I am the Global Editor at MoneyShow.com and each week I interview an investing expert. This week, I spoke with Paul Goodwin, Emerging Markets Specialist and Analyst, Cabot Heritage Corporation. Paul thinks there may be bargains in battered emerging markets. Q. Emerging markets have been beaten up and the Russia/Georgia conflict, unfortunately, points out one of the problems with investing internationally -- uncertainty created by government and political actions. How can investors protect their portfolios?
A. Every investor should follow the usual advice -- diversify your portfolio among different asset classes, including bonds, value stocks, income stocks, and growth stocks. Avoid overexposure to any one sector or industry, no matter how hot.
But we follow two additional important rules: 1) Use a strict loss limit of 15% (in difficult markets) or 20% (in supportive markets); and 2) always be prepared to exit the equity markets and go to cash when the general trend of the market is against you.
MOST NOTEWORTHY: Georgia Gulf, Sohu.com and I-flow were today's noteworthy downgrades:
Citigroup downgraded Georgia Gulf (NYSE: GGC) to Sell from Hold to reflect the deteriorating fundamentals in North American housing, and their belief that the company is increasingly likely to break its debt covenant ratio.
Deutsche Bank downgraded shares of Sohu.com (NASDAQ: SOHU) to Hold from Buy on valuation and expects 2009 growth to be modest.
Piper cut I-Flow (NASDAQ: IFLO) to Sell from Neutral following the weak Q1 report and guidance.
OTHER DOWNGRADES:
Morgan Stanley downgraded Coca-Cola Femsa (NYSE: KOF) to Equal Weight from Overweight.
Goldman removed Teva Pharma (NASDAQ: TEVA) from its Conviction Buy List.
Aqua America (NYSE: WTR) was cut to Market Perform from Outperform at Wachovia.
JP Morgan lowered PetroChina (NYSE: PTR) to Underweight from Neutral.
Troubled savings and loan giant Washington Mutual Incorporated (NYSE: WM) will receive a $5B investment from private equity firm TPG and other investors, the Wall Street Journal reported. For now, this eliminates the possibility that it will be acquired by another financial institution such as J.P. Morgan Chase & Co (NYSE: JPM).
People close to the situation said that Delta Air Lines Inc (NYSE: DAL) and Northwest Airlines Corporation (NYSE: NWA) have revived merger talks. It is speculated, the Financial Times reported, that weak demand and high fuel costs are urging the airliners back to the table to work out a merger arrangement.
OTHER PAPERS:
Evergreen Solar Inc (NASDAQ: ESLR) is expected to announce today that it will double the size of its manufacturing facility in Massachusetts and add about 350 new jobs as part of its ongoing expansion, according to the Boston Globe.
WEB SITES:
Bloomberg reported that The Goldman Sachs Group Inc (NYSE: GS) has been the only major investment bank that has refused to reduce its leverage. In fact, Goldman's adjusted leverage ratio of assets rose to 18.6 at the end of February, from 17.5 at the end of November.
Sohu.com (NASDAQ: SOHU), an Internet media provider in China, is a recent featured addition to the aggressive growth portfolio of Vahan Janjigian.
The leading quantitative analyst and editor of The Forbes Growth Report explains, "Long-term growth is also promising as Internet usage expands in China." Here is the advisor's review.
"Sohu offers media content from more than 1,600 partners through 35 interest-specific channels, which cover news, business, sports, and entertainment. The website also offers tools such as free email accounts, web logs (blogs), message boards, and picture galleries.
"SOHU also runs Sogou.com, a proprietary Internet search engine; Chinaren.com, the largest online youth community in China boasting more than 80 million users; 17173.com, which provides information about online video games and has alliances with thousands of Internet cafes; and Focus.cn, a real estate website.
MOST NOTEWORTHY: The machinery industry, Sohu.com (SOHU), Intuit (INTU), Priceline.com (PCLN) and Expedia (EXPE) were today's noteworthy initiations:
JP Morgan assumed coverage of 5 machinery stocks: The firm assumed Eaton (NYSE: ETN) and Illinois Tool Works (NYSE: ITW) with Overweight ratings and Ingersoll-Rand (NYSE: IR), Parker Hannifin (NYSE: PH) and Kennametal (NYSE: KMT) with Neutral ratings. JP Morgan's top picks in the group are Illinois Tool Works and Eaton.
