four new games yet to come this year.

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