Adrift in a Dry Ship

Back in Novemember I posted an article called Ted Eats Fish, which were my thoughts on an article written by Rich Smith.

Several days ago, I was asked for my thoughts on one of the stocks in my original post, DryShips, Inc.

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DryShips, Inc. (Nasdaq: DRYS) Financial statement data is based on the company’s latest 20-F filing dated December 2007.

What They Do
DryShips Inc. (DryShips) is a holding company that, through its subsidiaries, is engaged in the ocean transportation services of drybulk cargoes worldwide through the ownership and operation of the drybulk carrier vessels.

At the end of its last fiscal year, the company owned and operated a fleet of 38 vessels and eight new buildings consisting of nine Capesize drybulk carriers (including four new building Capesize drybulk carriers), 33 Panamax drybulk carriers (including two new building Panamax drybulk carriers), two new building Kamsarmax drybulk carriers and two Supramax drybulk carriers.

Its fleet carries a variety of drybulk commodities, including major bulks, such as coal, iron ore and grains, and minor bulks, such as bauxite, phosphate, fertilizers and steel products.

In addition to its owned fleet, DryShips has also chartered-in a Panamax drybulk carrier for a period of three years ending in December 2008. The average age of the vessels in the Company’s fleet is 8.8 years (10 years, 8.6 years and 5.5 years for the Capesize, the Panamax and the Supramax vessels, respectively).

As of April 25, 2008, the Company had acquired a 66.6% interest in Ocean Rig ASA. Ocean Rig is a drilling contractor in the area of offshore exploration, development and production, and operates two ultra deep-water drilling rigs, Leiv Eiriksson and Eirik Raude.

During the year ended December 31, 2007, the company took delivery of 15 second-hand drybulk carrier vessels and disposed 11 drybulk carrier vessels.

The company employs its vessels primarily in the short-term, or spot, charter market, under period time charters, in drybulk carrier pools, and on bareboat charters. Three of the Panamax drybulk carriers in the fleet are operated in a drybulk carrier pool. Thirty-two of its vessels are on time charter. The company's chartered-in vessel is on period time charter that runs concurrently with the time charter-in period, and three of the company’s vessels are on bareboat charter. Each of the company's vessels is owned through a separate wholly owned subsidiary established under the laws of Malta or the Marshall Islands.

DryShips manages the deployment of its fleet between long-term and short-term (spot market) voyage charters, which generally last from several days to several weeks, and long-term time charters and bareboat charters, which can last up to several years.

Under a bareboat charter, the vessel is chartered for a stipulated period of time, which gives the charterer possession and control of the vessel, including the right to appoint the master and the crew. Under bareboat charters, all voyage costs are paid by the company’s customers.

During 2007, the company’s customer, Baumarine AS, accounted for 12% of its voyage revenue. All of the company’s vessels are managed by Cardiff Marine Inc.

DryShips competes with Erato Owning Company, Mentor Owning Company Limited, Iris Owning Company Limited, Panatrade Shipping and Management S.A., Calypso Marine Corp., Oil Transport Investments Limited, Innovative Investments Limited and Ambassador Shipping Corporation.

The company’s principal offices are located in Amaroussion, Greece.

Short-Term Investor (Hold of 1 year or less)
Based on a recent close of $78.50, the stock has First Resistance at $82.78, a 5% increase from recent levels, Second Resistance at $86.72, a 10% decline from recent levels, and First Support at $138.30, a 51% decline from current levels.

Long-Term Investor (Hold of 3-5 years)
The stock is on my watch list with a Reasonable Value Estimate of $62.48, a Buy Target of $31.24, a First Sell Target of $60.92, and a Close Target of $65.95. The stock currently has a Risk Reward Ratio of (2.0).

Investment Fundamentals (Based on annual financial data)
For its most recent fiscal year, the company had Shareholder Equity of $27.91 per share, Earnings of $11.14 per share, and based on a recent close the stock has a trailing twelve-month PE ratio of 7.0.

Also for its most recent fiscal year, the company had a Return on Invested Capital of 18%, Average Free Cash Flow of ($15.06) per share, a Tangible Book Value of $27.91, and paid a $0.77 dividend.

The company has a Cash Conversion Cycle of (6) days, an Enterprise Value of $109.36 per share, and an Equity Value of $47.64 per share, and Total Debt of $33.89 per share.

Investment Ratios (Based on annual financial data)
The company ended its most recent fiscal year with a Current Ratio of 0.64, a Quick Ratio of 0.62, a Cash Ratio of 0.46 a Flow Ratio of 0.95, a Debt to Equity Ratio of 0.1.21, an Acid Test Ratio of 0.50, a Capital Efficiency Ratio of (0.43), and an Inventory to Sales Ratio of 0.01.

Dividends
My thoughts on individual stock dividends is pretty simple, send me the money. I personally am not interested in re-investing individual equity dividends. But for those of you that are, based on a recent close, the dividend yield for this stock is 1.0%.

My Short-Term Investment Strategy
From a trading perspective, there is more downside than upside, so, at this time, I have no short-term interest in this stock.

My Long-Term Investment Strategy
At this time, I have no long-term interest in the stock, as it currently trading above my reasonable value estimate.

And In Conclusion
You are in a hammock tied between two palm trees, the breeze is blowing softly, the sound of ocean waves crashing against shoreline rocks dulling your senses, when your cell phone rings.

The call is from your bank, they have just received another tax-free check and they need to know in which account to deposit it. You answer their question and resume your peaceful slumber. Ah…life is good.

Sounds like a something out of a movie doesn’t it? Welcome to DryShips, Inc., the Greek dry bulk shipping company with, count ‘em, two, that’s what I said bucko, two, employees.

From the company’s latest 20-F;

“We currently have two employees, our Chief Executive Officer who also acts as the Interim Chief Financial Officer, and our Internal Auditor. Following the resignation of our Chief Financial Officer on May 29, 2007, we are seeking to employ a Chief Financial Officer. We have no plans to hire additional employees.”

It seems that the company sub-contracts everything about the company, except the profits, to a company called Cardiff Marine, Inc., which is oddly enough a DryShips, Inc. affiliated company.

Of course as you can guess, Cardiff Marine, Inc. is a privately held company with no public financial information available.

Again from the company’s latest 20-F;

“We subcontract the commercial and technical management of our fleet, including crewing, maintenance and repair to Cardiff Marine Inc. (“Cardiff”), an affiliated company. 70% of the issued and outstanding capital stock of Cardiff is owned by a foundation which is controlled by Mr. Economou, our Chairman and Chief Executive Officer and a director of our Company. The remaining 30% of the issued and outstanding capital stock of Cardiff is owned by a company controlled by the sister of Mr. Economou. The loss of Cardiff’s services or its failure to perform its obligations to us could materially and adversely affect the results of our operations. Although we may have rights against Cardiff if it defaults on its obligations to us, you will have no recourse against Cardiff. Further, we are required to seek approval from our lenders to change our manager.”

So far, this seems like a pretty good business to be in, at least the way DryShips has it set up. But here’s the best part. The company is, by their interpretation of the law, a tax-exempt company.

From the company’s latest 20-F;

“Under the United States Internal Revenue Code of 1986, or the Code, 50% of the gross shipping income of a vessel-owning or chartering corporation, such as ourselves and our subsidiaries, that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States may be subject to a 4% United States federal income tax without allowance for any deductions, unless that corporation qualifies for exemption from tax under Section 883 of the Code and the Treasury Regulations promulgated thereunder.

