My latest column is up at RealMoney.

With the stock market flirting with “official” bear market territory, I realized I hadn’t written a bearish piece in a couple of months. Not wanting to buck the trend any longer, I decided to look through the models I follow to see which stocks might be on the pricey side. I think I found one in ACI Worldwide (ACIW) .

ACI develops, markets, installs and supports a broad line of software products and services primarily focused on facilitating electronic payments. The company’s products and services compete with offerings by Fiserv (FISV) , Fidelity National Information Systems (FIS) , S1 Corporation (SONE) , Metavante (MV) , Euronet (EEFT) , Fair Isaac (FIC) , Visa (V) and MasterCard (MA) .

About the only argument one can make in favor of a long position is that the stock has come down a lot — nearly 50% from last July’s peak. Unfortunately, at last July’s peak it had already come down a lot from the prior year’s peak. It is amazing to me that a stock performing so poorly can still be valued as highly as it is. For now, I’m not counting on a reversal in price momentum.

For those of ACI Worldwide’s peers that have earnings on which to base a P/E multiple, the average P/E is about 16. At 16 times the 58-cent current 2009 consensus estimate for ACI Worldwide, the stock would trade at just $9.28 — 46% below the current level. Even at the 21 times multiple S1 enjoys, the downside could be 30%. And those prices assume the company will actually earn what analysts believe it will. As noted earlier, that has not been a safe bet of late.

Disclosure: At time of publication, William Trent has no financial position in the companies mentioned in this article.

Realty Check: Who sparked Countrywide CEO Mozilo’s “disgusting” e-mail reply?

“Disgusting,” Angelo Mozilo wrote in his inadvertent reply to an e-mail from Daniel Bailey Jr. who had asked the company to modify terms of his adjustable-rate mortgage.

My personal opinion is that Bank of America (BAC) is crazy to be buying Countrywide. I don’t know enough about the companies to say for sure, but I remember what happened to Conseco after they bought mobile home lender Greentree, which was that era’s equivalent of a subprime lender.

The market has been very rough on my Small Cap Watch List (Track at Marketocracy) this quarter. Obviously including Impac Mortgage (IMH - Annual report) on the list was not a good start, but the housing market isn’t the cause for all the woes - at least not directly. Pretty much everything is down and homebuilder NVR’s (NVR - Annual report)10% decline puts it among the top performers while furniture maker Tempur-Pedic (TPX) has turned in the best performance on the list.

In the bottom camp, however, has been another construction related stock - namely US Concrete (RMIX). Down nearly 20% since the end of June on the heels of a lowered outlook, it is starting to look ugly. The Zacks rank, which tracks earnings momentum, is the second-lowest possible rating. Free cash flow in 2006 was a big goose egg thanks to unusually high capital expenditures and the debt load now exceeds the market capitalization.

Still, the stock is also now trading with a single-digit P/E multiple and 7.6x EV/EBITDA multiple, both of which are reasonable. The market price is barely above book value and the price/sales is a measly 0.35x. The company also has more than $75 million in working capital, which is a double-edged sword. In a slowdown working capital could be reduced and boost cash flow - provided the customers to whom they sell the inventory and from whom they are owed receivables are able to stay in business too. Combining this with the fact that capital expenditures were abnormally high in 2006 suggests that the “normal” free cash flow is closer to the $25 million they realized in both 2004 and 2005.

My spirits rose a bit when I saw the 8-K they filed yesterday, saying:

On July 31, 2007, we entered into new Executive Severance Agreements with several of our officers, including the following “named executive officers” identified in our proxy statement relating to our 2007 annual meeting of stockholders: Michael W. Harlan, Robert D. Hardy and Thomas J. Albanese. The new agreements generally replace other agreements or term sheets previously agreed to between us and the applicable officers. Each Executive Severance Agreement provides for severance payments and other benefits following termination of the applicable officer’s employment under various scenarios, as described below. Each such agreement also contains a confidentiality agreement, requiring the applicable officer to maintain the confidentiality of confidential information we provide him, as well as a non-competition agreement that generally extends for one year after the officer’s employment terminates (subject to extension in the event of a change of control, so that the non-competition agreement will extend to cover the number of months used to determine the severance benefits payable to him (as described below)).

Could all the focus on a potential change in control signal that one may be in the works? It is possible. I think the odds of a private equity buyout are relatively low due to the fact that there is little room for additional leverage and the valuation already appears reasonable rather than cheap. Then again, the low market capitalization would make it an easy bite.

Still, I think that if there is to be a buyout it would probably come from a competitor who would have greater opportunity to cut costs through economies of scale. Yahoo! Finance lists six cement makers with market capitalizations of $2 billion or more -  all of whom would also find US Concrete to be a bite-size addition to their current business.

Here’s hoping.

Zacks Investment Research has provided Stock Market Beat with a complimentary trial subscription to Research Wizard.

Mid Cap Watch List (Track at Marketocracy) member American Home Mortage (AHM) issued an SEC Filing explaining their earnings preannouncement and announcing that they had arranged $125 million in debt financing.

The good news is that there are still sophisticated investors out there willing to lend the company money. Given that the enterprise value of American Home Mortgage is less than the tangible net asset value that wouldn’t normally be a surprise. But the mortgage environment right now dictates that historical asset values may not be all they are cracked up to be.

The bad news is that the financing was expensive - 9.75%, convertible if the shares go above $25, fairly restrictive covenants, and required the company to set up a trust and provide 3% of the proceeds as equity. Which, of course, will all be worthwhile if the company is able to weather the housing/mortgage downturn.

