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.

Key indicators for business spending include corporate profits and the cost of borrowing. Both have been favorable for years, yet businesses have focused more on cutting costs than on developing their infrastructure. With borrowing costs rising (at least in terms of the spread between Baa bonds and treasuries) I thought it another good opportunity to read the tea leaves from some recent conference calls.

Tech Data (TECD) starts things off on a positive note.

Looking at the Americas, our net sales exceeded our internal growth expectation which called for growth in the mid single digit range through strong execution and focused sales and product management efforts we want incremental business in the second quarter that boosted our growth rate to over 16% in the region, while still delivering our targeted operating margin. This double digit net sales growth was broad based with growth across virtually all of our product and customer segments….

Our Q3 business outlook calls for low double digit year-over-year growth in the Americas and flat to low single digit growth in Europe on the local currency basis.

(Excerpt from full TECD conference call transcript)

Staples (SPLS) is running into some tough spots.

Our North American retail business again experienced softer than expected sales during the quarter with same-store sales down 2% and total sales up 5%, which led to only a modest increase in the bottom line. Our North American delivery business continued to gain market share with top line growth of 16% and operating income of 18%. Finally, we’re happy with the strong improvement we’re seeing in our international business, where total sales were up 18% in U.S. dollars. That’s 11% in local currency. Same-store sales grew 7% and operating margin jumped 225 basis points to 1%.

So while we were very pleased with our results in North American delivery and international, it’s clear we’re operating in a tough retail environment in North America….

We had strong growth in copy center, laptop computers, ink and software, but these gains did not make up for negative comps in furniture, supplies, and tech durables.

(Excerpt from full SPLS conference call transcript)

And since both Staples and Tech Data source a good percentage of their tech products from Hewlett Packard (HPQ - Annual Report) it is important to get their take on the situation as well.

Moving to PSG, we shared an outstanding quarter with excellent revenue growth, market share gains in every region and strong margin performance. Revenue increased 29% year-over-year to $8.9 billion with unit shipments up 33% and double digit revenue in unit growth in every region. These results bring PSG’s year-to-date revenue growth to nearly $5 billion. We have a strong momentum driven by our notebook business which grew revenues 54%, and units 71% versus the prior year period. According to our estimates for the second calendar quarter, we increased HP’s notebook market share lead by over 5 points versus the prior year….

We now expect Q4 revenue to be approximately $27 billion to $27.2 billion, growing roughly 10% to 11% year-over-year. While the sequential increase of 6% to 7% implied by our guidance is less than the historical 10% to 12%, we do not believe it is prudent to set investor expectations that our Personal Systems business can continue to grow at almost three times the market rate, nor do we think it appropriate to build a cost structure on that basis.

(Excerpt from full HPQ conference call transcript)

There don’t seem to be too many signs of weakness, although the GDP numbers suggest there is. I’d argue for cautious optimism regarding tech spending over the next few quarters despite the rise in corporate interest spreads.

Earlier today I said “Other signs are pointing to the consumer slowdown extending beyond just housing-related stores. The consumer was the last leg in the economy’s stool, so businesses had better take up the slack or we could be in for more of a slowdown than we already have.”

Right on cue, I learn that CDW’s Average Daily Sales Increase 25.3 Percent in June 2007 and 24.4 Percent in the Second Quarter of 2007:

Excluding Berbee sales in June 2007, and therefore on a non-GAAP basis, CDW’s average daily sales for June 2007 were $31.641 million, an increase of 15.9 percent compared to average daily sales for June 2006 of $27.293 million and total sales for June 2007 were $664.5 million, an increase of 10.7 percent compared to total sales of $600.4 million for June 2006.

That is a pretty darned good number. If it is happening across the board, and not as a result of CDW gaining market share, the GDP chart for tech equipment and software spending won’t look like this for long.

If it is an industry-wide phenomenon, there are positive implications for Tech Data (TECD), Ingram Micro (IM) and Mid Cap Watch List (Track at Marketocracy) member Synnex (SNX) as well as for their suppliers, primarily Hewlett Packard (HPQ - Annual Report).

Tech Data Reports Fiscal 2008 First-Quarter Results:

Net sales for the first quarter ended April 30, 2007 were $5.4 billion, an increase of 9.3 percent from $4.9 billion in the first quarter of fiscal 2007.

