Knight Capital: No longer recommended

Our Dallas presenter is no longer recommending Knight Capital Group (NITE: NASDAQ). The company has unexpectedly increased its investment in growth opportunities, which won't yield results in the next several quarters, hurting margins in the meantime. Payments for order flow have also gone up. The story still has long-term appeal, but the risk/reward ratio in the near to medium term is no longer favorable, in the presenter's opinion.

SWK acquisition of BDK won't hurt HD or LOW

Craig Johnson, Roulston Research's Consumer community chair believes that Stanley Works' $4.5 billion acquisition of Black & Decker Corp. shouldn't hurt results at Home Depot or Lowe's. He does not see this transaction as a negative for either of the retailers.

He believes HD and LOW should benefit from a tool-maker that is financially and operationally stronger as a merged entity. By combining their sales forces and eliminating duplicative distribution systems, Stanley and Black & Decker should be able to get their products into stores more efficiently. In addition, Stanley and Black & Decker's products are mostly complementary rather than competitive.

Electronic Arts: Gains in Online Gaming and Wii

A New York presenter likes Electronic Arts (ERTS: NASDAQ, $18.70). The gaming industry has been hit by the weak economy, but there are indications of bottoming in the space. The company has made significant gains in the digital area and on the Wii platform and is in a great position as we're entering the all-important holiday season. New releases have been selling very well, with FIFA 2010 breaking records as the fastest-selling sports game in history. The company's impressive balance sheet allows it to both support the established franchises and make significant investments in pursuit of growth opportunities. The presenter targets $25, or 30% upside form the current level, based on forward earnings estimates.

UnitedHealth: Trading at Discount to Peers While Lower Risk

Our New York presenter likes UnitedHealth (UNH: NYSE, $26.47) at this level. This leading managed care player is trading at a discount to peers, but its diverse business model holds less risk in light of some of the upcoming regulatory changes facing the industry. The company has improved its service levels recently and customer retention reflects that trend. The scale of UNH's operations and the reach of its provider network would allow the company to benefit significantly from expansion of coverage under the healthcare reform. Cost pressures are a challenge, but the company has been able to raise prices to offset higher medical costs. The presenter conservatively targets $30, but notes that $35 is possible if more favorable assumptions are proven valid.

Customer Growth Partners - Holiday 2009 Forecast

Craig Johnson, President of Customer Growth Partners and Roulston Research's Consumer community Chair has issued a Holiday 2009 Forecast. Craig believes holiday retail sales will grow by 2.4% y-o-y, a sharp turnaround from last year’s 4.1% decline. In issuing the forecast, Craig noted that his estimate of $502 billion in predicted 2009 November-December sales still lagged the peak $511.1 billion in 2007 sales -- and were barely above the $497.1 billion level seen in 2006.

He believes that Americans have endured a series of economic body blows over the past year, from the housing and credit crises to rising unemployment, but they’re now beginning to pick themselves off the mat, dust themselves off -- and start to shop again. With unemployment near 10%, this will not be a great holiday season, but compared with last year when the economy was in freefall, retailers will see a return of topline growth -- and many will enjoy robust, if not record, fourth-quarter earnings.

Highlights of CGP’s 2009 Holiday forecast include:

