Sure, Amazon is by far the dominant online retailer.  But, the consumer is getting crushed right now and will continue to hurt well into 2009.  This will put a signifant drag on the margin-improvement story that had driven much of Amazon’s run-up during 2007 and early 2008.

Buy Januray puts now.  We would recommend the Jan 30’s trading at $1.95 (ZQNMF.X)

Blodget sifted every negative fleck from Katherine Boehret�??s review in order to concoct a blog post that would neatly fit his sensationalist, deceptive headline: �??Mossberg Pees On BlackBerry Bold: Bulky, Heavy, Expensive�??

First, Blodget chooses to ignore the critical point made by Boehret that the Bold was not intended to be an iPhone competitor (that�??s left to RIMM�??s forthcoming Storm, which will almost certainly be reviewed by Mossberg himself), and instead is designed to be an evolution of the BlackBerry 8800 series devices, which are popular with corporations because they focus on functionality over style.  This point, made by Boehert in paragraph two, places the entire review in a proper context.

Blodget, as any good yellow journalist would do, takes everything out of context.

Now, here are my takeways from Boehret�??s review:

�??The BlackBerry Bold has a bright, beautiful screen and one of the most comfortable keyboards I’ve used on a mobile device. It has a speedy processor that handles email, Web browsing and video playback with ease.�??

�??The Bold’s large size affords mobile extravagances like a keyboard I could use without looking down.�??

�??Emailing on the BlackBerry Bold was a breeze. I grew so fond of its keyboard…that I found myself touch typing without looking down after only three days of use.�??

�??The Bold opened Web addresses and videos with no problem, whether I was on AT&T’s 3G network or Wi-Fi in my home or office.�??

�??I found the BlackBerry Bold to be a huge asset for on-the-go productivity�??

�??Users won’t mind this mobile device’s large build and higher price because of its luxuriously comfortable features.�??

�??The Bold is definitely worth a look.�??

Sure, RIMM is experiencing some delays in getting the Bold (AT&T) to market and is supposedly seeing less-then-stellar uptake on its new flip phone (T-Mobile) based on VERY early indications.  But, initial reviews of BlackBerry’s Storm (Verizon) touch-screen device have been surprisingly strong - even giving its touch-screen an edge over the iPhone’s.

Bottom line: RIMM just may be one of the most undervalued names out there right now.

Apple (AAPL) is sitting on $20 billion of cash and has no debt.  That equates to about $23.50 per share in cash, or about 27% of its current stock price ($88.00).

Google (GOOG) is sittiing on $13 billion of cash and has no debt.  That equates to about $40.50 per share in cash, or about 12% of its current stock price ($328.00).

Cisco (CSCO) is sittiing on $26 billion of cash and has about $7 billion of debt.  That equates to about $3.25 per share in net cash, or about 19% of its current stock price ($17.21).

If you believe the U.S. and European economies will turn around within the 12-18 months and you can hold Google for at least that long you will see GOOG back to at least $600 during that time (a 27% return).

On Google: picking up the preeminent company in its space at less than 1x growth is a no brainer.  Sure, Google disappointed a bit, but it still had gross revenue growth of 39% (organic revenue growth of 34%) and GAAP EPS growth of 35% (non-GAAP growth of 30%).  GOOG is expected to generate 2009 GAAP EPS just north of $20.00.  So, at $496, GOOG is trading at around 25x earnings (about 30x 2008 projected GAAP EPS of $16.60). Oh, and did I mention that Google’s sitting on $12 billion of cash and has no debt?

On FEDEX: I’ve had this one on my watch list for several months (mentioned it in my previous post).  This is a great company that’s simply facing a cyclical downturn.  FEDEX will be one of the first companies to rebound strongly as we come out of the recession.  You want to get in before things start to look rosy - by then you’ll have missed a 20% move up.

On Amdocs: DOX is a leading global provider of services and software to the communications industry (wireless and wireline).  I owned the stock earlier in the decade (got in just after the tech/telecom bust) and did quite well with it.   The stock is trading back down to about where it was just prior to announcing strong 1Q numbers in April.  I wanted to get in before the company announced 2Q numbers next week.