We expect that we and each of our subsidiaries qualify for this statutory tax exemption and we have taken and intend to continue to take this position for United States federal income tax return reporting purposes. However, there are factual circumstances beyond our control that could cause us to lose the benefit of this tax exemption and thereby become subject to United States federal income tax on our United States source income. Due to the factual nature of the issues involved, it is possible that our tax-exempt status or that of any of our subsidiaries may change.

If we or our subsidiaries are not entitled to this exemption under Section 883 for any taxable year, we or our subsidiaries could be subjected for those years to an effective 2% (i.e., 50% of 4%) United States federal income tax on United States-source gross shipping income. The imposition of this taxation could have a negative effect on our business and would result in decreased earnings available for distribution to our shareholders. For the 2007 taxable year, we estimate that our maximum United States federal income tax liability would be $1.13 million if we were to be subject to this taxation.”

See, I told you life was good. The problem, at least in my opinion, is it’s only good for both of the employees of DryShips, Inc.

Everybody else is adrift in dry ship without any oars.

Wax

URS Makes Yard Bombs

URS Corporation (NYSE: URS) Financial statement data is based on the company’s latest 10-K filing dated December 2007.

What They Do
URS Corporation provides engineering, construction, and technical services in the United States and internationally.

It offers a range of program management; planning, design, and engineering; systems engineering and technical assistance; construction and construction management; operations and maintenance; and decommissioning and closure services to the U.S. federal government, state and local government agencies, as well as to private industry and international clients.

The company's program management services include logistics planning, acquisition management, risk management of weapons systems, safety management, and subcontractor management for military programs, as well as planning, coordination, schedule, and cost control services for capital improvement programs.

It provides planning, design, and engineering services for the construction of new transportation projects and for the renovation and expansion of existing transportation infrastructure, including bridges, highways, roads, airports, mass transit systems and railroads, and ports and harbors.

The company offers construction contracting and construction management services for transportation, environmental and waste management, power generation and transmission, industrial and manufacturing facilities, water resources and wastewater treatment, government building and facilities, and mining projects. In addition, the company provides operations and maintenance services in support of military installations and operations, and hazardous facilities, as well as for transportation systems, industrial and manufacturing facilities, and mining operations.

Further, it offers decommissioning and closure services for nuclear power plants, nuclear research and test facilities, production sites, and laboratories.

The company, whose headquarters are in San Francisco, California, was founded in 1904 and was formerly known as Broadview Research Corporation. The name was changed to URS Corporation in 1976.

Short-Term Investor (Hold of one year or less)
Based on a recent close of $64.19, the stock has First Resistance at $64.19, a 31% increase from recent levels, First Support at $48.66, a 1% decline from recent levels, and Second Support at $40.77, a 17% decline from current levels.

Long-Term Investor (Hold of 3-5 years)
The stock is on my watch list with a Reasonable Value Estimate of $44.53, a Buy Target of $22.27, a First Sell Target of $43.42, and a Close Target of $47.00. The stock currently has a Risk Reward Ratio of (0.4).

Investment Fundamentals (Based on annual financial data)
For its latest fiscal year, the company had Shareholder Equity of $41.76 per share, Earnings of $1.78 per share, and based on a recent close the stock has a trailing twelve-month PE ratio of 27.5.

Also for its latest fiscal year, the company had a Return on Invested Capital of 17%, Average Free Cash Flow of ($6.21) per share, a Tangible Book Value of ($2.81), and paid no dividend.

The company had a Cash Conversion Cycle of 0 days because, according to its balance sheet it has no inventory of any kind, an Enterprise Value of $61.57 per share, and an Equity Value of $36.35 per share.

Investment Ratios (Based on annual financial data)
The company ended its latest fiscal year with a Current Ratio of 1.54, a Quick Ratio of 1.54, a Cash Ratio of 0.15, a Flow Ratio of 1.40, a Debt to Equity Ratio of 0.38, an Acid Test Ratio of 1.33, and a Capital Efficiency Ratio of 0.07.

Dividends
My thoughts on individual stock dividends is pretty simple, send me the money. I personally am not interested in re-investing individual equity dividends. But for those of you that are interested in considering dividend income, based on a recent close, the dividend yield for this stock is 0.0%.

My Short-Term Investment Strategy
At this time, I have no short-term interest in this stock. However...

From a trading perspective, there is almost twice as much upside as there is downside. Were I going to trade this stock, I would get in at current levels ($48.96) with a buy of not more than 1000 shares, and immediately set a stop at $47.74, (2.5%).

If I get stopped out, I just get stopped out, and I loose $1.22 per share.

But shoulld the stock move up, I would maintain the stop percentage, and move the stop dollar amount up accordingly.

At about the $56.50, an approximate 50% trading gain, I would adjust my stop to 2% ($55.37) and maintain this percentage until the stock priced reached $60.00.

Once the stock reached $60.00, an additional 22% trading gain, I would again adjust my stop, this time to 1.5% ($59.10).

I would continue to adjust my stop as the stock moved upward, maintaining the 1.5% stop spread, until my stop took me out of the stock.

My Long-Term Investment Strategy
At this time, I have no long-term interest in the stock, as it appears to be trading at fair value.

And In Conclusion
When I was a kid, about 10 or 11, a bunch of us were playing hide and seek one summer night. Our vast hiding area consisted of the houses on either side of mine, and old lady Sloan’s, the big elm tree in her front yard being home base.

At any rate, Suzetta Perkins was chasing me, her being “it” and all, as I headed for home base. Just before I got to old lady Sloan’s dumb tree, I hit a yard bomb and sort of stumbled, which of course allowed Suzetta to tag me, thus making me…”it”.

Suzetta knew instantly what I had stepped in and started laughing, as she hollered her stupid head off that I stepped in it, and that I wasn’t wearing any shoes.

Rather than finding a water hose and trying to clean my foot, I tried to catch Suzetta so I could get some of it on her. Of course I stepped in it again, and as I looked up with disgust on my face, there was the rest of the nighttime gang, staring right at me.

They all started with their yuks, and grosses, and other monosyllabic noises, but I understood what they meant. I mean after all, the yard bomb was on the bottom of both of my bare feet.

Just as I started to chase after Kevin Jackson, his dad was the county sheriff and got to drive a police car home, which we all thought was ssssssssssooooooooo cool, Mrs. Campbell started calling for Steve to come in, which lead to a symphony of cries from other mothers, including my own.

I remember Kimmy Sams saying something along the lines of having to come in at dark during the summer was just plain retarded, a comment we all agreed with.

But in the end, the game was over, the yard bomb was still on the bottom of my feet, and another day of childhood was growing to a close.

As I hosed my feet clean, my mother fussing at me the entire time about why I didn’t pay attention to where I was running, I realized two things.

The first thing I realized was that the eyes in the front of my mother’s head didn’t seem to work as well as the ones in the back, I mean she was fussing at me about not paying attention to where I was running, completing missing the fact that it was pitch black at the time the yard bomb found me.

And the second thing I realized was that my feet, just like a long-term investment in URS Corporation, really did stink.

The analogy here is that as I cleaned my feet, in the dark, I knew they stunk because I could smell them. The same is true, in my opinion, with URS; something stinks because I can smell it. I may not know exactly what “it” is at the moment, but something is just not right.

Here is what amounts to a construction company, and according to their balance sheet, they have absolutely no inventory! I mean not an extra nail or piece of lumber. How very odd.

The company is also an engineering company. Engineering companies, as a general rule, are nothing but cash cows. Yet, URS has free cash flow to equity of ($22.40) because management allowed the company’s working capital to increase by $318 million, as they added $1.14 billion in new debt. Incredible!

