Sohu’ve Heard? It’s a Perfect World for Chinese Internet Gaming Companies.

As I’m sure most of you have heard online gaming is a huge market in China.  In the past couple of years new companies and products have been rolling out the door on a fairly consistent basis.  The latest news is that Sohu.com(SOHU) is taking it’s online gaming subsidiary, Changyou(CYOU), public as a stand-alone company.  For those of you that are not familiar with Sohu.com, they are a internet portal in the Peoples Republic of China and are often referred to as “The Yahoo(YHOO) of China.”  Last year, Changyou’s revenue was $201.8 million, which is more then four times what it was the year before.  Profits for that same year clocked in at a staggering $108 million, giving them a profit margin of over 50%.  After the IPO, Sohu.com will still own 71% of Changyou, which means that as long as the IPO goes well, Sohu.com’s stock should see an uptick in price along with Changyou.  Although I like Sohu.com as a company, I am reluctant to take a position in them unless it should happen that they fall below $38 a share.  Currently Sohu.com is trading at a forward price to earnings ratio of 8.9.

As I hold no position in Sohu.com, and Sohu.com isn’t really an online gaming play, I get my exposure through Perfect World(PWRD).  Perfect World is consistently releasing new games, as well as open betas for new games.  Estimates over the past 90 days have remained somewhat steady at $2.53 a share 90 days ago, to the current estimate of $2.43.  These estimates are for the next fiscal year, 2010, and leave Perfect World trading at a forward price to earnings ratio of 5.2.  I however must admit that Shanda Interactive(SNDA) is currently the industry leader.  Estimates for 2010 have drastically increased over the past 90 days from $2.75 to the current estimate of $3.23.  Although earnings estimates have increased over the past 90 days, Shanda Interactive’s stock price is up nearly 100% from its low of $19.75 nearly 4 months ago, and since Wall Street is reluctant to put high multiples on this industry, I choose to stick to Perfect World and may buy more if the timing is right.  I plan to reevaluate when Perfect World hits around $19 a share.  Other key players in the industry that investors should take note of for research purposes are Netease.com(NTES), Giant Interactive(GA), and The9(NCTY).

Bristol Myers Squibb (BMY) Spins-off Mead Johnson Nutrition (MJN) in IPO Filled Week

As another average Monday comes to an end on Wall Street, a not so predictable rest of the week still awaits. It looks as if IPOs are back with a bang this week after almost 10 months of being on somewhat of a hiatus due to the deepening recession our country, as well as the rest of the world, is seemingly falling deeper into. After Visa (V) went public last March in its record breaking IPO, as well as a few other IPO duds between then and now, it looks as if investors might be again getting back their taste for initial public offerings. Investors who are interested have plenty of options to choose from tomorrow and Wednesday. NIVS Intellimedia, a chinese producer of consumer electronics, Changing World Technologies, a producer of organic fertilizer and bio-fuels, O'Gara Group, a provider of homeland defense products and services, and Mead Johnson Nutrition, the global leader in manufacturing pediatric nutrition products all of who will begin trading tomorrow. If that’s not enough to wake up your risk appetite, you still have Madison Square Capital, a newly formed REIT planning to invest in agency securities., which will begin trading on Wednesday. Now I must admit, that is quite an interesting group of companies going public and should stir up quite a bit of attention tomorrow and Wednesday, but the one I am interested in starting a position in is Mead Johnson Nutrition.

For those of you who are unaware of the corporate structure, Mead Johnson Nutrition is currently a part of Bristol Myers Squibb (BMY) and is going to be spun-off in what appears to be a divide and conquer strategy to possibly acquire another pharmaceutical company or at least be prepared to do so should the opportunity arise. Many pharmaceutical companies have patents on drugs with expiration dates coming up in the next few years. When their patent expires the revenue created from these drugs will no longer be guaranteed, and probably non-existent, therefore cutting huge chunks from some company’s bottom line.

It should come as no surprise then, that Bristol Myers Squibb's own blood thinner drug Plavix, which accounted for $1.47 billion dollars in sales in the fourth quarter alone, will lose its patent for the drug in 2011. Bristol Myers Squibb is no stranger to asset trimming by spinning off companies that aren't involved in the company’s core pharmaceutical business. In 2001 it spun off its orthopedic device maker under the name Zimmer Holdings (ZMH). If you'll look at the chart for Zimmer Holdings (ZMH) from 2001 until just recently you will see that the spin off seemed to be successful as the share price has seemed to steadily increase for the past 8 years until the recent market correction.

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Bristol Myers Squibb's (BMY) original estimate for revenue from the spin-off was $1 billion, and due to current market conditions is now down to $564 million. The big difference in the numbers should be no huge deal for Bristol Myers Squibb (BMY) as it seems that they will eventually hit their original estimate of $1 billion through secondary offerings and such by the time the spin-off is completed. I don't expect Mead Johnson Nutrition to make any major jumps in either direction on its first trading day so I plan to watch it move a bit before I decide to by any shares or options contracts. Mead Johnson Nutrition will be the only publicly traded company in its sector. Children's nutrition is a profitable market with high growth prospects. Citibank, Morgan Stanley, and Bank of America will be underwriting the offering tomorrow of 28.8 million shares at a price of $21 - $24 a share. Mead Johnson Nutrition will begin trading on the New York Stock Exchange tomorrow under the ticker (MJN).