Akamai Technologies Inc (AKAM) - $26.64 (01/17/08 close)
Cisco Systems, Inc (CSCO) - $24.33
3M Co. (MMM) - $74.96
Intel Corp (INTC) - $19.33
McDonald’s Corp (MCD) - $51.98
General Motors Corporation (GM) - $22.84
Starbucks Corp (SBUX) - $19.05

I subsequently took long positions in five of these stocks:

AKAM purchased at $27.37 (on 01/22/08)
INTC purchased at $18.54 (01/22/08)
CSCO purchased at $23.44 (02/06/08)
MMM purchased at $73.65 (01/22/08) sold at $77.05 (04/25/08)
SBUX purchased at $16.48 (04/30/08)
Thankfully, I avoided GM.

Although not on my watch list, I also purchased shares of Transocean (RIG) at $162.07 on 05/20/08). This is a great way to play the supply constraints with crude oil, as Transocean is one of the largest providers of offshore contract drilling services for oil and gas wells, particularly in deepwater and harsh environments.

Today, I have my eyes on FedEx (FDX), currently trading at about $79.25 and Ford (F) currently trading at about $5.35.

We recommended taking a close look at AKAM back on January 18th, when the stock was at $26.64, and we do so again today.

* full disclosure: i own shares of AKAM (purchased shortly after my Jan 18 recommendation)

Most of these companies are leaders in their field with strong balance sheets and cash flow.  Others, such as General Motors, have a significant turnaround opportunity ahead of them (strong slate of new car models - Malibu, Enclave, etc., substantial declines in labor costs) once we get beyond the current economic malaise.  And, most have strong international exposure (geographic diversification) and overseas growth opportunities.

Akamai is probably the riskiest bet of the bunch (although some might argue that GM is even riskier), yet, its core business of speeding the delivery of content around the web offers the best opportunities for continued long-term growth.

The best way to play GM, may be to purchase long-term options (the Jan 09 $25’s are currently going for $4.30 and the Jan 10 $25’s are going for $5.90).  This is a great bet if you believe GM will turn itself around even modorately and the econimc downturn will be relativelty short-lived.

Akamai Technologies Inc (AKAM) - $26.64 (01/17/08 close)

Cisco Systems, Inc (CSCO) - $24.33

3M Co. (MMM) - $74.96

Intel Corp (INTC) - $19.33

McDonald’s Corp (MCD) - $51.98

General Motors Corporation (GM) - $22.84

Starbucks Corp (SBUX) - $19.05

Despite a forecast for declining margins in the 4th quarter, Amazon.com (AMZN) finished at $88.73 yesterday, down just 2.8% below the $91.28 price the stock had been at when the market opened the previous day (before surging nearly 10% that day on euphoric earnings expectations).  Further, according to MarketWatch.com, 12 of the 22 analysts that cover the stock actually increased their target price on AMZN by an average of 12% after the earnings release.  This is a stunning outcome.

Amazon has surged more than 120% since April due almost entirely to an improving profit margin story.  Analysts have chased the stock upward with ever-increasing price targets as CEO, Jeff Bezos, delivered on Wall Street’s request for decreased technology investment spending.  Rapidly expanding margins have served as the catalyst behind the stock’s sky high forward PE of nearly 60x.  That’s a PEG Ratio (PE to Growth) of 2.5x, compared with Google’s (GOOG) PEG of just under under 1x, Apple’s (AAPL) of 1.3x and eBay’s (EBAY)of 1.2x.  SEE ANALYSIS BELOW.

Another sign of possible trouble ahead for Amazon - seemingly overlooked by Wall Street - was a downbeat forecast from UPS for holiday sales released yesterday.  UPS cautioned that this year’s surge in peak-season deliveries is likely to be the weakest since 2003.

