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.

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).

Note: Sign up for cash back credit cards and earn cash back rewards from your daily spending.

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

This article was originally published at RealMoney on September 26, 2007.

My article last week about mining the PPI report for stock ideas was so well received I thought I’d share another of my favorite taxpayer-provided idea generators, the durable goods report. Published by the U.S. Census Bureau, the report has a similar breakdown by industry of durable goods orders, shipments, inventories and backlog.  I came away with 28 potential ideas for further research.

In line with much of the recent economic data, the headline durable goods number was weaker than expected. To quote from the report, “New orders for manufactured durable goods in August decreased $11.3 billion or 4.9 percent to $219.5 billion, the U.S. Census Bureau announced today…. Shipments of manufactured durable goods in August, down two of the last three months, decreased $3.4 billion or 1.6 percent to $216.7 billion.”

But in this case, I think focusing on the forest means you could miss out on some of the more attractive trees. I gathered the data from the Census Bureau and created charts showing the year/year change in durable goods statistics for a variety of industries hoping to find some areas worth further consideration. Keep in mind, this is an initial screen for idea generation, not a full-fledged analysis of any of the names. You wouldn’t want to buy the stocks listed here without further research. That caveat aside, let’s look at some of the better performing industries.

First up is technology – computers and electronic products. Although 3.3% order growth year/year and essentially flat shipments may not be the type of growth investors typically look for from tech, it is a clear improvement from recent months. Inventories are starting to be drawn down and backlog remains strong.

But there are areas of strength and weakness within tech. Specifically, computers (and related products) themselves are starting to look strong, with backlog headed through the roof and inventories in check.

The fairly obvious stock ideas from this industry include Apple (AAPL), IBM (IBM - Annual Report) and Hewlett Packard (HPQ - Annual Report). If things keep getting better (and the company figures out how to file its required regulatory reports) Dell (DELL) might even look interesting again. Stretching a bit further, Sun Microsystems (a href="http://stockmarketbeat.com/blog1/category/tech/sunw/">SUNW - Annual Report) and Lexmark (LXK) come to mind. And don’t forget the storage plays, which also showed up on the PPI hotlist. The names I mentioned then were Brocade (BRCD), EMC (EMC - Annual Report), Iomega (IOM), Hutchinson (HTCH), Quantum (QTM), SanDisk (SNDK - Annual Report), Seagate (STX - Annual Report) and Western Digital (WDC).

Communications equipment is also showing some signs of strength. Though the latest month was down, the trend seems to be up.

I have actually analyzed Motorola (MOT - Annual Report), so that would be a play to include here. Cisco (CSCO), Research in Motion (RIMM), 3Com (COMS), Nokia (NOK) and Corning (GLW - Annual Report) also come to mind.

And finally, turning away from technology, I hope you didn’t think the aircraft boom was over. If anything, it looks to be picking up steam.

Ways to play this include Boeing (BA - Annual Report), Embraer (ERJ), General Dynamics (GD - Annual Report), United Industrial (UIC) and Cessna parent Textron (TXT). Parts suppliers include Rockwell Collins (COL), Curtiss Wright (CW - Annual Report), and LMI Aerospace (LMIA).

So there you have it: 28 potential stock ideas from what looked at first glance to be a negative report on durable goods.

Disclosure: Long RIMM put options at time of publication.

This article was originally published at RealMoney on September 17, 2007 and was featured in the September 24, 2007 Festival of Stocks.

Few stocks boil the blood of both bull and bear as much as Apple (AAPL), and for good reason. The company, richly valued though it is, has come out with more cool products than the rest of the tech industry combined. That helps excite the bulls, and as for the bears, there’s a good chance many of them are jealous for having missed out on the stock’s run. They have sour grapes they hope will someday be pressed into wine. And before you fanboys of some other tech stock get all hot and bothered about my disrespect of your favorite company’s innovation record, allow me to summarily dismiss them.

• Research in Motion’s (RIMM) Blackberry? Great mobile enterprise email device. But that’s for work. Ewww!
• VMWare (VMW)? See above. Not to mention it’s hard to show off your virtual server.
• First Solar (FSLR)? Try this for a pickup line: “Hey, want to go back to my place and see how thin my solar film is?” Unh-uh.
• Google (GOOG - Annual Report)? Still great at search. Nice email product. So what? They’ve spent more than a billion and a half on research and development in the last 12 months, and I dare you to tell me where it went.

As you can probably tell, I haven’t gotten nearly enough hate mail recently, and I’m trying to kick things up a notch. So back to the task at hand: Apple. Let’s quickly take a look at what I think are the best arguments on each side.

First up is whether the “halo effect” from the iPod is helping bread and butter Mac sales. Mac units were up 33% year over year, compared with just 12% for PCs overall. Bears counter that most PC makers (with the exception of industry leader Dell (DELL) had unit growth similar to the growth in Macs. But this ignores the very important point that Mac units sell for much more on average than the typical PC - so in terms of revenue share is likely growing much faster. Edge: Bulls.