Opportunity in Medium Term Call Options for Dryships (DRYS)

Dryships (DRYS), as with every other drybulk shipping company on the market, has taken a tremendous beating recently. Back in November, with the general market, Dryships (DRYS) hit its 52 week low of $3.04, and then charged back up the next 45 days to around $17.00 a share netting brave investors in the company a solid 400% gain in less than 60 days. While analysts estimates went down again within the last couple of days, from $5.02 to $3.76, the Baltic Dry Index has just recently come off its lows of about $660 to a recent close of $1070. One can argue also that analysts estimates are more than likely off, or at least behind the market.

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I feel that a safe way to profit from this wildly volatile stock in an already volatile market would be investing in medium-term Dryships (DRYS) call options with an expiration of June 2009, and a strike price of $2.50. I put in a limit order for $2.50, which leaves me at a break even amount for the trade of $5.00. Anything over $5.00 between now and the 3rd Friday in June is purely profit and i expect to sell the options closer to now than to June and cash in on some of extrinsic value that should be left.

3 Stock Ideas for Dividend Investors

With dividends being cut at the fastest rate in 50 years, dividend investors suddenly have their work cut out for them. Most dividend investors, invest in dividend stocks because of the low maintenance requirements and the compounding advantages that they bring to the owner. In a market like this, dividend investors, in fact have more maintenance to perform on their portfolio than most other stock investors. Investors in dividend stocks now have to watch their investments like a hawk to ensure that their strategy doesn’t fly out the window and leave them behind. Though having to perform more upkeep than most are used to, if they remain attentive to their investments they will reap the rewards of their hard labor.

I gathered up 3 dividend stocks with steady earnings outlooks when compared to their peers and no foreseeable signs of cutting dividends in the near future.

stock	Fri. Closing Price	Annual % yield	Forward Price to Earnings Ratio
(T) AT&T	$24.62	6.70%	10.8
(BMY) Bristol Myers Squibb	$21.41	5.80%	9.6
(NYX) NYSE Euronext	$22.00	5.50%	7.9

I like AT&T (T) under $22.00, because they seem to remain a few steps ahead of the receding economy. Bristol Myers Squibb (BMY) continues to show dividend growth over a decade and running. They also aren't feeling the effects of the recession like AT&T (T). I like NYSE Euronext (NYX) because they create an excellent value play bringing along an extra 5.50% yield for the ride. Estimates down a bit and I expect they may go down a bit more, thus I am putting my limit order in for $18.00 a share, confident that my trade will execute by week's end.

Value and Growth on Sale in Fast Food

While companies like McDonald’s have recently had their moment in the spotlight, other fast food companies with strong fundamentals, higher growth, and better all around value have gone unnoticed until recently. McDonald’s two biggest competitors, Wendy’s/Arby’s Group and Burger King, sport slightly higher growth and much higher value when compared to their biggest competitor, McDonald’s.
Analysts on average expect McDonald’s to earn $3.84 a share in 2009 up slightly over the past 3 months from $3.81, giving them a forward price over earnings ratio of 15.53. McDonald’s has also been hovering near its 52 week high and has just recently fallen under $60 a share. Another reason to believe that McDonald’s time in the spotlight might be coming to an end is the seven insider sales over the past six months and the one buy. McDonald’s has an estimated growth rate of 9.33% a year for the next five years.
While Burger King beats McDonald’s on growth with a 14.93% growth rate per year for the next five and value with an estimate of $1.77 a share for the year 2009, leaving them with a forward price to earnings ratio of 12.62. As far as insider sales go McDonald’s and Burger King are neck and neck, each having seven sales. Though Burger King slightly lags McDonald’s with no buys to McDonald’s one.
The real winner of the race is definitely Wendy’s/Arby’s Group whose shares shot up nearly 7% on Friday to close at $5.50 a share, after being up almost 100% from its low in late October of $2.63 a share. After a gain like that it’s hard not to think Wendy’s/Arby’s Group might have already had their time in the spotlight as well. After being bought out by Arby’s for $2.3 billion in April of last year, Wendy’s has recently undergone a complete revamping of their restaurant as well as their menu. They now seem to have a value menu that is highly competitive with its much larger competitor, McDonald’s. Value menu aside, estimates for 2009 have remained steady at $1.12 a share leaving Wendy’s/Arby’s Group with an astoundingly low price to earnings ratio of just 4.91, and a 5 year growth rate of 14.33%, just a hair below the leader, Burger King. If doubts still remain about Wendy’s/Arby’s Group, one would only have to look at the seven insider purchases in the past 6 months and the zero sales to confirm that in fast food, Wendy’s/Arby’s Group bring you the most bang for your buck as well as the best prospect for growth in the coming years.