Two other reasons to be cautious about Amazon: (1) analysts are overly bullish on the prospects for the third-party sellers program that has helped Amazon grow revenue and expand margins.  It won’t be long before Amazon has to cut back on this program due to a rise in customer complaints related to less-than-Amazon-level quality service (e.g. inventory availability issues, etc); (2) it won’t be long before Amazon needs to begin investing in technology again to keep pace with its competitors (Wal-Mart.com, Target.com, etc) and customer expectations for top web companies in general.

This company is the dominant player in a great space - web traffic reporting and optimization tools (recently announced a smart acquisition of a company called Offermatica).  However, a quick, back-of-the-envelope analysis shows that OMTR is worth no more than $27 per share:

The company will do around $139.5 million of revenue (around 72% year-over-year growth) and $20.5 million of adjusted EBITDA this year.  Assuming they grow revenue 60% next year and then 50% in 2009, they will do about $335 million of revenue and $84 million of adjusted EBITDA (this assumes they can grow EBITDA margins from the mid-teens in 2007 to 25% in 2009).  Applying a 15x EBITDA multiple implies a $1.255 billion enterprise value and $1.4 billion equity value ($146 million of cash on hand, net of debt). With about 51 million shares outstanding, that implies a share price of $27.59.

I’d buy the Dec ‘07 $30 puts (MOQXF), currently trading at $1.80.

Crazy Prediction: Mark Cuban will purchase Imax Corp (IMAX) as a distribution play for his HDNet and film ventures.

Profit margins in the search business are mind-boggling, and cannot be obtained in other segments of the technology world. Google�??s net profit margin last year was 29 percent. Amazon�??s was 1.8 percent �?? yes, that is a �??1�?? followed by a decimal point. Which business would you rather be in?

Even the biggest AMZN bulls would be hard-pressed to justify the stock’s valuation relative to GOOG.  AMZN is trading at a 134% premium to GOOG when comparing the 2008 average PE-to-growth ratios of the two stocks (and a still hefty 77% premium when using the top estimates of both stocks).

The Wall Street Journal reported that according to Analysys International, a Beijing tech consulting firm, the entire Chinese online-retail market accounted for $133 million during 1Q2007.  Amazon’s Joyo.com unit is the #2 player in the market with a 12% share (behind #1 player Dangdong.com which has an 18% share).  So, Joyo.com generated roughly $16 million during 1Q07, which representes a whopping 0.53% of the $3.02 billion that Amazon generated overall.

So let me get this straight, Bezos created $1.3 billion in market value for Amazon by announcing that the company would be investing more in China where its relatively insignificant Joyo unit lags behind its chief local rival.  Sure, Joyo could one day become a major contributor to Amazon’s revenue (and profits), but it will take major investment to get there and one of the main reasons AMZN has had such an incredible run lately is because Bezos said the company would be cutting back on its investments to boost profit.

Not surprisingly, no Wall Street analysts have raised the above issue.  As AMZN approaches trading at 75x 2007 estimates (and 50x even the highest 2008 estimates), they just keep raising their price targets and providing shoddy rationale for doing so.

Where’s Henry Blodget when you need him?

** Full disclosue - I purchased the July $60 puts at $1.70 on May 21.

Nothing has changed fundamentally with the story on Amazon, so we now STRONGLY reiterate buying the July $60 puts.  TheStreet.com has a good piece on the recent surge in valuation: Amazon Ripping the Shorts

Here’s further evidence that shares of AMZN are insanely valued at current levels, particularly when compared to other a basket of comparable growth stocks - Google (GOOG), Apple (AAPL), eBay (EBAY) and Starbucks (SBUX).  You’ll see that AMZN’s valuation relative to its growth rate (PE/Growth, or PEG Ratio) is more than double that of the basket of comparables.  Amazon should be trading in the mid-$30s.

But, does that make AMZN significantly more valuable than other stellar performers? By comparison, Google (GOOG) is currently trading at about 31x earnings for a PEG ratio of 1.0x, Apple (AAPL) is also trading at roughly 31x earnings for a PEG ratio of 1.5x and Starbucks (SBUX) is trading at roughly 32x earnings for a PEG ratio of 1.4x.

