My latest column is up at RealMoney.

Ikon Office Solutions (IKN) was recently upgraded to buy by TheStreet.com Ratings, and as I look at the fundamentals, it isn’t hard to see why.

As the world’s largest independent channel for document management systems and services, Ikon enables customers worldwide to improve document workflow and increase efficiency. Ikon integrates best-in-class copiers, printers and multifunction product technologies from manufacturers such as Canon (CAJ) , Ricoh, Konica Minolta and Hewlett-Packard (HPQ - Annual Report) with document management software from companies such as Captaris (CAPA) , Kofax, eCopy, Electronics for Imaging (EFII) , EMC Documentum (EMC - Annual Report) and others.

Ikon is trading at just 0.78 times book value, well below the industry average of 1.39 times. Although much of that book value is represented by intangible assets, the same can be said of many companies in the industry. Xerox (XRX) , for example, has nearly half of its book value represented by goodwill. For Pitney Bowes (PBI) , it is more than 100%.

Meanwhile, analysts expect Ikon to grow 12% annually over the next three to five years. This estimate is exactly in line with the average growth rate expected for the industry. I don’t see why a stock growing at the same rate as the industry should trade at half the industry’s price/book multiple — especially when its free cash flow is so strong. I believe the valuation should expand to the industry average. If the price/book multiple can expand to the industry average over the next five years, then even if the company only manages to grow at the 8.6% rate forecast by the Street’s most conservative analysts, the total return could exceed 20% annually.

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

William Trent currently has a short position in put options related to Office Depot (ODP).

I originally posted this on April 30, but had to rebuild the site after encountering some problems. Reprinted here.

Readers who have been trying to access the site over the last couple of days, I apologize. There’s no telling what you might have been able to access, if you were able to access anything at all. Blame it on a flubbed software “upgrade.”

It’s a shame, too, because it had to happen just when there was an exciting announcement to make that is probably driving more visitors to the site.

You may recall that when I reviewed the Newsflashr service I said the feeds available are currently limited to a selection (admittedly a large one) of the top sources. While these are indeed the sources I most frequently consider, there are other sources I would like to be able to add as part of a personalized newsflashr.

I also said that based on what I have seen, I would bet adding those features is simply a matter of time.

Little did I know. As Gal explained in a news release:

We’re introducing two new sections for “Stock Market Beat” & “Techmeme Leaderboard” for new selections of the top business and technology news sources. Thanks to Bill Trent at Stock Market Beat for submitting his list of favorite financial news sources. Bill recently wrote a thorough review of newsflashr where he mentioned that he would like to see an option to get a personalized page and, by coincidence, we had just completed our work on this feature. So here’s our new way of viewing Bill’s OPML reading list:

Feeds view: http://www.newsflashr.com/feeds/stockmarketbeat.html
Topics view: http://www.newsflashr.com/topics/stockmarketbeat.html

Now you can sift through my news sources to see where I’m coming up with some of my crazy ideas.

In the meantime, I’ll be trying to restore my site to its previous condition.

Somehow I missed this early in the week. Hat tip to Todd Sullivan’s – ValuePlays:

Apparently on Monday there was heavy call buying in RadioShack (RSH) – ironically a day I was writing puts on the name. Rumor is that Dell (DELL) is kicking the tires. It would be an easy way to get into retail in a bigger way.

Here’s a video discussing the rumor.

Anyhoo – my original thesis was that RadioShack’s valuation is cheap, at ten or eleven times earnings. My preferred measure, the free cash flow yield, is a downright juicy 14.3%. With that kind of cash flow yield, RSH could generate double-digit returns even if cash flow declined 4.3% per year. With five-year Treasuries yielding just 2.5% the declines could be even larger and still earn investors the typical risk premium that would be expected for holding stocks.That and the fact that there seems to be solid technical support contributed to my writing put options at $15 each of the last two months.

Disclosure: At time of publication, William Trent has written put options against shares of Radioshack (RSH).

My latest column is up at RealMoney.

I think a long Ingram Micro (IM) and short Tech Data paired trade can take advantage of differences in valuation regardless of what happens next in business spending.

While the two companies tend to take turns outperforming one another, over the last five years and since the market peak in early 2000 their cumulative performance is nearly identical. This time around, I’d expect both companies’ P/E multiples to converge, perhaps to 10 times estimated 2009 earnings. To budget in the possibility of further estimate cuts, I am also using the lowest estimate on the Street.

At 10 times the Street-low estimate of $2.38, Tech Data could see a further drop of nearly 30% from current levels. Ingram, meanwhile, could see a 20% share price rise if it were to trade at 10 times the 2009 low estimate of $1.86.

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

My latest post is up at RealMoney.