So let this be a lesson for all who read these words.

Look before you leap, sniff before you step, and never under estimate the power of a mother’s vision.

Wax

Life in a Small Town

Continental Resources, Inc. (NYSE: CLR) Financial statement data is based on the company’s latest 10-K filing dated December 2007.

What They Do
Continental Resources, Inc. operates as a crude oil concentrated, independent oil and natural gas exploration and production company.

The company engages in the exploration, acquisition, exploitation, development, and production of oil and natural gas properties and has operations primarily in the Rocky Mountain, Mid-Continent, and Gulf Coast regions of the United States.

The company sells its oil and natural gas production to end users, marketers, and other purchasers.

At the end of fiscal 2007, the company's estimated proven reserves were 134.6 million barrels of oil equivalent (MMBoe), with estimated proven developed reserves of 101.2 MMBoe.

In addition, the company owned 733,132 net undeveloped and 372,329 net developed acres, as well as 12.7 net development wells and 19.9 net exploratory wells, and had interests in 1,822 gross wells as well as serving as the operator of 1,306 of these wells.

The company was founded in 1967 and is based in Enid, Oklahoma.

Short-Term Investor (Hold of one year or less)
Based on a recent close of $61.66, the stock has First Resistance at $63.69, a 3% increase from recent levels, First Support at $42.57, a 31% decline from recent levels, and Second Support at $27.41, a 56% decline from recent levels..

Long-Term Investor (Hold of 3-5 years)
The stock is on my watch list with Reasonable Value Estimate of $16.02, a Buy Target of $8.01, a First Sell Target of $15.62, and a Close Target of $16.90. The stock currently has a Risk Reward Ratio of (27.9).

Investment Fundamentals (Based on annual financial data)
For fiscal 2007, the company had Shareholder Equity of $3.69 per share, Earnings of $2.18 per share, and based on a recent close the stock has a trailing twelve-month PE ratio of 28.2.

Also for fiscal 2007, the company had a Return on Invested Capital of 34%, Average Free Cash Flow of ($2.11) per share, a Tangible Book Value of $3.69, and paid a $0.31 dividend.

Additionally, the company had a Cash Conversion Cycle of (370) days, a Capital Efficiency ratio of (0), an Enterprise Value of $62.58 per share, an Equity Value of $60.74 per share, a Current Ratio of 0.77, a Quick Ratio of 0.70, a Cash Ratio of 0.03, and a Flow Ratio of 0.74.

Investment Opinion (One investor’s conclusion)
At this time, I have no short-term interest in this stock. Also at this time, I have no long-term interest in this stock.

I wish I had something positive to say about this company but I simply don’t. As an investment it holds as much interest for me as wet socks.

I did read an article at the Forbes site the other day that mentioned the stock, and I think it’s great that the company is getting into shale and all of that. But in glancing at what the company does, I never found that management knows the first thing about how to extract oil from rocks.

Maybe they are going to repave the Kroger parking lot? I know Miss Edna would certainly be most unhappy about that, while Henry, her son-in-law, would probably dance a jig.

It seems like every time Miss Edna goes to the store, she ends up calling Henry to bring his wrecker so he can pull her car out of some pothole.

I asked Miss Edna once how come she always parked in that pothole, and if she could see okay, thinking maybe she didn’t realize the pothole was there.

She just grinned and told me she parked in it for two reasons. The first of course was to irritate Henry and the second was because it made it easier for her to get in and out of her car.

Admittedly, I never thought about reason number two. Ah, life in a small town.

Wax

Elephant Pasta

Dear Smith;

I read an article on-line yesterday, a link from my old friend Merrill leading me to the site. The article was basically a discussion about how analysts from somewhere had re-rated a bunch of stocks. I think the name of the place was Starter Mind, or something like that.

So my friend Merrill asked me if I still wrote the Raw Value Report, the newsletter I used to put out 5 years ago, or maybe it was 6 years?

At any rate I told him no and asked what he wanted, and he told me he was curious about the gaming industry stocks that were in the article he sent me.

Merrill is good guy and because he spits a lot when he talks and limps when he walks I try to help him when I can.

Why he spits pretty good when he talks I’m not sure, but he limps when he walks because he has blisters on his toes, blisters he showed me once as we had coffee at Pearl’s Penniless Diner.

Arlene Commington and Covetta Klupsworthy were sitting at the table next to us when Merrill pulled off his boot, jerked down his sock and showed me his blisters. Thought them two ladies was gonna pass out there for a second, till I seen Arlene sort of licking her lips.

At any rate, this is what I told Merrill, and I thought I might share it with you as well. Use it wisely.

Wax

WMS Industries, Inc. (NYSE: WMS) Financial statement data is based on the company’s latest 10-K filing dated June 2007.

Short-Term Investor (Hold of one year or less)

Based on a recent close of $37.08, the stock has First Resistance at $37.15, a 0% increase from recent levels, and First Support at $34.21, an 8% decline from recent levels.

Long-Term Investor (Hold of 3-5 years)

The stock is on my watch list with Reasonable Value Estimate of $30.59, a Buy Target of $15.29, a First Sell Target of $29.82, and a Close Target of $32.28. The stock currently has a Risk Reward Ratio of (1.6).

Investment Fundamentals (Based on annual financial data)

For fiscal 2007, the company had Earnings of $0.70 per share, and based on a recent price has a PE ratio of 52.6. Also for fiscal 2007, the company had a Return on Invested Capital of 30%, Average Free Cash Flow of ($0.03) per share, a Tangible Book Value of $5.65, and paid a dividend of $0.00.

Additionally, the company had a Cash Conversion Cycle of 181 days, an Enterprise Value of $38.39 per share, an Equity Value of $35.77 per share, a Current Ratio of 3.95, a Quick Ratio of 3.03, a Cash Ratio of 0.43, and a Flow Ratio of 3.52.

Investment Opinion (One investor’s conclusion)

I have no investment interest in this stock at the present time either as a short-term trader or a long-term investor, as the stock appears to be fairly valued.

Las Vegas Sands Corporation (NYSE: LVS) Financial statement data is based on the company’s latest 10-K filing dated December 2007.

Short-Term Investor (Hold of one year or less)

Based on a recent close of $76.09, the stock has First Resistance at $98.88, a 30% increase from recent levels, and First Support at $74.72, a 2% decline from recent levels.

Long-Term Investor (Hold of 3-5 years)

The stock is on my watch list with Reasonable Value Estimate of $0.00, a Buy Target of $0.00, a First Sell Target of $0.00, and a Close Target of $0.00. The stock currently has a Risk Reward Ratio of 0.

Investment Fundamentals (Based on annual financial data)

For fiscal 2007, the company had Earnings of $0.15 per share, and based on a recent price has a PE ratio of 518.4. Also for fiscal 2007, the company had a Return on Invested Capital of 3%, Average Free Cash Flow of ($10.80) per share, a Tangible Book Value of $6.35, and paid a dividend of $0.00.

Additionally, the company had a Cash Conversion Cycle of 6 days, an Enterprise Value of $94.96 per share, an Equity Value of $57.22 per share, a Current Ratio of 0.92, a Quick Ratio of 0.91, a Cash Ratio of 0.57, and a Flow Ratio of 0.36

Investment Opinion (One investor’s conclusion)

At present the stock holds no longer-term interest for me. However, the stock does hold some potential short-term interest.

I would be a buyer of the stock at recent levels, placing a Stop under my trade at $72.25. I would not add to my position on price pullbacks, and would sell half my short-term position at or near $87.50, and close my short-term position at or near $99.