Therefore, we would recommend purchasing the July �??07 $60 puts (ZQNSL.X) - currently trading at $2.35 as a way to play this current overvaluation.

By the way, we do like GOOG at $472 a share.  We also suggest keeping an eye on TheStreet.com (TSCM) �?? start buying if it gets to the low-$10 range.  And, TheKnot.com (KNOT) is starting to look attractive again at around $18.75 per share �?? we�??d be buyers if it goes below $18.

We would recommend purchasing the April ‘07 $25 puts (BQCPE.X) - currently trading at $1.20 as a way to play this current overvaluation (a true naked short is too risky for our liking). If nothing else, this can provide a bit of a hedge against your long positions in YHOO, CNET and TFSM (buy the way, we also recently picked up shares of GOOG at $475 and like it up to $550.

We do very much like the company and its business model.  We’d be buyers of the stock if fell back to the low $20s range.

CNET Networks (CNET)
Recommended on June 2 at a share price of $8.91.� The stock closed at $9.15 Friday, up 3%.

24/7 Real Media (TFSM)
Recommended on June 13 at a share price of $7.19.� The stock closed Friday at $8.87, up 23%.� We also reiterated our �??buy�?? when TFSM dipped to $6.88 due to an overall Internet sector selloff on July 27.� The stock is up 29% since that time.

IMAX Corporation (IMAX)
Recommended on June 20 at a share price of $8.31.� After climbing as high as $10.80 just weeks after our recommendation, the stock tumbled when IMAX disclosed an informal SEC inquiry into the company’s timing of revenue recognition for new theaters.� The shares closed Friday at $4.76, down 43%.

Yahoo Inc (YHOO)
Recommended on July 19 at $26.41.� The stock closed Friday at $28.14, up 7%.

Microvision, Inc (MVIS)
Recommended on June 30 at a share price of $1.93.� The stock closed Friday at $1.58, down 18%.

One Man�??s List of the worst movies of my lifetime:

5.) The Money Train.� Just stupid.� Woody Harrelson and Wesley Snipes play brothers.� Enough said.� But wait, there�??s more.� Woody the cop decides to rob a train.� Just an idiotic script.� Robert Blake plays a psycho, which must have been a real stretch for him.�

4.) Caddyshack II.� How can one of the greatest movies of all time be followed up by this disgrace?� Dan Ackroyd must have needed the money badly.� Very badly.� It is fair that Rodney Dangerfield died before Jackie Mason?� With the exception of his talk show, probably the worst decision of Chevy Chase�??s life.� Jonathan Silverman would have been better off doing Weekend at Bernie�??s VIII.� Hell, it would have been better for his career if he had done gay porn.

3.) The Breakup.� A recent disaster which featured Vince Vaughn and Jennifer Aniston.� No laughs.� No compelling storyline.� All the goodwill that Vaughn had engendered with Old School, Wedding Crashers, Dodgeball et al. was spent.� The usually amusing Jason Bateman brought nothing to the table in his supporting role.� And Anniston annoyed and whined throughout the film.� Even when she showed her naked ass the camera was blurred.� An abortion of a movie.

2.) Dr. T and the Women.� How can a movie where Liv Tyler and Kate Hudson play lesbian lovers suck?� How can a movie when a then still hot Farah Fawcett gets naked in a public fountain suck?� Well, it can.� If you think infomercials are boring, watch this piece of shit.� Helen Hunt as a sex symbol?� Richard Gere as a pussy?� Well, forget the last question.

1.) The Object of My Affection.� Another Aniston horror show.� In this debacle, a girl desperate for love tries to turn her gay friend straight so they can be together.� For Aniston�??s performance, see my comments regarding the Breakup above, except for the blurred naked ass part.� I can�??t wait for a Friends Reunion, because if Aniston is working on that, it means she is not making movies.�

Honorable Mention:� Rocky V, Showgirls, Night and the City (DeNiro can sell out too), Mr. and Mrs. Smith (maybe this should have been #5), Star Trek