Pali initiated Sohu.com (NASDAQ: SOHU) with a Buy rating and $41 target and believes the Olympic Games represent the biggest growth catalyst for the company.
Jefferies started shares of Intuit (NASDAQ: INTU) with a Buy rating and $34 target, likes the momentum in TurboTax and QuickBooks and sees potential upside fo FY08 expectations.
Banc of America initiated Priceline.com (NASDAQ: PCLN) with a Buy rating and $96 target and is positive on the company's European positioning given expectations for top line growth and margin expansion. The firm also started shares of Expedia (NASDAQ: EXPE) with a Buy rating and $35 target, positive on the company's strong management, solid competitive positioning and improving fundamentals.
OTHER INITIATIONS:
First Albany assumed coverage of Cougar Biotechnology (OTC: CGRB) with a Buy rating and $29 target.
Sina (NASDAQ: SINA) reported results last night, showing revenue up 11% at $59 million. Operating income was under $13 million. The company has a market cap of $2.3 billion.
Baidu (NASDAQ: BIDU) and Sohu (NASDAQ: SOHU) both reported results last month. Revenue gains were fine, but the base is still tiny. Baidu, the largest search engine in China, had a profit of only $19 million. But, it sports a market cap of $6.6 billion. It trades at 42 times revenue, compared to Google at less than 12x.
Therein lies the mystery. China has over 130 million web users, putting it second only to the U.S. But the revenue generated from its major web portals remains remarkably small.
The issue also points to whether valuations for these companies are much, much too high. It will take them a long time to become as big as Yahoo! (NASDAQ: YHOO) which has a market cap of $30 billion.
MOST NOTEWORTHY: Cheesecake Factory (CAKE), Jabil Circuit (JBL), MGM Mirage (MGM), Darden Restaurants (DRI) and Crocs (CROX) were today's more noteworthy upgrades:
Robinson Humphries upgraded Cheesecake Factory (NASDAQ: CAKE) to Neutral from Reduce citing limited downside risk.
Jabil Circuit (NYSE: JBL) was raised to Outperform from Neutral at Credit Suisse and to Outperform from Sector Perform at RBC Capital based on its better-than-expected Q3 report.
CIBC upgraded MGM Mirage (NYSE: MGM) to Sector Outperform from Sector Perform and gives the odds of a takeout at 50/50 but said business remains healthy and that the value of Las Vegas Strip assets should continue to rise for the next several years. Susquehanna said Kerkorian's decision not to pursue the Bellagio and CityCenter assets is a strong vote of confidence in MGM's management to create shareholder value and upgraded shares to Positive from Neutral.
Darden Restaurants (NYSE: DRI) was upgraded to Buy from Hold at Matrix based on management's positive steps to improve economic profit by selling off its under-performing units.
ThinkEquity upgraded Crocs (NASDAQ: CROX) to Buy from Accumulate on expectations that sales will continue to be strong driven by new product introductions, as well as retail doors and square footage growth...
OTHER UPGRADES:
Goldman upgraded Kraft Foods (NYSE: KFT) to Neutral from Sell.
Baird upgraded Pentair (NYSE: PNR) to Neutral from Underperform.
Citigroup upgraded AES Corp (NYSE: AES) to Buy from Hold.
Credit Suisse upgraded Sohu.com (NASDAQ: SOHU) to Outperform from Neutral.
Raymond James upgraded Pier 1 Imports (NYSE: PIR) to Outperform from Market Perform.
Sohu.com, Inc. (NASDAQ: SOHU) reported that its revenue in the first quarter rose to $33.1 million from $30.4 million last year. Net earnings fell from $6 million in the quarter a year ago to $4.7 million in the most recent quarter. Sohu expects revenue in the next quarter to be in the $35 million to $37 million range.
Sohu bills itself as "China's leading online media, search and mobile value-added services company." If this is true, its tiny revenue and lack of rapid growth are stunning. Someone else must agree with that. Sohu shares fell 10% after hours yesterday, closing the session at $23. It traded at $23.88 around 1:00 p.m. today. The company has a 52-week high/low of $29.43/$20.21.