With the end of the first quarter approaching, it is time to adjust the names in my Watch Lists. I will price all the new lists as of the close on Friday, June 29.

Today I present my planned updates to the Small Cap Watch List. There was a fairly high level of turnover to the list. 12 of the 24 names from the previous run made it to the current list, which was also 24 names. Performance-wise, the list created in March has returned an unweighted average return of 2.6% through June 28, with 80% of the stocks in positive territory. All of the money-losers from the previous list fell out of consideration.
So without further ado, the names on the chopping block from the previous list are: PW Eagle (PWEI), Insteel Industries (IIIN), Allied Defense (ADG - Annual Report), Hartmarx (HMX), Parlux (PARL), Hansen Natural (HANS), FirstFed Financial (FED), Young Innovations (YDNT), ITT Educational (ESI), Rent-a-Center (RCII), Valassis (VCI), and Travelzoo (TZOO). The castaways include four of the five money losers from the previous portfolio (HMX, PARL, YDNT and TZOO) as well as the biggest gainer (ESI).
The new list is:

I will continue to track both lists on StockPickr.

The Mid Cap Watch List (Track at Marketocracy) lagged but the others gained significant ground.

Small Cap Watch List (Track at Marketocracy) was helped by Aeropostale (ARO) results. It gained 2.63% this week, compared with 0.66% for the S&P Small Cap and 0.74% for the Russell 2000. Since January 31, 2007 it has opened a total lead averaging 300 basis points compared to its peers.

The Mid Cap Watch List (Track at Marketocracy) only gained 0.28%, trailing the 0.73% gain by the S&P Midcap. Still, it leads by 1.64% since inception.

The Large Cap Watch List (Track at Marketocracy) got a boost from Sallie Mae’s (SLM) big rise on Friday. That helped it earn 1.6% for the week to easily beat the S&P 500’s 0.63%. Since inception it is leading by nearly 3%.

Finally, we continue to track our legacy (June 2006) all-cap watch list, which has had no changes made other than through corporate actions (buyouts, bankruptcies, etc.) It only gained 0.1% this week. More embarrassing, our generally bearish stance cost us this week as our personal portfolio actually lost 0.1%.

With the end of the first quarter approaching, it is time to adjust the names in our Watch Lists. We will price all the new lists as of the close on Friday, March 30. Today we present our planned updates to the Large Cap Watch List (Track at Marketocracy).

Though less than the Small Cap Watch List and Mid Cap Watch List (Track at Marketocracy), there was still relatively high turnover in this list. 14 of the original 33 names made the cut for the new list (which was trimmed to just 26 names.) Part of the reason for the turnover was to reduce overlap between the lists. One third of the Mid Cap Watch List (Track at Marketocracy) names appear on each of the Small Cap and Large Cap Watch List (Track at Marketocracy)s, but there is no longer any overlap between small and large.
So without further ado, the names on the chopping block from the previous list are:

3M (MMM); Continental (CTTAY.PK); Mitsui (MITSY); Anheuser-Busch (BUD); ConocoPhillips (COP); Helix Energy (HELX); IndyMac Bancorp (NDE - Annual Report); Barr Pharmaceutical (BRL - Annual Report); Quest Diagnostics (DGX); Public Storage (PSA); ITT Educational Services (ESI); Equifax (EFX); Rent-a-Center (RCII); Kroger (KR); Ricoh (RICOY); First Data Corp. (FDC); Expeditors International (EXPD); and Keyspan (KSE).

The new list is:

Subprime lender Accredited in deal to sell loans - Yahoo! News

U.S. subprime mortgage lender Accredited Home Lenders Holding Co. (LEND) said it reached an agreement to sell $2.7 billion of loans at a substantial discount to alleviate pressures from margin calls.

The story surely goes much deeper than was reported in the story link above, and might even make a great book on corporate crisis management. We don’t claim to know the whole story, but earlier this week the company appeared headed to bankruptcy. Instead the announcement that it is taking a $150 million hit on its portfolio, delaying required regulatory filings and seeking a cash infusion was treated like fantastic news.

Much like the Long Term Capital Management meltdown (which only required intervention from the Federal Reserve because the managers were unwilling to take Warren Buffett’s offer) the incident shows that our markets are deep. There is a price at which any risk will be accepted, and that is a good thing. It gives the willing buyer an opportunity for large profits, and it gives Accredited the chance to fight another day. And those are good things.

Accredited Home Lenders did not make the cut for any of our Watch Lists in January (though it was on our original all-cap Watch List from June 2006.)

In honor of Stock Market Beat’s birthday next week, we are looking through the archives for some of our best posts. As it happens, several of them investigate whether companies are using aggressive accounting practices. Who’s cooking the books?
Is it DELL?

Is it Xerox?

Is it Fidelity National Information Services?

Is it Ceradyne?

Or maybe Finisar?

The comment box is open.

Large-cap Watch List member Sallie Mae, which has long benefited from government benevolence, fell 9% yesterday when investors realized that political favors can be both granted and taken away.
Sallie Mae blasts Bush budget cuts: Financial News - Yahoo! Finance

“The cuts proposed today by the president to the private-sector student lending program, which currently serves 80 percent of all student borrowers, would have far-reaching consequences for students and taxpayers,” Sallie Mae said in a statement.

Not to mention the other 95% of the chairman’s stockholdings.

SLM Corporation announced that Albert L. Lord, chairman, sold 400,000 shares of SLM common stock, less than 5 percent of his holdings, on the open market in transactions that were completed last week.

Those struggling to pay for education take note: despite the hit to his remaining wealth, Lord’s sale last week allowed him to net $1.6 million more than it would have this week, enough to cover 53 student-years at Harvard.