MGM Mirage, Inc. (NYSE: MGM) Financial statement data is based on the company’s latest 10-K filing dated December 2007.

Short-Term Investor (Hold of one year or less)

Based on a recent close of $52.03, the stock has First Resistance at $55.44, a 7% increase from recent levels, Second Resistance at $74.74, a 44% increase from recent levels, and First Support at $47.60, a 9% decline from recent levels.

Long-Term Investor (Hold of 3-5 years)

The stock is on my watch list with Reasonable Value Estimate of $0.90, a Buy Target of $0.45, a First Sell Target of $0.88, and a Close Target of $0.95. The stock currently has a Risk Reward Ratio of (565.3).

Investment Fundamentals (Based on annual financial data)

For fiscal 2007, the company had Earnings of $1.67 per share, and based on a recent price has a PE ratio of 31.1. Also for fiscal 2007, the company had a Return on Invested Capital of 7%, Average Free Cash Flow of ($17.56) per share, a Tangible Book Value of $14.88, and paid a dividend of $0.00.

Additionally, the company had a Cash Conversion Cycle of 11 days, an Enterprise Value of $88.11 per share, an Equity Value of $15.95 per share, a Current Ratio of 0.68, a Quick Ratio of 0.61, a Cash Ratio of 0.24, and a Flow Ratio of 0.44

Investment Opinion (One investor’s conclusion)

At present the stock holds no short-term or long-term interest for me.

Given the current uncertainty of the markets and the economy, I don’t believe the stock will be able to break out above first resistance, but if it should, I don’t believe such a breakout is sustainable. Since the short-term reward potential is at levels approaching second resistance, price levels that I don’t believe the stock can achieve, there is no short-term interest.

As a long-term investment, the company has too much debt at $37.46 per share. Already the company has negative cash flow, and interest expenses at 9.21% of Sales. As interest rates increase, the debt service will also increase, which will further erode cash flows and earnings.

Boyd Gaming Corporation (NYSE: BYD) Financial statement data is based on the company’s latest 10-K filing dated December 2007.

Short-Term Investor (Hold of one year or less)

Based on a recent close of $18.17, the stock has First Resistance at $19.09, a 5% increase from recent levels, Second Resistance at $31.49, a 73% increase from recent levels, and First Support at $17.10, a 6% decline from recent levels.

Long-Term Investor (Hold of 3-5 years)

The stock is on my watch list with Reasonable Value Estimate of $14.72, a Buy Target of $7.36, a First Sell Target of $14.35, and a Close Target of $15.54. The stock currently has a Risk Reward Ratio of (1.8).

Investment Fundamentals (Based on annual financial data)

For fiscal 2007, the company had Earnings of $1.24 per share, and based on a recent price has a PE ratio of 14.7. Also for fiscal 2007, the company had a Return on Invested Capital of 10%, Average Free Cash Flow of ($2.75) per share, a Tangible Book Value of $5.00, and paid a dividend of $0.58.

Additionally, the company had a Cash Conversion Cycle of (14) days, an Enterprise Value of $41.88 per share, an Equity Value of ($5.54) per share, a Current Ratio of 0.89, a Quick Ratio of 0.86, a Cash Ratio of 0.44, and a Flow Ratio of 0.46

Investment Opinion (One investor’s conclusion)

At present the stock holds no longer-term interest for me. However, the stock does hold some potential short-term interest.

I would be a buyer of the stock at recent levels, placing a Stop under my trade at $16.75. I would not add to my position on price pullbacks, and would sell half my short-term position at or near $25.00, and close my short-term position at or near $31.50.

International Game Technology, Inc. (NYSE: IGT) Financial statement data is based on the company’s latest 10-K filing dated September 2007.

Short-Term Investor (Hold of one year or less)

Based on a recent close of $36.19, the stock has First Resistance at $38.99, an 8% increase from recent levels, Second Resistance at $41.21, a 14% increase from recent levels, and First Support at $33.27, an 8% decline from recent levels.

Long-Term Investor (Hold of 3-5 years)

The stock is on my watch list with Reasonable Value Estimate of $39.38, a Buy Target of $19.69, a First Sell Target of $38.39, and a Close Target of $41.56. The stock currently has a Risk Reward Ratio of 1.4.

Investment Fundamentals (Based on annual financial data)

For fiscal 2007, the company had Earnings of $1.08 per share, and based on a recent price has a PE ratio of 33.4. Also for fiscal 2007, the company had a Return on Invested Capital of 48%, Average Free Cash Flow of ($1.23) per share, a Tangible Book Value of $0.27, and paid a dividend of $0.52.

Additionally, the company had a Cash Conversion Cycle of 79 days, an Enterprise Value of $39.90 per share, an Equity Value of $32.48 per share, a Current Ratio of 1.86, a Quick Ratio of 1.65, a Cash Ratio of 0.38, and a Flow Ratio of 1.46

Investment Opinion (One investor’s conclusion)

I have no investment interest in this stock at the present time either as a short-term trader or a long-term investor, as the stock appears to be fairly valued.

Wynn Resorts, Ltd. (Nasdaq: WYNN) Financial statement data is based on the company’s latest 10-K filing dated December 2007.

Short-Term Investor (Hold of one year or less)

Based on a recent close of $109.52, the stock has First Resistance at $120.32, a 10% increase from recent levels, and First Support at $103.93, a 5% decline from recent levels.

Long-Term Investor (Hold of 3-5 years)

The stock is on my watch list with Reasonable Value Estimate of $18.77, a Buy Target of $9.39, a First Sell Target of $18.30, and a Close Target of $19.81. The stock currently has a Risk Reward Ratio of (47.8).

Investment Fundamentals (Based on annual financial data)

For fiscal 2007, the company had Earnings of $1.08 per share, and based on a recent price has a PE ratio of 101.6. Also for fiscal 2007, the company had a Return on Invested Capital of 12%, Average Free Cash Flow of ($8.89) per share, a Tangible Book Value of $16.50, and paid a dividend of $0.

Additionally, the company had a Cash Conversion Cycle of (1) days, an Enterprise Value of $129.34 per share, an Equity Value of $89.70 per share, a Current Ratio of 2.70, a Quick Ratio of 2.58, a Cash Ratio of 2.18, and a Flow Ratio of 0.53

Investment Opinion (One investor’s conclusion)

I have no investment interest in this stock at the present time either as a short-term trader or a long-term investor, as the stock appears to be fairly valued.

The Dancing Pie

A couple of weeks ago my friend Leif asked me if I would review the Drug Store Industry to see if there was a company or two that he could add to his portfolio.

Let me say at the start, when it comes to investing, Leif isn’t exactly the sharpest knife in the drawer. In fact, when it comes to investing, he’s dumber than a stump. Were it not for his daughter Willow, I’m sure Leif would have lost all his money a long time ago.

So after arguing with him for a couple of weeks that he didn’t need to add a drug store stock to his portfolio, I gave in and told him I would take a look, but not until he paid me.

Several weeks later I ran into Leif at the bank and he asked me how things were going with the research he wanted. I reminded him that I wasn’t going to do anything until he paid me, unlike all of the times before this.

This led to a cussing match that the eavesdropping busybody, widow Mellon, found hysterical…which led to her dentures coming loose, which led to her almost swallowing them, which led to the paramedics being called, which led to the police being called, which led to more cussing, which led to the bank manager breaking the widow Mellon’s dentures when he stepped on them as he tried to break up the fisticuffs between me and Leif.

Thinking back on it, I guess it had to be sort of comical, two old geezers trying to go at it in the middle of the bank lobby. Now that’s something you don’t see every day.