Next, is the iPhone a phlop? When 270,000 units were sold in the first two days, I said “the 730,000 they are guiding to for the next three months seem conservative laughably low.” It is now looking as though it was only conservative. It is pretty clear the price cut was driven in part by a significant slowdown in sales - to possibly as low as 5,000 units per day by the time of the price cut according to one convincing analysis. But that would still put the iPhone in the same league as Palm, even if not quite matching their original estimate of being in RIMM’s league next year. But don’t forget - they got where they are now being sold by one carrier in the U.S. As they roll out to other carriers on other continents, they could meet their target yet. It’s not living up to the hype, but it is still a success. Edge: Even.

Finally, the iPod - a product that nobody seems to care about anymore, yet which sold 10 million units last quarter when it hadn’t had a product refresh in ages.

From an accounting standpoint, things are going so well that they are now deferring revenue from their new products rather than booking it up front. This practice will help bake some growth into the cake. True, the company’s earnings were boosted by a penny due to a lower bad debt reserve, but when you are beating quarterly estimates by a quarter that is just chicken feed.

While the stock has nearly doubled over the last year, its free cash flow has more than tripled. As a result, a company that is growing at more than 20% per year on the top line is yielding 3.9% on a free cash flow to enterprise value basis.

About the most significant risk, in my mind, is the possibility of a consumer slowdown combined with increasingly high expectations. Apple is far more consumer-driven than other tech stocks, and a 40x P/E multiple might not hold up if they only beat by a nickel instead of the quarter investors have come to expect. That’s why I think the free cash flow is so important in this case - it provides a solid backstop, and would help justify being patient through a slowdown should it come. If the company can grow at even half the current rate over the next five years, investors are likely to be well compensated for the added risk.

Positions: Short Research in Motion (RIMM)

I took a look through recent conference calls to get a feel for conditions in the smartphone segment.

First, we are pleased to report smartphone sell-through grew 34% to 2.7 million units for the year and now represents 80% of our total revenue, up from 69% last year. In the fourth quarter, our smartphones sell-through reached a record high, 750,000 units, up 43% year-over-year….
Smartphone revenue grew 15% to $1.25 billion on unit shipments of 2.7 million. Unit sell-through for smartphones grew 34% year-over-year to 2.7 million units, while overall channel inventories remained flat….

(Excerpt from full PALM conference call transcript)

Revenue for the first quarter ended June 2, was $1.08 billion, up 16% from $930 million in the previous quarter. Handheld devices represented $824 million, or 76% of RIM’s revenue during the quarter, up from the 73% of total revenue in the previous quarter. Total devices shipped in the quarter were approximately 2.4 million, and were up from 2 million in the prior quarter. Approximately 2.2 million new devices were activated in the Q1, either for new customers or for replacements and upgrades.

(Excerpt from full Research in Motion (RIMM) conference call transcript)

Given that Palm and RIMM have the most exposure to smartphones, the two provide an interesting contrast. RIMM is selling nearly as many in a quarter as Palm did for the year. Both Palm’s Treo and RIMM’s Blackberry are sold worldwide on many carrier networks and in several varieties. Yet a certain upstart selling one model on one carrier network thinks it can catch up with RIMM.

Finally, we reiterate our goal of selling 10 million iPhones in calendar 2008.

(Excerpt from full Apple (AAPL) conference call transcript)

Expressed as 1% of handset units that doesn’t sound like much. Yet when compared to the success built up over many years by a company considered very successful it appears audacious.

During earnings season it can be difficult sometimes to keep track of everything that is being said, as it is coming fast and furious. I decided to look over a few of the recent conference call transcripts to see what the technology companies and retailers with high consumer exposure are saying. Here are a few excerpts:

As we look at the quarter’s performance, we see our earnings were below our expectations yet our results appear to be better than others in our space.

(Excerpt from the full Best Buy (BBY) conference call transcript)

The volatility associated with the amount of change to the company combined with the unfavorable macro-economic environment make it difficult to project our annual performance at this time. In light of this we are withdrawing annual guidance for the time being.

(Excerpt from the full Circuit City (CC) conference call transcript)

Retail revenue grew 4% year-over-year. However, overall revenue fell 8.6% due to declines in professional and direct.

(Excerpt from the full Gateway (GTW) conference call transcript)

It all sounds rather bleak, and the companies assure us they are going to do something about it.

So that’s my lens on the quarter and if I leave you with one point, it’s this; we’re never satisfied with missing earnings. However, we know it does not reflect the core health of our business, the strength of our strategy, or our ability to execute through our people, or our optimism about the future. In addition, we remain very focused on driving long-term success through building and strengthening our customer relationships.

