Imperial Holdings: Large Upside Potential

A New York presenter recommends Imperial Holdings (NYSE: IFT, $9.74). The company has carved out a leading position in a very niche market of life insurance premium financing. IFT IPO'd back in February and now has sufficient capital to finance on its own, as opposed to borrowing from third parties at prohibitive cost. The company's structured settlements business is now breaking even and growing briskly with repeat business becoming more and more prevalent. The CEO has solid background in the space and has taken another company public, which was later sold at a favorable valuation. The stock is trading at book at the moment. The presenter believes the book value should grow at a mid-teen rate in the next few years and the stock then could trade up to 3x book.

Roulston's Energy Consultant on Alaskan Pipeline

Roulston Research’s energy consultant Kevin Lindemer shares his thoughts on Wednesday’s Wall Street Journal article titled “Shrinking Oil Supplies Put Alaskan Pipeline at Risk.” Kevin states “Based on the article’s reference to E&P activity in the Arctic, it is reasonable to assume the producers feel there is sufficient resource available to keep the pipeline flowing above minimum for decades. Note that some interviewed said it could take up to 15 years just to bring on new fields. We don’t know what, if any, new fields are coming on stream in the near to mid-term that might help maintain flow. However, the pipeline company says 2013 is that date they may not be able to maintain operations.

If we assume a 6% decline rate as stated in the article, then in 2013 the flow rate will be +/- 500,000 bpd assuming no new fields coming on line. This is equal to about 9% of the US crude oil production in 2010. Therefore, if the pipeline shut down there would be an immediate drop of 500,000 bpd or about 9% +/- for US crude oil supplies.

Will this happen?

o It looks like it can be delayed with some technical fixes. But without more volume, these technical fixes may lose their effectiveness.

If the pipeline shut down would it impact prices?

o World oil prices would probably not exhibit a shock behavior if the line shuts down. Something like this would be known to be happening sometime in advance. Therefore the markets would ‘discount’ the event. It would have a long-term impact. Since world oil spare capacity is now only about 4.5 mbd, the loss of 500,000 from the US would reduce spare capacity by 11%. This would make markets tighter and could lead to a long-term increase in prices.

o USWC markets are the primary delivery point for Alaska crude oil. A shutdown of the pipeline would not have much of an impact on gasoline prices. Currently, the USWC markets receive/buy a lot of crude oil from the Middle East and locations further away than Alaska. Therefore, the delivered price to the west coast reflects its net import position. If the west coast was a net exporter of crude oil and the pipeline shutdown, then crude oil prices would increase by the incremental cost of transportation to replace the lost Alaska crude oil.

At some point, the continuing delay of new production on the North Slope will make this a moot point. If it is delayed long enough, physics take over and the line will be shut – it can’t remain open based on promises and plans. If the line shuts down, it not only causes the loss of an immediate 9% of US production, it would essentially end oil and gas production in Alaska, regardless of the estimated size of the resource base.”

Roulston's Media Consultant on Pandora Radio

One of the primary questions being asked today in the media industry is whether Pandora is real radio. Pandora is an automated music recommendation service that allows individuals to enter a song or artist that they enjoy and will make recommendations based off their initial input. From there users can provide feedback about whether or not they like the songs selected and Pandora will take that into account for future selections. Many broadcasters and people in the industry have dismissed Pandora as a radio service for several reasons that include:

1. "Pandora isn't radio because it isn't local."
2. "Pandora can't save your life in a crisis."
3. "Pandora is a feature not a brand."
4. "Internet radio reception is spotty and drops a lot."
5. "Pandora is non-social."

Roulston Research's media consultant Mark Ramsey challenges these typical arguments in his recent blog posting. Follow the link below to view his recent post.

http://www.markramseymedia.com/2011/05/yes-pandora-is-radio/

New Oriental Education: Clear Leader in Rapidly Expanding Market

A New York presenter recommends New Oriental Education and Technology (NYSE: EDU, $119.34) as a Buy. The company has the largest share, the only recognizable brand and the strongest network of learning centers in a fast-growing market for private education services in China. Still, even at 2 million households, EDU has only captured less than 1% of the total opportunity. The Street has focused on a recent drop in margins, but the company is expanding in a much more controlled fashion now. New tutoring services are gaining ground fast. There is $0.5 billion in cash on the balance sheet and no debt.

NXP Semiconductors: Upside from Multiple Growth Areas

A New York presenter recommends NXP Semiconductors (NASDAQ: NXPI, $34.18). The company stands to benefit from multiple growth markets. The biggest opportunity lies in near-field communication or NFC, where the company is the recognized leader. NFC allows smartphone users to make payments just by waving their phones near a point of sale terminal. Some of the new Android models already have NFC chips, and Apple is rumored to include it in the next-generation iPhone. NXP has also developed a new solution for compact fluorescent bulbs that allows dimming, a multibillion market potentially. RFID is finally going mainstream, another area where NXP is very strong at. The company has been saddled with debt on its separation from Phillips in 2006, but has been paying it down. The presenter forecasts $4 in earnings power. Based on 12-15x the peer group is trading at, the upside could be quite significant.

ACCO Brands: Big Upside in Margin Expansion

A Boston presenter likes ACCO Brands (NYSE: ABD, $9.47) at the current level. This leading supplier of office products is finally growing revenues after two difficult years. The new CEO's focus on rebuilding customer relationships is paying off. The company has rationalized its cost structure and can now really lever even a modest top-line expansion. ACCO targets mid-teen operating margins versus 8.6% currently. With another debt refinancing likely in 2013, the earnings power may reach $2.50-$3.00 at $1.6bln - $1.7bln in sales.

America's Car-Mart: Profitable Niche

A Boston presenter recommends America's Car-Mart (NASDAQ: CRMT, $25.55). The company focuses exclusively on selling used cars to customers in rural areas with bad or no credit. CRMT's competition is highly fragmented. The company is expanding its dealership base, but is doing it in a very controlled manner. CRMT provides all of financing for its customers. Loss rates are in the low 20%, but the highly profitable model has sufficient room to accomodate these losses, which have been improving in recent quarters. The stock is undervalued here, based on projected earnings. The company has been actively repurchasing shares and intends to continue with stock buybacks.