Eventually the paramedics decided to take the widow Mellon to the hospital, just to make sure she was going to be okay, and Leif and I ended up in the back of Police Chief Olaf’s police car while Arvil Sturgeon, the Bank Manager, explained what had gone on.

About the time I started to wonder how much trouble Leif and I might be in, Leif looked at me and said he had a plan to get us off the hook. All I said was had he paid me like he said he would we wouldn’t be on a hook.

I knew what was coming before I said what I said, but being one those folks that just can’t resist, I said it anyway.

You guessed it, more cussing, more trying to get a good swing at each other, more injury inflicted on ourselves by ourselves than on each other, more and more and….

Our screaming and the attendant commotion led Police Chief Olaf to his car to see what was going on. As he walked up to my side of the car, Leif leaned forward and the next thing I know it was complete pandemonium.

When Leif leaned forward he was trying to turn on the siren, but instead he hit the gearshift lever, popping the idling police car into reverse. All of this happened just as Leif decided to implement his plan for getting us off the hook, which as it turned out was to make a run for it!

Hell, at his age Leif couldn’t run to the bathroom if he had loose bowels much less run from the police.

I once saw him try to run behind a tree in a desperate attempt to hide the fact from his daughter that he was still smoking cigars. Of course he never came close to reaching his hiding place before Willow caught him.

It seems that when Leif gets nervous his brain goes into ultra dumb mode, because aside from not being the sprinter of his dreams, Leif never thought to put out the cigar.

So when Willow caught him with the cigar in his hand as he tried to hide behind the tree, he looked her straight in the eye and told her the cigar wasn’t his…he found it.

He and I were on the outs for weeks and weeks after that incident. I mean I was there, I saw what happened. It isn’t like I was spreading a rumor all over town?

Things didn’t die down for Leif about the cigar tree incident till the town carpenter Stumpy Gurgle was caught sawing old lady Trimble in her backyard Gazebo. When the news broke about that, everybody forgot about Leif, which was just fine with him.

So back to Leif’s current plan, which was to make a run for it…as Leif opens the door and starts to get out, the car begins its backwards journey. Seeing that old fart stuck on that police car door with his head out the open window was one of the funniest things I had ever seen, and instead of trying to help, I started to laugh.

My laughing made Leif madder than he was in the bank lobby, especially when I started yelling at him that he must be the greatest criminal mind of our time to think up such a foolproof plan!

As I said, I know I should have done something, but the whole scene was just too funny.

Here was Leif stuck through the door of a police car that was in reverse heading toward Herb Shutterdam’s ice cream truck while the chief of police and the bank manager stood frozen in place wondering just what the hell was going on.

As we picked up speed, I noticed through the windshield that behind Chief Olaf, Clyde Dartsworthy was filming the goings on with his new cell phone. Clyde operates the town sewage treatment plant, and other than the widow Mellon, nobody seems to want to get real close to Clyde.

As soon as I saw him with that cell phone I started to feel a bit sad for the widow Mellon since she was missing the biggest thing to happen in this town…ever, and it was her that was at the center of the whole damn thing.

Anyway, Herb, seeing the police car heading right towards him, finally engages his brain and moves his worn out ice cream truck out of harm’s way just as the police car enters the extra wide wheel chair ramp that will, at its end, deposit the police car, me, and Leif, in the fountain in the middle of the town square.

And just as I was thinking about this, there was a loud thud, followed by a splash, followed by Leif falling into the fountain as he screamed in a high pitched voice for me to save him because he couldn’t swim.

I sat in the barbershop telling my new tale and explaining that in the end, it never occurred to Chief Olaf that master criminal Leif was trying to implement a dastardly plan that could not be foiled.

Instead, it seems the Chief wrongfully assumed that the running car had jumped into reverse just as he had read in True and Real Crime Drama Magazine.

My rendition of the events as they happened, while not being exactly chronologically correct, once again branded Leif the guffaw king, and with any luck my tale will survive long after Leif and I are banished to the great bank lobby in the sky.

As to the companies in the Drug Store Industry?

Well…..as it happened, Leif’s daughter Willow had bought the house across the street from her dad’s house, and on that fateful day was in the process of moving her family of one husband and seven cats into their new digs.

It seems that Leif is allergic to cats, but cats love Leif, and by the third day following Willow’s arrival, Leif couldn’t stop sneezing.

He would sneeze and sneeze and sneeze. Then he would start cussing those cats for all he was worth. Seems the more he cussed those cats, the more they would stay around his house, and the more Leif would sneeze.

Taking pity on him, I collected some allergy medicine coupons and took them over. When I dropped them off I told him that his allergies were justice for being such a jerk, which reminded him of his request for information on the drug store industry.

Allergy medicine is 20% off I told him and that’s all you’re getting until you pay me. Just as he started to cuss at me again, I pulled Elizabeth, a long haired Himalayan cat, from behind my back and before I could say grace, old Leif was grabbing his checkbook.

I reminded him of the price and was pleasantly surprised when I realized he paid me a touch extra. I had asked for $1500, but generous Leif paid me $5100.

In fairness to myself, I did try and explain his mistake to him. But with all that sneezing and snorting after I dropped Elizabeth in his lap…I don’t think he heard me.

Wax

The Drug Store Industry

According to Yahoo, there are 54 companies in this industry. Of those 54, I have seven (7) on my watch list.

The average price of those seven stocks as of the end of business on 05/09/08, is $30.66, with my average reasonable value estimate at $41.59, my average Buy target at $20.80, my average First Sell target at $40.55, and my average Close target at $43.90.

In addition my average Risk Reward for these seven stocks is 4.2, meaning that in comparing my average reasonable value estimates for these stocks with recent prices, the stocks average 4.2 times more upside reward than downside risk. I personally won’t buy a stock until the risk reward is at 5.

CVS Caremark Corporation (NYSE: CVS) Financial data is based on the company’s most recent SEC 10-K filing for the year ended December 2007.

The company is a provider of prescriptions and related healthcare services in the United States, filling or managing more than one billion prescriptions annually. In March 2007, the company closed its merger with Caremark Rx, Inc. (Caremark). Following the Caremark Merger, the company changed its name to CVS Caremark Corporation.

The company operates in two business segments: Retail Pharmacy and Pharmacy Services.

Short-Term Investor

For the short-term trader, based on a recent close of $41.34, the stock has first resistance at $42.60, a 3% increase from recent levels, first support at $40.34, a 2% decrease from recent levels, and second support at $39.23, a 5% decrease from recent levels.

Long-Term Investor

For the long-term, 3-5 year hold, investor, the stock is on my watch list with a reasonable value estimate of $46.45, a Buy target of $23.22, a First Sell target of $45.29, and a Close target of $49.03. The stock currently has a risk reward ratio of 1.7.

Investment Fundamentals

For fiscal 2007, the company earned $1.49 per share, and based on a recent price has a PE ratio of 27.7. Also for fiscal 2007, the company had a Return on Invested Capital of 34%, Average Free Cash Flow of $0.60 per share, a Tangible Book Value of ($2.11), and paid a dividend of $0.22.

Additionally, the company had a cash conversion cycle of 49 days, an Enterprise Value of $47.90 per share, an Equity Value of $34.78 per share, a Current Ratio of 1.31, a Quick Ratio of 0.57, a Cash Ratio of 0.10, and a Flow Ratio of 1.52.

Investment Opinion

I have no interest in owning this stock at the present time as either a short-term trader or long-term investor as I believe the stock is fairly valued at recent levels.

Longs Drug Stores, Inc. (NYSE: LDG) Financial data is based on the company’s most recent SEC 10-K filing for the year ended January 2008.