(Excerpt from the full Best Buy (BBY) conference call transcript)

Remember, at the same time we are structuring a more lean organization, we will be adding associates to Firedog, our multi-channel efforts, and to fund our new store openings and support growth in all of these areas. The end result is that we are positioned for our long-term strategy and profitable growth. Goals and commitments throughout the company are aligned to execute this strategy, and we have freed up capacity through simplifying our work, enabling us to focus on execution in the coming year.

(Excerpt from the full Circuit City (CC) conference call transcript)

To summarize, we’ve made good progress in the second quarter both in terms of financial performance and in executing our strategy. But we fully recognize that much more remains to be done.

(Excerpt from the full Gateway (GTW) conference call transcript)

In part there was also optimism about the future:

For many people, the consumer electronics industry is the industry most closely associated with how human beings live their lives now and in the future. The solutions we provide are right at the center of how people work, play and live. As a result, the industry has grown steadily and sometimes dramatically for years. In fact, going back to spring of 2001, the industry has seen positive growth every single quarter until the first quarter of this fiscal year.

Does this mean that people are changing their minds, turning away from technology and entertainment products and solutions? We don’t think so. They simply hit the pause button. We believe it’s a timing issue — natural ebbs and flows of different aspects of our industry. Moreover, in the fourth quarter of last year, we may have fast-forwarded some of the business with terrific promotions.

But to be honest, we believe that what we are seeing also has a lot to do with macro economic factors like housing, interest rates, no relief at the price of gas, and in many other factors that give our customers cause for real concern right now. It’s a humbling reminder that no matter how tight a ship you run and no matter how confident you are of the course you are sailing, external conditions completely outside your control can still rock your boat.

(Excerpt from the full Best Buy (BBY) conference call transcript)

Which sounds good, at first, until you remember that running a tight ship and being confident of the course being sailed has helped other companies avoid having their boats rocked by the external conditions outside their control.

Revenue of $5.41 billion was the highest in a June quarter in the history of Apple and represented 24% growth over the prior June quarter sales. The revenue was fueled by record-breaking Mac sales and continued strong demand for iPods.

Operating margin for the quarter was stronger than expected at 19.2%, resulting from higher than expected revenue and the continued, very favorable commodity cost environment. We generated net income of $818 million, which was up 73% over the prior June quarter’s results, and translated to earnings per share of $0.92.

(Excerpt from full Apple (AAPL) conference call transcript)

Cellular News put out a story called Top 10 Handsets Sales Statistics for July:

The Swedish manufacturer of carrying cases for portable electronics, Krusell, has released their “Top 10″-list for July 2007. The list is based upon the number of pieces of model specific mobile and smart phone cases that have been ordered from Krusell during July 2007. Krusell’s list is unique due to the fact that it reflects the sales of phones on six continents and in more than 50 countries around the globe. 1. (2) Nokia 6300
2. (1) Sony Ericsson K790i/K800i/K810i
3. (3) Nokia N95
4. (4) Nokia N73
5. (9) Sony Ericsson W880i
6. (-) Blackberry RIM 8300 Curve
7. (5) Blackberry Pearl 8100C/G/V
8. (9) Nokia 6233/6234
9. (6) Sony Ericsson K750i/W700i/W800i
10. (-) Nokia 5500 Sport

Notably missing from the list is the iPhone, but then again Krusell isn’t making a case for it yet. Just one of the many potential flaws in this type of market share analysis.

More interesting is the presence of two Blackberry models and nothing from Motorola, given how many observers have fretted over the fact that Research in Motion (RIMM) is carrying a higher market valuation than Motorola (MOT - Annual Report). Perhaps the higher value is deserved.

Or perhaps people just like to wrap Blackberries in leather.

Apple (AAPL) investors have lately been worked up over the introduction of iPhone, which is yet another great product from Apple and expected to sell 10 million units in 2008. It sold 270,000 in the first two days of its introduction, which makes the 730,000 they are guiding to for the next three months seem conservative laughably low.

But with all the focus on iPhone, everyone seems to forget about the iPod.  As I noted yesterday, 21% growth for iPods was also borderline spectacular for a product many have all but forgotten and if anything expected to be cannibalized by iPhone. Oh, and who needs 10 million units in a year when the outdated, cannibalized iPod sold nearly that many in a quarter? Imagine what might happen if they actually came out with a new model.

You might not have to stretch your imagination for long. Think Secret thinks there is an iPod update on the horizon

Apple’s full-size iPod is being primed for an update that could arrive as early as the first-half of August, sources report. The revision will feature neither a touch-screen nor will run a scaled down version of Mac OS X like the iPhone, however—those updates are not scheduled until 2008.

Apple has been an amazing stock and the company continues to produce amazing products. With the stock performing as it has it is easy to see how investors may feel nervous. But it is also easy to see that with global handset units topping a billion per year Apple can grow for a long time before gaining even the meager 3% share it holds in the PC market.