The Tokyo-based company lost $1.1 billion (98.9 billion yen) last year, and it expects to lose another $1.4 billion (120 billion yen) in its fiscal year ending March 31.  That would be Sony’s first back-to-back annual loss since the company went public in 1958.

And despite renewed optimism within its ranks, Sony still faces a plethora of challenges, including a questionable direction, cost-conscious consumers and a strengthening yen.

The onetime bellwether of the electronics industry has seen its market share crumble in almost every category: Nintendo Co. Ltd.’s (OTC ADR: NTDOY) Wii game console has supplanted Sony’s PlayStation brand, Sony has given up its lead in portable media players to Apple Inc.’s (Nasdaq: AAPL) iPod, and Samsung Electronics Co. Ltd. is now the world’s largest seller of televisions.

Hoping to turn the tide, Sony earlier this year underwent a major restructuring with the goal of unifying its hardware, software and entertainment businesses. The idea is to leverage its growing catalog of networked products with the software and services its sells, such as Internet-enabled televisions that enable consumers to watch Sony movies through an online connection.

“Consumers want products that are networked, multi-functional and service-enhanced utilizing open technologies, and user experiences that are rich, shared and, increasingly, green,” said Sony Chief Executive Officer Howard Stringer. “[The restructuring] will now make it possible for all of Sony’s parts to work together to assume a position of worldwide leadership and, together, achieve great things.”

Doubts Cast Shadow Over Efforts

While analysts agree with Sony’s loss estimate for this year, some doubt its restructuring efforts – which included thousands of layoffs and a streamlining of manufacturing in the – will truly pay off.

“They were hit fairly early by the downturn and have moved quicker than some competitors to restructure, but it remains to be seen if those moves will pay off,” Hideyuki Ookoshi, who helps oversee $365 million at Chiba-Gin Asset Management in Tokyo, told Bloomberg News. “The problem with Sony is it doesn’t know what it wants to be: Is it a game company, a consumer-electronics maker, a financial-services provider? There’s no direction.”

Operating income at Sony’s financial services division was propelled more than 57% by a boost in its life insurance revenue in the company’s fiscal first quarter ended June 30. But this non-core business won’t be the catalyst that brings Sony out of the red, according to Makoto Haga, president of Tokyo-based hedge fund Wing Asset Management Co.

“Profit at the financial unit helped Sony narrow a loss, but investors don’t appreciate that,” Haga told Bloomberg. “I can’t see any engine that drives its recovery and the company’s prospects are dim.”

As it stands now, CEO Stringer’s cost-cutting efforts have only gone so far, and investors like Yasuhiko Hirakawa want the British-born executive to prove he can boost Sony’s sales, which are expected to be 6% lower than last year.

“Cost cutting and reshuffling of management may help mend unprofitable businesses but they won’t make Sony competitive against Samsung and other rivals,” said Hirakawa, a fund manager at DIAM Co., which oversees $80 billion in assets including Sony shares. “The brand is still highly regarded but that won’t last forever.”

Premium Without the Value in Tough Times

While all electronics manufacturers have suffered during the worst economic crisis since World War II, premium-branded Sony has been hit especially hard. The economy has brought out the practical side of consumers, who flocked to cheaper television sets from makers like Vizio Inc., which is No. 2 in North America behind Samsung.

It’s the “intensification of price competition” that contributed to Sony’s $1.7 billion operating loss in its electronics segment last year, the company said. Comparable televisions from Samsung are often hundreds of dollars less than a Sony, without a significant sacrifice in tangible quality.

“I don’t think you can say a Samsung TV has a better picture than Sony TV,” Richard Doherty, co-founder of industry researcher Envisioneering Group told the San Diego Union-Tribune. “But (the difference) has narrowed, and that’s one of the problems.”

Indeed, while TVs from Sony may have technically superior features such as 240mhz refresh rates, it usually won’t make a difference to the mass market. The benefit of such a feature is “difficult to discern,” writes CNET, a leading Web site from CBS Interactive Inc.