The company operates in two business segments: retail drug stores, and through its RxAmerica subsidiary, pharmacy benefit services.

Through the company's retail drug store segment, it is a retail drug store chain on the West Coast of the United States and in Hawaii, with 510 stores as of January 31, 2008. Longs Drug Stores Corporation's retail drug store segment also operates a mail order pharmacy business.

The company's pharmacy benefit services segment provides a range of services related to pharmacy benefit management, including plan design and implementation, claims administration and formulary management to third-party health plans and other organizations.

Short-Term Investor

For the short-term trader, based on a recent close of $43.90, the stock has first resistance at $47.74, a 9% increase from recent levels, and first support at $41.42, a 2% decrease from recent levels.

Long-Term Investor

For the long-term, 3-5 year hold, investor, the stock is on my watch list with a reasonable value estimate of $80.17, a Buy target of $40.09, a First Sell target of $78.17, and a Close target of $84.62. The stock currently has a risk reward ratio of 5.1.

Investment Fundamentals

For fiscal 2007, the company earned $2.52 per share, and based on a recent price has a PE ratio of 17.4. Also for fiscal 2007, the company had a Return on Invested Capital of 20%, Average Free Cash Flow of $2.03 per share, a Tangible Book Value of $18.62, and paid a dividend of $0.55.

Additionally, the company had a cash conversion cycle of 48 days, an Enterprise Value of $49.22 per share, an Equity Value of $38.58 per share, a Current Ratio of 1.32, a Quick Ratio of 0.62, a Cash Ratio of 0.04, and a Flow Ratio of 1.35.

Investment Opinion

I have no interest in owning this stock at the present time as either a short-term trader or long-term investor. While valuations may tend to reflect the stock in a positive light, it is my opinion that when valuations are overlaid with the fundamentals, a purchase of stock at this time is ill advised.

While the company is very strong when compared with other stocks in this industry, it fails to measure up as investment quality given my parameters of low PE, high ROIC, and ratios above or below specific targets.

MedcoHealth Solutions, Inc. (NYSE: MHS) Financial data is based on the company’s most recent SEC 10-K filing for the year ended December 2007.

The company is a pharmacy benefit manager providing traditional and specialty prescription drug benefit programs and services for its clients and members.

The company provides pharmacy benefit management (PBM) services through its national networks of retail pharmacies and its own mail-order pharmacies, as well as through its Specialty Pharmacy segment, Accredo Health Group.

During the fiscal year ended December 29, 2007 (fiscal 2007), it introduced the Medco Therapeutic Resource Centers. The company's data center links its mail-order pharmacy operations, including its call center pharmacies and work-at-home sites, its Websites, and the retail pharmacies in its networks.

In April 2008, the company acquired a majority interest in Europa Apotheek Venlo, a privately held company providing clinical healthcare and mail-order pharmacy services in Germany.

Short-Term Investor

For the short-term trader, based on a recent close of $49.49, the stock has first resistance at $54.63, a 10% increase from recent levels, first support at $46.47, a 6% decrease from recent levels, and second support at $45.44, an 8% decrease from recent levels.

Long-Term Investor

For the long-term, 3-5 year hold, investor, the stock is on my watch list with a reasonable value estimate of $46.83, a Buy target of $23.42, a First Sell target of $45.66, and a Close target of $49.43. The stock currently has a risk reward ratio of 0.

Investment Fundamentals

For fiscal 2007, the company earned $1.33 per share, and based on a recent price has a PE ratio of 37.1. Also for fiscal 2007, the company had a Return on Invested Capital of 79%, Average Free Cash Flow of $0.48 per share, a Tangible Book Value of ($4.03), and paid no dividend.

Additionally, the company had a cash conversion cycle of 8 days, an Enterprise Value of $54.34 per share, an Equity Value of $44.64 per share, a Current Ratio of 1.23, a Quick Ratio of 0.85, a Cash Ratio of 0.15, and a Flow Ratio of 1.22.

Investment Opinion

I have no interest in owning this stock at the present time as either a short-term trader or long-term investor as I believe the stock is fairly valued at recent levels.

Omnicare, Inc. (NYSE: OCR) Financial data is based on the company’s most recent SEC 10-K filing for the year ended December 2007.

The company is a geriatric pharmaceutical services company operating in two segments: Pharmacy Services and Contract Research Organization Services (CRO Services).

The company provides pharmaceuticals and related ancillary pharmacy services to long-term healthcare institutions. Its clients include primarily skilled nursing facilities (SNFs), assisted living facilities (ALF's), retirement centers, independent living communities, hospitals, hospice, other healthcare settings and service providers.

The company also provides operational software and support systems to long-term-care pharmacy providers across the United States, and provides pharmaceutical distribution and patient assistance services for specialty pharmaceuticals.

Short-Term Investor

For the short-term trader, based on a recent close of $23.75, the stock has first resistance at $25.71, an 8% increase from recent levels, and first support at $19.06, a 20% decrease from recent levels.

Long-Term Investor

For the long-term, 3-5 year hold, investor, the stock is on my watch list with a reasonable value estimate of $42.80, a Buy target of $21.40, a First Sell target of $41.73, and a Close target of $45.18. The stock currently has a risk reward ratio of 5.

Investment Fundamentals

For fiscal 2007, the company earned $1.16 per share, and based on a recent price has a PE ratio of 20.5. Also for fiscal 2007, the company had a Return on Invested Capital of 16%, Average Free Cash Flow of $2.06 per share, a Tangible Book Value of ($11.28), and paid a $0.09 dividend.

Additionally, the company had a cash conversion cycle of 88 days, an Enterprise Value of $44.68 per share, an Equity Value of $2.82 per share, a Current Ratio of 3.77, a Quick Ratio of 3.08, a Cash Ratio of 0.42, and a Flow Ratio of 3.36.

Investment Opinion

Admittedly I like the numbers for this stock. The company reduced its debt load by $1.28 per share during the fiscal year, a move I generally always applaud.

Moreover, I like the company’s current and quick ratio numbers, as it tells me management’s collective head is in the game. On the flip side, the company’s flow ratio, a measure of cash flow management, is almost 2.5 times higher than what I require for an investment grade stock.

So while the company is certainly showing it’s here to do business, it hasn’t quite become an investment grade stock for me just yet.

Accordingly, I have no interest in owning this stock at the present time as either a short-term trader or long-term investor.

PharMerica Corporation (NYSE: PMC) Financial data is based on the company’s most recent SEC 10-K filing for the year ended December 2007.

The company is an institutional pharmacy services company serving healthcare facilities and providing management pharmacy services to hospitals. It operates 115 institutional pharmacies in 40 states.

The company's customers are typically institutional healthcare providers, such as nursing facilities, assisted living facilities, hospitals and other long-term alternative care settings. It also provides pharmacy management services to 86 hospitals in the United States.

The company operates two business segments: institutional pharmacies and hospital pharmacy management. Institutional pharmacies provide pharmacy services to nursing centers and other healthcare providers, and the hospital pharmacy management business provides management services to substantially all of Kindred Healthcare, Inc.'s (Kindred) hospitals.

Short-Term Investor

For the short-term trader, based on a recent close of $18.76, the stock has first resistance at $23.20, an 24% increase from recent levels, first support at $16.08, a 14% decrease from recent levels, and second support at $15.53, a 17% decrease from recent levels.

Long-Term Investor

For the long-term, 3-5 year hold, investor, the stock is on my watch list with a reasonable value estimate of $20.98, a Buy target of $10.49, a First Sell target of $20.46, and a Close target of $22.14. The stock currently has a risk reward ratio of 1.6.