According to Forbes, Chinese internet users spend nearly two billion hours online each week, while the U.S. audience logs on for 129 million hours per week. A Chinese agency that tracks internet usage also claims that the country has 137 million people online.
The numbers obviously don't make sense. At its current run rate, Sohu has annual revenue of less that $130 million. Baidu.com, Inc. (NASDAQ: BIDU) is not much bigger. To contrast, Google's (NASDAQ: GOOG) revenue run rate is over $12 billion a year.
There could be several reasons that the difference between Google and the Chinese companies is so great. The most likely explanation is that there is no major e-commerce community in China to support text and banner advertising expenditures. The Chinese are going online, but not spending any money there.
RBC Capital Markets initiated three Chinese Internet companies this morning: Baidu.com Inc (NASDAQ: BIDU) with a Sector Perform and a $124 price target, SINA Corporation (NASDAQ: SINA) with a Sector Perform and a $39 price target, and Sohu.com Inc (NASDAQ: SOHU) with an Outperform and a $33 price target. RBC believes Sohu.com is well positioned to benefit from secular growth in online advertising and is the most direct beneficiary of the 2008 Beijing Olympics, as it hosts the official site.
OTHER INITIATIONS:
Citigroup Inc (NYSE: C) was initiated by JP Morgan with an Overweight. The firm sees performance in international, corporate and investment banking improving.
Callaway Golf Company (NYSE: ELY) was initiated by Morgan Joseph with a Buy and $19 price target.
MOST NOTEWORTHY: Forest Laboratories Inc (FRX), The St. Joe Co (JOE) and Tyco Int'l Ltd (TYC) topped today's list of downgrades:
Following the withdrawal of Orapem, Forest Laboratories Inc (NYSE: FRX) was downgraded to Sell from Hold at Citigroup, with a $47 target, given the company's dependence on two products and early stage pipeline.
The St. Joe Co (NYSE: JOE) was downgraded to Underperform from Market Perform at Wachovia, citing valuation and secondary-home sale activity which continues to pressure steady primary-home activity in core markets; BB&T also downgraded St. Joe, to Hold from Buy on valuation.
Deutsche Bank downgraded Tyco Int'l Ltd (NYSE: TYC) to Hold from Buy on valuation with a $33 target, as they find shares fairly valued heading into the separation.
OTHER DOWNGRADES:
Bank of America downgraded Alltel Corp (NYSE: AT) to Neutral from Buy on valuation and lowered its target to $58 from $66.
UBS downgraded Sohu.com Inc (NASDAQ: SOHU) to Neutral from Buy, with a $28 target, following second-quarter results. Lehman Brothers downgraded Sohu.com to Equal Weight from Overweight on the news.
Merrill Lynch downgraded Centerne Corp (NYSE: CNC) to Sell from Neutral.
Merrill also downgraded Ingersoll-Rand Co Ltd (NYSE: IR) to Neutral from Buy, citing weakness in the residential market and execution uncertainty for the downgrade.
Bank of America downgraded Post Properties Inc (NYSE: PPS) to Sell from Hold following the company's Q4 report and guidance.
BB&T downgraded Oakley Inc (NYSE: OO) to Hold from Buy on valuation.
Tyco International Ltd. (NYSE:TYC) was downgraded to Hold at Deutsche bank after yesterday's earnings results and since the company believes the shares are fairly valued going into the break-up. I covered the same issue yesterday morning before the stock came off highs.
Travelzoo (NASDAQ:TZOO) was down 10% after earnings last night but 2 upgrades are keeping the shares down only 2%: TZOO was raised to Strong Buy at First Albany and raised to Hold at Stifel Nicolaus. This one was down over 10% after initially missing earnings expectations.
Sohu.Com (NASDAQ:SOHU) fell nearly $2.00 after reporting earnings yesterday, but shares are down another 1% or more after UBS downgraded the shares to Neutral.
Not many actual ratings changes on Cisco Systems (NASDAQ:CSCO) but shares are up 5% pre-market after exceeding estimates (met whisper) and giving a strong guidance; R.W. Baird raised CSCO to Outperform.
Business Objects (NASDAQ:BOBJ) trading higher after beating expectations; BOBJ raised to Outperform at R.W. Baird and to Buy at Soleil.
Sohu.com
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