Televisions are just one area where Sony is struggling with its value proposition. Until recently, Sony faced mounting pressure from video game executives and analysts to cut the price of its $400 PlayStation 3 (PS3) console.

“They have to cut the price, because if they don’t, the attach rates [the ratio of games purchased to a console] are likely to slow. If we are being realistic, we might have to stop supporting Sony,” Bobby Kotick, chief executive officer and president of Activision Blizzard Inc. (Nasdaq: ATVI) said in a June interview with Times Online.

After months of lowering manufacturing costs on PS3, Sony finally dropped the price of the console to $300 in the United States and launched an ad campaign touting “It only does everything,” a reference to PS3’s ability to play games, Blu-ray movies and browse the Internet.

The result was Sony selling more than 1 million PS3s in the first three weeks of September, almost the same amount it sold in the entire second quarter. A similar price drop in Japan led to PS3 outselling Nintendo’s Wii last month, a first since the console was released in Nov. 2006.

Sony’s Walkman, which first revolutionized portable audio 30 years ago, now comes in the form of a touchscreen digital media player, but has failed to put a dent in Apple’s ubiquitous iPod, which also has a touchscreen model. Sony’s 32-gigabyte Walkman sells for $400. But while it gives users some limited Internet options, Apple’s comparable iPod Touch sells for $100 less and has access to thousands of applications – many of them free – in its vaunted App Store.

Without any tangible features to discern it from the competition, it’s no wonder Sony expects to sell just 6.7 million Walkmans this year, while Apple sold 10 million iPods in its third quarter alone.

Currency Crisis

Sony, like its Japanese counterpart Panasonic Corp. (NYSE ADR: PC), is inherently at a disadvantage to Korean competitors like Samsung and LG Electronics Inc. due to the yen’s strengthening position against the won and U.S. dollar. The yen’s gain has enabled the Korean manufacturers to sell its products at a discount of as much as a 10% without taking a hit on margin.

“We don’t have a moment to breathe,” Sony Vice Chairman Ryoji Chubachi said of the strengthening Japanese currency in a Bloomberg interview on Tuesday. “It is a tough environment.”

The yen has gained about 15% versus the Korean won and 14% against the dollar in the 12 months ended Sept. 30, according to Bloomberg data. The dollar is at its weakest levels against the yen since February, trading at as low as 88.86 yen on Tuesday. The yen has been the third-best performer among G-10 members in the past 12 months.

For Sony and other Japanese companies, a rising yen is “like a death warrant as things stand now and if this continues, they will have a very difficult time,” said Chu Moon Sung, a Seoul-based fund manager at Shinhan BNP Paribas Asset Management Co., which manages the equivalent of $26 billion in assets. “For Korean companies, it’s a favorable environment and the currency has been the biggest factor for their good performance.”

Source: The Three Roadblocks to Sony’s Turnaround

If the last three months are any indication, the U.S. tech sector has shaken off its recession-heightened late-winter doldrums, and could see its fortunes soar in the year’s second half as businesses and consumers open their wallets and the broader economy picks up speed.

The technology-laden Nasdaq Composite Index was at the forefront of the most-recent market rally, having soared more than 45% since hitting its 52-week low on March 10. That outpaced both the Dow Jones Industrial Average – up 30% in that time – and the Standard & Poor’s 500 Index – up about 37%.

According to industry analysts, the technology sector – because it is heavily reliant on borrowing, as well as consumer demand – can serve as a harbinger of economic recovery.

“Technology tends to be a leader in the early stages of an economic turn. That’s what we took for as confirmation of a sustainable rally-money rotating into a sector that historically is seen as consumer- and business-sensitive, and requiring more leverage in terms of borrowed money, because it is more sensitive to the economy,” Marc Pado, U.S. market strategist at Cantor Fitzgerald told MarketWatch.com. “I expect technology to continue to lead well through this year and into February of next year.”