And that was about the only useful piece of information in the release. The press release was loaded with data but nearly devoid of information. To whit:
Earnings missed by a mile, even on a “non-GAAP” basis that excluded the closure of the company’s operations in the United Arab Emirates. But even the non-GAAP numbers may have included some impact, based on the statement that “Gross margin for the first quarter of fiscal 2008 was 4.72 percent compared to 4.80 percent in the prior-year first quarter. The decline in gross margin was attributable to higher inventory costs, including those related to the closure of the UAE operations.” It looks as though the non-GAAP numbers may merely excludes the related restructuring charge, not operating costs related to the closure.

The 9.3% sales growth is a slowdown compared with recent quarters, assuming the currency benefit is included. The company did not disclose the currency impact for the company’s overall sales growth.

Guidance for next quarter’s sales was in line with estimates, and there was guidance for both the remaining costs associated with the UAE closure and the tax rate, but not for any operational items.

I’m often puzzled as to why companies bombard investors with useless information and withhold any that might be useful. Typically when there is something good to say they will just say it, so when there isn’t investors get a bunch of mumbo jumbo.

The economic calendar is light, with Durable Goods on Thursday being about the only significant report.

Analog Devices (ADI) reports earnings on Tuesday. Consensus is $0.35 on $658 million in sales, which is down from an initial estimate of $0.42 90 days ago but unchanged recently.

Tech Data (TECD) also reports on Tuesday. It can be a useful read into overall tech spending. Analyst estimates have been drifting down and now stand at $0.39 on $5.36 billion in sales.

In 1998 the U.S. Securities and Exchange Commission passed a rule requiring issuers to relate their business in plain english when issuing prospectuses. If they expected the spirit of the rule to be extended to other document filings, the word didn’t get to Tech Data (TECD) in time to salvage this 8K filing:

01. Entry into a Material Definitive Agreement.

(a) Effective March 20, 2007, Tech Data Corporation entered into the Third Amended And Restated Credit Agreement, an amendment to its Amended and Restated Credit Agreement dated as of May 2, 2003, as amended by a Second Amended and Restated Credit Agreement dated as of March 7, 2005, and as further amended prior to the date hereof, pursuant to which the Lenders have made available to the Borrower a multicurrency revolving credit facility including a letter of credit subfacility and swing line subfacility.

If that isn’t as clear as mud we don’t know what is. Given that the associated material news was positive (an extension to the terms and lower interest rates and fees), we can’t imagine why they chose to obfuscate it. By comparison, look at the filing made by Starbucks (SBUX) the same day:

On March 27, 2007 (the “Effective Date”), Starbucks Corporation (the “Company”) entered into a new commercial paper program (the “Program”) on a private placement basis under which the Company may issue unsecured commercial paper notes (the “Notes”) up to a maximum aggregate amount outstanding at any time of up to $1,000,000,000. Under the Program, the Company may issue commercial paper from time to time, and the proceeds of the commercial paper financing will be used for general corporate purposes, including working capital, capital expenditures, acquisitions and share repurchases.

Apparently Starbucks has people who can translate into plain English.

Disclosure: Author is long Starbucks (SBUX) at time of publication.

After Dell reported a decline and Hewlett Packard, Ingram Micro and Tech Data all showed mid-single-digit gains, one might wonder whether CDW was taking market share after seeing this headline:

CDW’s Average Daily Sales Increase 14.2 Percent in February 2007: Financial News - Yahoo! Finance

CDW Corporation (NASDAQ:CDWC - News), a leading provider of technology products and services to business, government and education, today announced average daily sales for February 2007 were $28.018 million, an increase of 14.2 percent compared to average daily sales of $24.533 million for February 2006. Total sales for February 2007 were $560.4 million, an increase of 14.2 percent compared to total sales of $490.7 million for February 2006. There were 20 billing days in both February 2007 and February 2006.

But not so fast.

As previously announced, CDW completed the acquisition of Berbee Information Networks Corporation on October 11, 2006. February 2006 sales do not include Berbee sales, while February 2007 sales include Berbee sales. Excluding Berbee sales in February 2007, and therefore on a non-GAAP basis, CDW’s average daily sales for February 2007 were $26.080 million compared to average daily sales for February 2006 of $24.533 million and total sales for February 2007 were $521.6 million compared to total sales of $490.7 million for February 2006, both representing an increase of 6.3 percent.