In it, I extend yesterday’s observations about the hidden strength in durable goods orders to specific industries that might benefit. Among those industries were primary metals, computers and electronic products, and motor vehicles and parts.

These industries may prove to be a good starting point for further research.

My latest column is up at RealMoney. Here is a summary:

Government economic reports can do more than just indicate the state of the economy. Since many of the reports include industry-level data, digging deeper in the reports can help investors find specific industries to consider more closely. For example, the Bureau of Labor Statistics, which prepares the PPI report, provides detailed information on an industry basis.

Since I wrote about the PPI data in September, the pricing power has shifted to some different industries. Therefore, I thought an update would be in order.

Some of the industries that look interesting are petroleum refineries, industrial gases, computers, computer storage devices, and line-haul railroads.

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

New orders for long-lasting U.S.-made manufactured goods fell by 5.3 percent in January, the biggest drop in five months and more than analysts expected, and a key gauge of business spending also declined, a Commerce Department report showed on Wednesday.

But the news wasn’t all bad. Some industries look like a recovery may be beginning.

Consider computers and electronic products.

Or semiconductors.

Or machinery.

These changes are all based on non-seasonally adjusted data from the U.S. Census Bureau.

If the share price weren’t enough for you, this story should sum things up:

Techworld.com – Mac users get first taste of ’scareware’

An anti-virus vendor has found the first example of “scareware” for Mac users. Windows users are well used to this spam, where bogus security software tries to spook consumers into coughing up to “clean” their systems, now Mac users are being offered the same dubious benefits.MacSweeper, which sells for US$39.99 through a website of the same name, is a rogue application that will “always find something to fix/clean, but the only way to do so is to buy the program,” claimed F Secure’s Patrik Runald on the company’s blog.

When the mac is big enough to attract virus writers, Apple is doing something right.

This article is a reprint of my December 19, 2007 RealMoney column.

An Update of My September 2007 Stock Picks

• My picks in September had winners and losers, but fortunately more of the former
• Closing out my bearish stance on Office Depot (ODP)

I wrote six articles in September that included a bullish or bearish stock opinion, and with three months behind them I thought it was a good time to see how they performed and whether any changes were warranted. On the whole, the picks are playing out more or less as planned.

Motorola

On September 10, I wrote that if Motorola (MOT - Annual Report) could get to 2004 free cash flow levels and grow the cash flow a measly 2% per year from there Motorola shares would be worth nearly $23.

Instead, the cash flow position has continued to deteriorate, contributing to former CEO Ed Zander’s recent ouster. The stock is down 7.2% since the article was written, compared to just a 0.5% decline in the S&P 500.

Still, I think the issues at Motorola can be fixed by bringing the costs – particularly research, development and overhead – in line with the current revenue generation. Alternatively, activist shareholder Carl Icahn could push to break the company up into smaller pieces that might be acquired for a higher total than the current company is currently able to garner. Either way, I’m sticking to my guns on Motorola.

Yahoo

On September 11 I made a bearish call on Yahoo! (YHOO), saying I didn’t believe in the consensus growth estimates and that Yahoo isn’t generating enough cash flow today to make waiting for the recovery worthwhile — at least not for me.

Things haven’t gotten any better since then, and the stock has lost 1.1% – although that is a slightly better performance than the 1.7% loss in the S&P over the same period. I remain bearish on Yahoo.

Office Depot

On September 12, I made a bearish call on Office Depot (ODP), saying “things are likely to get worse before they get better.” Things got worse, and after the company missed earnings and delayed filing its required 10Q the stock has lost 23.3%, compared to a 1.7% decline in the S&P 500.

But I also said “it looks like a stock that will pay off in the end,” and I think the current downturn may have taken the worst out of the stock. I have written put options against the shares (a bet that has lost money) and I think there are more reasons to be positive than negative.

Think the worst of the housing downturn is over? Office Depot’s solid cash flow should make it a safer play than homebuilders or financials. Think small-business tech spending will rise? Office Depot’s P/E is a fraction of Dell’s (DELL).

Office Depot could still have some downside, and I don’t expect a quick recovery. But at current valuations I can no longer justify a bearish position, so I’m closing out that call.

Delta Airlines

On September 17 I made another bearish call, this time against Delta Airlines (DAL). Although the stock looked cheap, after I made some adjustments for earnings quality it looked more like a company recently emerged from bankruptcy (which it is.) The stock has lost 17.7% since that call, compared to a 2.1% decline in the S&P.

Short term, anything can happen as airlines have tons of leverage that can lead to wild swings in profitability in pricing. But long-term I don’t think the major airlines have any better prospects than they did before the previous 10 or so bankruptcies, and I remain bearish.