Investment Fundamentals

For fiscal 2007, the company earned $0.48 per share, and based on a recent price has a PE ratio of 39.3. Also for fiscal 2007, the company had a Return on Invested Capital of 10%, Average Free Cash Flow of ($10.97) per share, a Tangible Book Value of $3.96, and paid a $4.11 dividend.

Additionally, the company had a cash conversion cycle of 73 days, an Enterprise Value of $25.93 per share, an Equity Value of $11.59 per share, a Current Ratio of 3.66, a Quick Ratio of 2.89, a Cash Ratio of 0.32, and a Flow Ratio of 3.34.

Investment Opinion

My issue with this stock is that it is the result of a merger of PharMerica Long-Term Care and Kindred Pharmacy, and while all seems quite lovely at the moment, there isn’t enough historical financial data of the merged companies to give me the warm fuzzies.

Accordingly, I have no interest in owning this stock at the present time as either a short-term trader or long-term investor.

Rite Aid Corporation (NYSE: RAD) Financial data is based on the company’s most recent SEC 10-K filing for the year ended February 2008.

The company, incorporated in 1968, is a retail drugstore chain in the United States operating drugstores in 31 states across the United States and in the District of Columbia.

As of March 1, 2008, it operated 5,059 stores. In its stores, the company sells prescription drugs and an assortment of other merchandise, which it calls front-end products. Front end products include over-the-counter medications, health and beauty aids, personal care items, cosmetics, household items, beverages, convenience foods, greeting cards, seasonal merchandise and numerous other everyday and convenience products, as well as photo processing. It offers approximately 3,000 products under the Rite Aid private brand.

In June 2007, the Company completed the acquisition of 1,854 Brooks and Eckerd stores and six distribution centers from The Jean Coutu Group (PJC) Inc., creating a drugstore chain on the East Coast.

Short-Term Investor

For the short-term trader, based on a recent close of $2.37, the stock has first resistance at $2.64, an 11% increase from recent levels, second resistance at $3.55, a 50% increase from recent levels, and first support at $1.91, a 19% decrease from recent levels.

Long-Term Investor

For the long-term, 3-5 year hold, investor, the stock is on my watch list with a reasonable value estimate of $0.00, a Buy target of $0.00, a First Sell target of $0.00, and a Close target of $0.00. The stock currently has a risk reward ratio of 0.

Investment Fundamentals

For fiscal 2007, the company earned ($1.04) per share, and based on a recent price has a PE ratio of (2.3). Also for fiscal 2007, the company had a Return on Invested Capital of 5%, Average Free Cash Flow of ($2.69) per share, a Tangible Book Value of ($1.52), and paid a $0.02 dividend.

Additionally, the company had a cash conversion cycle of 63 days, an Enterprise Value of $9.39 per share, an Equity Value of ($4.65) per share, a Current Ratio of 1.76, a Quick Ratio of 0.35, a Cash Ratio of 0.06, and a Flow Ratio of 1.82.

Investment Opinion

I have to admit that I have no clue what management was trying to prove with its recent purchases of the Brooks and Eckerd stores, but it goes without saying The Jean Coutu Group is very pleased.

Rite Aid investors on the other hand should demand their money back. The company has increased its debt level by $3.42 per share, bringing total debt to $7.21 per share, an amount that I believe will see little to no decline for many years to come.

With management’s demonstrated ability to be just plain stupid, I have no interest in owning this stock at the present time as either a short-term trader or long-term investor.

Walgreen Company, Inc. (NYSE: WAG) Financial data is based on the company’s most recent SEC 10-K filing for the year ended August 2007.

The company, incorporated in 1909, operates retail drugstore chains that are engaged in the retail sale of prescription and non-prescription drugs, and general merchandise.

General merchandise includes, among other things, beauty care, personal care, household items, candy, photofinishing, greeting cards, seasonal items and convenience foods. Customers can have prescriptions filled at the drugstore counter, as well as through the mail, by telephone and via the Internet.

During the fiscal year ended August 31, 2007 (fiscal 2007), the Company opened or acquired 563 stores, not including 58 locations acquired from Option Care, Inc. The total number of locations, at August 31, 2007, was 5,997 located in 48 states and Puerto Rico. The Company announced that it has created a Walgreens Health and Wellness division.

Short-Term Investor

For the short-term trader, based on a recent close of $34.99, the stock has first resistance at $36.42, a 4% increase from recent levels, second resistance at $38.91, an 11% increase from recent levels, and first support at $32.50, a 7% decrease from recent levels.

Long-Term Investor

For the long-term, 3-5 year hold, investor, the stock is on my watch list with a reasonable value estimate of $53.73, a Buy target of $26.87, a First Sell target of $52.39, and a Close target of $56.71. The stock currently has a risk reward ratio of 4.0.

Investment Fundamentals

For fiscal 2007, the company earned $1.37 per share, and based on a recent price has a PE ratio of 25.6. Also for fiscal 2007, the company had a Return on Invested Capital of 27%, Average Free Cash Flow of $2.08 per share, a Tangible Book Value of $9.98, and paid a $0.31 dividend.

Additionally, the company had a cash conversion cycle of 45 days, an Enterprise Value of $35.61 per share, an Equity Value of $34.37 per share, a Current Ratio of 1.41, a Quick Ratio of 0.40, a Cash Ratio of 0.04, and a Flow Ratio of 1.58.

Investment Opinion

If I were going to invest in a company in the Drug Store Industry, Walgreen’s would be the one. Unlike Rite Aid, the company has managed to add stores, which have added to sales and earnings, and low and behold, the company has done it with no increase in debt levels. In fact, the company has no long-term debt and short-term debt of $0.87 per share, and increase of $0.49 over the prior year.

I admit that the company’s ratios are not what I would consider investment grade at the moment which is the main reason I have no interest in owning this stock at the present time as either a short-term trader or long-term investor.

Honk if You're

I went with my friend Cobb last weekend to an "investor breakfast". If you have never been to one, they are usually put on by a local brokerage or money management firm and are geared towards seniors.

While technically a senior, I'm 55, I like to go to these things because the breakfast is free. So when Cobb, who's 61, invited me, I was all over it.

The one I attended over the weekend was put on by Merrill-Lynch and Company (NYSE: MER), and just like the last one I attended the food was cold and the coffee was weak. The words "you get what you pay for" came to mind, but I'm a senior, and seniors like free.

At any rate, we ate, and then because we were a room full of seniors, we all had to head to the can.

It was kind of funny actually, because the local Merrill broker was trying to talk about all of the wonderful investment products Merrill had and how those products could help our investment returns, and all the while folks were getting up and heading to the can.

One of the nice things about being a senior is that when you get up to go to the can, everyone in the room knows where you're going and they try to time it so they are heading to the can about the time you are coming back from the can.

It's not the same when you're younger and just the saying "heading to the can" makes you laugh. I guess that's what the guy that invented Beavis and Butthead was thinking....hehehehehe, he said can.

So this Merrill cat drones on and on, and folks are starting to squirm because they're thinking they're gonna be late for their tee times, or their bridge club tournament is getting ready to start, or they need to be at the hair dresser to collect their wives, or whatever. They just know it's time to wrap this up and get on with their day.

Just as the silverwear rattling and glass clinking starts to end, the shifting starts. You know, shifting from one cheek to the other. Seniors do that alot it seems to me, especially when they are sitting in a chair that really wasn't very comfortable to start with. I know that once the shifting starts, things are gonna go downhill fast for the Merrill broker and so does he.