Ah. Mid-single digit growth. Just what we’ve come to expect. Unfortunately our expectations don’t seem to be lining up with those of the market. The consensus growth rate is 14% for the next five years.

Tech Data Reports Fourth-Quarter and Fiscal-Year 2007 Results: Financial News - Yahoo! Finance

Net sales for the fourth quarter ended January 31, 2007, were $6.1 billion, an increase of 10.7 percent from $5.5 billion in the fourth quarter of fiscal 2006 and an increase of 12.7 percent compared to the third quarter of the current fiscal year.

The numbers were well ahead of the $0.58 consensus number, which is partially explained by the company’s very low margins - it doesn’t take much of a margin improvement or sales increase to have a large effect on earnings.

For the fourth quarter of fiscal 2007, operating income was $65.5 million, or 1.07 percent of net sales. This compared to operating income of $55.3 million, or 1.00 percent of net sales in the fourth quarter of fiscal 2006.

You see - going from razor-thin margins to wafer-thin margins can help a lot.

As far as the health of technology spending, our main interest when looking at Tech Data (whose status as one of the largest tech distributors makes it a decent read on the overall industry,) it didn’t look so hot. Excluding any currency effects sales were up about 5% year/year. Nothing to write home about (though Dell would take it.) Overall, it supports what we’ve seen throughout the industry - a mid-single digit growth rate, roughly in line with nominal GDP growth. Given the double-digit long-term growth estimates we see provided for many tech companies (Yahoo shows 10% for TECD and 15% for the distributors as a whole - what a laugh) investors are presumably hoping for better.

They won’t get it. The company’s outlook:

For the first quarter ending April 30, 2007, the company anticipates net sales to be in the range of $5.20 billion to $5.35 billion. This assumes year-over-year mid-single digit growth in the Americas region and flat year-over-year growth in Europe on a local currency basis. The company also anticipates an effective tax rate for the first quarter of fiscal 2008 in the range of 42 percent to 44 percent.

Consensus was for 5.36 billion in sales. And if that long-term growth rate doesn’t come down it won’t be the last disappointment for either Tech Data or the industry.

Minyanville recently reported:

“When the Dow closes below its December closing low in the first quarter, it is frequently an excellent warning sign. Jeffrey D. Saut, Managing Director of Research, and Chief Investment Strategist at Raymond James, brought this to our attention a few years ago. The December Low Indicator was originated by Lucien Hooper, a Forbes columnist and Wall Street analyst back in the 1970s. Hooper dismissed the importance of January and January’s first week as reliable indicators. He noted that the trend could be random or even manipulated during a holiday-shortened week. Instead, said Hooper, ‘Pay much more attention to the December low. If that low is violated during the first quarter of the New Year, watch out!’

Thirteen of the 27 occurrences were followed by gains for the rest of the year – and twelve full-year gains – after the low for the year was reached. For perspective we’ve included the January Barometer readings for the selected years. Hooper’s ‘Watch Out’ warning was absolutely correct, though. All but one of the instances since 1952 experienced further declines, as the Dow fell an additional 10.5% on average when December’s low was breached in Q1.

Only three significant drops occurred (not shown) when December’s low was not breached in Q1 (1974, 1981 and 1987). Both indicators were wrong only three times and six years ended flat. If the December low is not crossed, turn to our January Barometer for guidance. It has been virtually perfect, right nearly 100% of these times (view the complete results at www.stocktradersalmanac.com).”

-The Stock Trader’s Almanac

The December low in question was 12,194, and it was breached by Friday’s closing low. The fact that it was a weekly close probably added some additional significance for the chartists out there. Our readers know we have been bearish, particularly on tech stocks. We looked pretty dumb there for a while, less so now. We’re more interested in finding some good stocks to buy than in looking smart, however.

The major report on the Economic Calendar this week is the employment report on Friday. Consensus expects 95,000 jobs added on a month/month, seasonally adjusted basis. We think that basis is full of beans, and will be expecting something on the order of 2 million jobs (plus or minus a hundred thousand or two) on a year/year, unadjusted basis.

The earnings calendar is also light. None of our Watch List names are scheduled to report. However, Finisar (FNSR - Monday), National Semiconductor (NSM - Thursday) and Tech Data (TECD - Thursday) should offer some further insight into the technology outlook.