Apple

I weighed in favor of the bulls for Apple (AAPL) on September 17, and was rewarded with a 32.5% increase in the shares, compared to the 2.1% loss for the S&P 500. The share gains cut Apple’s 3.9% free cash flow yield down to 2.9%, so it isn’t the value it was then.

Still, the cash flow rose 250% from the prior year, and Apple’s market share remains small for most of its product lines. The company continues to make desirable products, and if I have to take a chance on a tech name surviving an economic downturn it might as well be Apple.

Adobe

My last September stock pick was a bullish call on Adobe (ADBE) on the 18^th. The stock always seems to sell off after a major product introduction such as the Creative Suite launch in May of this year. Investors tend to sell on that news after buying up the shares in anticipation of it.

Although the sell-off wasn’t very pronounced this year, the shares did get stuck in neutral. My own call may have been a bit early, as the shares are down 6.3% since the article and the S&P is only down 4.9%.

On their earnings call, the company reiterated their guidance for next year. As the next product cycle moves closer, I think my bullishness will pay off.

Disclosure: William Trent owns shares of Adobe (ADBE) and has written naked put options against the shares of Office Depot (ODP).

William Trent currently has a short position in put options related to Office Depot (ODP).

The following is a reprint of my December 12, 2007 RealMoney column

Printer manufacturer Lexmark, Inc. (LXK) started out this year at $73 and hasn’t looked back. Unfortunately, its motion has all been to the downside. Now less than half the stock it used to be, is it time to consider a nibble?

The stock is certainly cheap enough. Not only is it trading at a mere 12x expected earnings, $6.60 of the $34.50 current valuation is literally cash in the bank.

Over the last 12 months, Lexmark has brought in cash from operating activities totaling nearly $500 million and used less than $200 million for capital expenditures, resulting in free cash flow of $309 million and a FCF/Enterprise value yield of 11% – a very juicy premium to the current Treasury yield.

Of course, any juicy reward is bound to come with some risks, so let’s take a good hard look at those.

Second Fiddle

Even before Hewlett Packard’s (HPQ - Annual Report) recent resurgence, Lexmark was a distant runner-up in the printer business. Lexmark countered this position by forging an alliance with Dell (DELL) under which Lexmark makes all of the Dell-branded inkjet printers and half of their laser printers. Unfortunately for Lexmark, they inked that deal just in time for Dell to start its own tailspin.

Then, even if Hewlett Packard were to falter there are plenty of other competitors in the wings. First there are the traditional rivals like Seiko Epson (SEKE.Y) and Canon (CAJ), and Brother (BRTHY). Then, converging technologies have made competitors out of Ricoh (RICOY), Xerox (XRX), Samsung, and Kyocera Mita (KYO).

Declining Business

Everyone knows that obsolescence is a key risk for technology companies, and Lexmark is currently feeling the pain of the industry’s ongoing shift from inkjet to laser technology. I’ll let Lexmark explain it themselves (courtesy of the latest 10Q filing:)

Lexmark believes it is experiencing shrinkage in its installed base of inkjet products and an associated decline in end-user demand for inkjet supplies. The Company sees the potential for continued erosion in end-user inkjet supplies demand due to the reduction in inkjet hardware unit sales reflecting the Company’s decision to focus on more profitable printer placements, a mix shift between cartridges resulting in a higher percentage of moderate use cartridges and the weakness the Company is experiencing in its OEM business. Additionally, Lexmark expects to see continued declines in OEM unit sales, aggressive pricing and promotion activities in the inkjet and laser markets….

As the Company analyzes the situation, it sees the following:

• Some of its unit sales are not generating adequate lifetime profitability due to lower prices, higher costs and supplies usage below its model.
• Some markets and channels are on the low-end of the supplies generation distribution curve.
• Its business is too skewed to the low-end versus the market, resulting in lower supplies generation per unit.

Cheap Enough?If the risks haven’t sent you running for the hills, you are probably wondering whether the current share price is cheap enough to justify taking those risks. With the prospects for a decline in sales, earnings and cash flow being more than a distinct possibility, any price paid is going to have to be justified for a declining business.

The traditional valuation model says that value is equal to the cash flow in the coming year, divided by the difference between the company’s cost of capital and its growth rate. The 11% free cash flow yield I calculated above is a version of this model, and it provides the denominator in the equation: lexmark’s return, less its growth rate, should equal 11%.

Since the growth rate is negative, the return will be something less than 11%. If the current declines of approximately 3%, the implied return works out to 8%. That probably doesn’t sound like a huge payoff for many investors, but it is still a nice premium to Treasuries. Depending on the outlook for the rest of the market, value investors might find it worth a shot.