At any rate, the speakers words are now just one metronomic sound, the geezers are shifting and clinking and just about to stand and start for the exits when in a moment of complete genius on the part of the Merrill broker, in walks the temp hired to help with the "breakfast".

Since I've seen this act quite a few times, instead of watching the pretty girl in the very short skirt work the room, I'm watching all of the old duffers (as I said I guess I'm in that category) watching the cute young girl.

Her job for the moment is to hand out information packets, but I know that in a few minutes her job is going to change. Like I said, I've seen this act before.

As I rescan the room I realize she could be handing out used paper towels and it wouldn't have mattered. Here was a room full of old geezers with cash and that cash was just about to part from the old geezer's pockets to Ms. Sweet Young Thing's purse, and it was going to happen faster than the you could reseat your dentures.

So the information packets are being distributed and the Merrill guy is wrapping up his talk and nobody appears to be listening because they are all watching the cutie pie, when all of sudden the Merrill dude says that if anyone needs help completing their information packet just raise their hand and Vera, Miss Kumquat Valley of 2007, will be happy to help them.

Here's a hint, while we all think we get along pretty good, seniors don't really move to fast. I'm not sure just why that seems to be true, it just does. Maybe your feet flatten out as you get older, sort of like a tire on a car that's never driven.

So like I said, old folks don't move real fast, but brother let me tell you, when the Merrill guy said Miss Kumquat Valley would help them, hands went up around the room so fast that it generated a breeze! Made me wonder if the Space Shuttle had just been launched.

If you think I'm kidding about how much air was moved, the geezer guy across the table from me damn near lost his hair piece and the guy next to him with the comb over suddenly had three feet of hair hanging over his left ear.

All of a sudden going to the can could wait, and I found myself in a room watching pot bellies being sucked in so tight personal emissions were wafting towards the air conditioning return air. I knew that in a few minutes this was not going to be a fun to place to try and breath!

True to form, Miss Kumquat Valley just keep smiling and offering assistance, and, oddly enough, collecting checks. Hell, Miss Kumquat Valley could have gotten most of these old birds to swap dentures, trade supphose, and sing Amazing Grace if she'd wanted to.

Finally the information packets were complete, the breakfast was over, Miss Kumquat Valley 2007 is thinking about the commission she just made, the air has finally cleared up enough to take a deep breath, and we're leaving.

I notice Cobb is trying to wipe the drool off of his face as we head to the parking lot, which gets to wondering if the old adage a bird in the hand is worth two in the bush may apply as soon as he gets home. I mean old Cobb looks like he just ran a marathon. Personally, I'm hoping his heart holds out long enough to get me home.

Finally he pulls up in front of my house to let me get on with my Saturday, and as I get out the car, I hand him my information packet. He gives a questioning look as I explain that the information packet is the same one that Washington Mutual (NYSE: WM) uses.

He tells me he isn't interested in Washington Mutual, and really wasn't interested in Merrill for that matter, but he had heard that the breakfast was okay. Of course I chime in tell him that Helga wasn't bad either, which makes Cobb grin.

But as I start to get out of his car, he reaches out and takes the unused information packet from me, saying that he guesses Vera wasn't to bad...and neither were her Kumquats.

Wax

I Can't Wait Mommy

There are lots and lots of discussion boards on the Web, discussion boards that if visited regularly will teach the reader a great deal about one investing style or another.

In addition to the numerous discussion boards, there are always lots and lots of articles, most written by ordinary folk just like you and me, that discuss a fairly wide variety of stocks and other related investing issues. On Friday for instance, there were about 60 articles posted on The Motley Fool’s main page.

One of the topics of great discussion, not only in many of the articles posted, but also on many of the boards, is that stocks are cheap.

What I found interesting about quite a number of these articles and posts is that the authors never really define cheap. I mean to me, if a stock is cheap, it needs to be cheap relative to something else, like the stock’s reasonable value, or an investment in oil, or gold, or corporate bonds.

There was an article a couple of weeks ago where the author decided that stocks that were trading at six times or less EV/EBITDA should be considered cheap, and I’ve seen quite a few articles that have said stocks were cheap because they used to trade higher. But higher than what?

So here’s what I think. I think folks should try a little bit of common sense investing?

Why is a stock cheap just because it’s trading today at a price that’s 40% lower than it was three months ago? What was the relative value of the stock before it fell?

And why is a stock trading at six times or less EV/EBITDA cheap? Are folks aware that when they use Enterprise Value (EV) they are actually removing the company’s cash and replacing it with the company’s debt?

What is reasonable about determining the value of a stock by using debt? Doesn’t that mean the greater the company’s debt, the greater the company’s value?

As a common sense investor, I personally don’t see much valuable about a company that has lots of debt. Common sense tells me that it would be smarter to keep the cash and throw away the debt, thus using Equity Value (EqV) instead of Enterprise Value to value a stock.

As an aside, and I mean no disrespect, for those that may not know, a company’s Enterprise Value is their market cap, less their cash, plus their debt, while Equity Value is market cap, plus cash, less debt. The result is then divided by shares outstanding to determine the respective value on a per share basis.

One of the companies that comes to mind when I think of a company with quite a bit of debt is Abbott Laboratories (NYSE: ABT). According to their latest annual balance sheet, the company has $2.456 billion in cash, $2.726 billion in short term (due with in one year) debt, and $9.488 billion in long term debt, or a total of $12.213 billion of debt. The company has 1.560 billion shares outstanding, and had a recent close of $53.07.

If I wanted to apply an Enterprise Value calculation to Abbot Labs, I would take 1.560 billion shares times the recent close of $53.07, and get a market cap of $82.789 billion dollars. From this number I would subtract the cash of $2.456 billion and add the debt of $12.213 billion leaving me with an Enterprise Value of $92.546 billion dollars. If I divide that number, by the number of shares outstanding, I get an Enterprise Value of $59.32 per share.

Applying the same calculations but subtracting debt and adding cash, I get an Equity Value of $73.032 billion dollars, or $46.82 per share.

Common investing sense tells me that if I wanted to buy the company’s debt, I would buy the company’s corporate bonds. But since I want to buy a stake in the company’s future earnings, what’s important to me is protecting my investment capital. As a result, Equity Value would be my valuation of choice for the stock of Abbot Labs, with a valuation of $46.82 per share.

The question is, is $46.82 a share for this stock, cheap?

Remember the stock had a recent close of $53.07. Is a 13% premium above Equity Value cheap? Not to me it isn’t.

But what if I employed a margin of safety to my Equity Value calculation of say 50%. Were I to do that, I would end up with a stock that had a buy target of $23.41, a first sell target of $45.65, and a close target of $49.42.

Is $23.41 cheap relative to the Equity Value of the stock? Maybe not to some, but to me, it’s a darn bit better than $53.07!

Still, I need a little more to know that the stock is truly cheap. For that little extra, I use a common sense calculation called the risk/reward calculation. The idea behind this calculation is to end up with a reward that is at least five (5) times greater than the risk. Here’s how it works.

As I said, my close target for the stock was $49.42, so from that, I would deduct the current price of the stock, $53.07, giving me ($3.65).

Next, I would determine what 20% of my buy target was. In this case it would be 23.41 times 0.2, or $4.68.

I use 20% because when I buy a stock, I often times put a stop underneath the price that is 20% less than what I paid for the stock. So if I paid $20 for a stock, I would put a stop under the stock at $16. Should the price then fall to $16, the stop would automatically take me out of the stock, thus limiting my downside to 20% of the price I paid for the stock.

So now that I have my reward number and my risk number, the last step is to divide the rew