• November-December 2009 retail sales will increase to $502 billion, up from $490 billion in the similar period of 2008;
• The 2.4% rise represents a sharp turnaround from 2008’s 4.1% YOY decline;
• 2009 Holiday sales will be paced by 10.8% year-over-year growth in e-commerce and other direct-to-consumer sales, also a strong rebound from last year. According to the DOC, fourth quarter 2008 e-commerce sales fell by 5%, the first ever YOY decline in holiday period e-commerce sales;
• Clothing and accessories sector sales will rise by 8.8%, a major turnaround from 2008’s unprecedented 13% decline -- but still below sales levels achieved in either 2006 or 2007;
• Lagging sectors will include the long-suffering home-improvement retailers, predicted to see a 10.4% YOY decline, and the home-furnishings sector, with a 6.6% drop;
• Discount and other value retailers will shine in holiday 2009, led by off-price retailers such as TJX and Ross Stores, low-price players such as Aeropostale and Forever 21, such Big Boxers as Costco and Wal-Mart, and e-commerce retailers Amazon and Gilt.com;
• Electronics retailers -- from Best Buy and Hhgregg to Apple, Amazon and Wal-Mart -- will see exceptional unit growth, particularly in flat panel TV’s, e-readers, laptops and mobile phones, but will be held back by sharply falling consumer electronics prices;
• The predicted 2.4% holiday season increase represents CGP’s Base Case forecast, which assumes that the unemployment rate remains in the 9.8% to 9.9% range, and that energy prices remain stable at about $2.70/gallon regular gasoline; and
• CGP also prepared two sensitivity analysis forecasts. Under the high unemployment/ high-energy price scenario, holiday sales would decline by 1.5%; and under the falling unemployment/low-energy price scenario, holiday sales would rise by 4.4%.

He notes that last year’s holiday shopping season saw households in almost stark fear financially, as consumers clenched their pursestrings with an increase in the savings rate to 4.7% during the peak December Christmas shopping season, over quadruple the 1.1% savings rate from earlier in 2008. But now savings are now returning to more normalized 3% levels -- and with the third quarter GDP growing at about 2% or 3%, the economic clouds are beginning to lift a bit.

The real wildcards will be if employment takes another leg down, and if energy prices take another leg up -- which will turn holiday sales negative a second year in a row.

Cinemark: Betting on 3-D Uptake

Our NY presenter is bullish on Cinemark's (NYSE: CNK) prospects. This movie chain is perfectly positioned for the long-anticipated transition to the 3-D standard. Consumers have embraced the better viewing experience 3-D offers and are willing to pay a $2-$5 premium for tickets. Attendances for 3-D screenings are twice as high as for regular movies. Movie studios will save on prints and shipping costs to distribute prints around the country. Some majors have already agreed to use their savings from the new platform to help movie chains finance the cost of installing digital projectors. JP Morgan is also putting together a financing package to facilitate this transition.

Cinemark has the best operating metrics in the space. Its presence in Latin America, a less competitive market, helps diversify revenue streams. The stock pays a 6.4% dividend yield. The upside from the $11 level where the name was recommended is 40-70% in the next 2-3 years, depending on how fast the 3-D switch progresses.

Tatum/Roulston Report

Tatum's survey is unparalleled in the ability to capture consistent opinions from Tatum's nearly 1,000 executives across the nation who act as CFOs, Controllers and CIOs in a broad base of industries across the country.

Tatum is a nationwide firm specializing in the providing financial and information technology services and executive fulfillment to companies across the country. For the past seven years Tatum's monthly Survey of Business Conditions has provided useful insight regarding business conditions. Roulston Research has partnered with Tatum LLC to produce abstracts of the business outlook from data collected by Tatum. In the Tatum/Roulston Report, Roulston Research believes most surveys, for example, do not identify a broad spectrum in volume of respondents, regionalism, company size or consistent respondents. In addition government results are usually reported 30-60 days after measurement period before revisions are made 30 days later. Most surveys’ conclusions are thus old news, but more importantly have not had a predictive result on earnings trends. The Tatum/ Roulston Report is not constructed with these issues that may distort or delay results. Instead, it is timely and immediate, with a consistent survey constituency of professionals primarily operating in high levels in the financial and technology departments of companies where the rubber meets the road. This joint effort with Tatum is a unique partnership that will provide a differentiated view of business trends - The Tatum/ Roulston Report.

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This month, BusinessWeek featured Tatum's survey in a discussion of current trends among executives, especially in the healthcare and technology industries. Follow this link to the Business Week article.