Spearheading the Nasdaq’s charge has been Redmond, Wash. software giant Microsoft Corp. (Nasdaq: MSFT).  While its fiscal third-quarter profit fell 11% from a year earlier, Microsoft beat analysts’ expectations, helping the company’s stock to surge more than 50% from its mid-March low. Microsoft is up about 16% in the past month.

Semiconductor manufacturer Texas Instruments Inc. (NYSE: TXN) could trade in the is up more than 45% in the past six months to its current level of about $21 per share. The company could trade up into mid-$30s within 12 months, according to Paul J. Nolte, director of investments atHinsdale Associates Inc., an Illinois money management firm.

Earlier this month, in fact, Texas Instruments sharply raised its second-quarter financial guidance. The reason: Customers had slowed the rate at which they were reducing chip inventories – a signal that the market for semiconductors may be stabilizing.

The company now expects to report earnings per share (EPS) of 14 cents to 22 cents, up from the previous forecast of 1 cent to 15 cents per share.

Opening New Windows

The long-suffering PC market may get a shot in the arm this fall with the Oct. 22 release of Microsoft’s Windows 7, which is all but guaranteed to generate better reviews than its predecessor, Windows Vista. Pre-release versions being publicly tested are already being called better than Vista, which was dogged by geeks and general end-users alike for its slow performance and questionable compatibility with legacy software and hardware.

Stopping short of admitting the goof and giving away Windows 7 to existing Vista users, Microsoft is offering cheaper upgrades to those who pre-order Windows 7 between June 26 and July 11.  The company will offer free Windows 7 upgrades to anyone who purchases a PC pre-installed with Vista after June 26.

Windows 7 is expected to be the operating system of choice for information technology (IT) managers who make purchasing decisions for corporate users.

“The upcoming introduction of Windows 7 could spur a rapid corporate PC upgrade cycle starting in late 2010/early 2011, catalyzed by the end of support for Windows XP and a recovery-based increase in IT spending,” said Jeffries & Co. Inc. analyst Katherine Egbert wrote in a recent research report.

But history shows that a release of a new operating system – no matter how positive the buzz – will translate into only a slight increase in PC sales, Microsoft Senior Vice President Bill Veghte said in a webcastearlier this month. On the business side, enthusiasm is high for Windows 7, but corporations will not rush to upgrade when it is released. The release “will get drowned by the macroeconomic environment,” Veghte said. “As the macro environment comes back, people will have to buy new PCs. People aren’t using PCs any less.”

Game On

Looking ahead, the tech sector is anticipating a slew of product releases in the year’s second half – many of them in the $22 billion video-game sector, which lives and dies on new releases.

Activision Blizzard Inc. (Nasdaq: ATVI), the largest third-party game publisher in the world, will lead the way with the latest in its rock music game series with the September release of “Guitar Hero 5″ on four platforms: Sony Corp.’s (NYSE ADR: SNE) PlayStation 2 and 3, Microsoft’s Xbox 360 and Nintendo Co. Ltd.’s (OTC ADR: NTDOY) Wii. The third iteration of “Guitar Hero” became the first video game ever to achieve $1 billion in sales.

But the music from Activision won’t stop with the last strum of a toy guitar: The company will debut “DJ Hero” in October for the same four platforms. “DJ Hero” will ship with a mock turntable and should appeal to fans that don’t turn to rock for their music fix.

Activision will release new titles for proven franchises such as “Modern Warfare” and “Tony Hawk.” The first “Modern Warfare” title, released in 2007, has sold 13 million copies worldwide and is one of the best-selling games on Xbox 360. The new “Tony Hawk” game represents the 12th installment in the series since it was started 10 years ago.

While sales of console games typically garner most of the attention, it is Activision’s “World of Warcraft” (WoW) playing the role of its single largest sales generator. In 2008, WoW accounted for $1.1 billion in revenue, or 38% of Activision’s total revenue. Sales from all of Activision’s console titles were $1.2 billion. WoW has more than 11.5 million subscribers, Activision said.

Since its dropping down to its 52-week low of $8.14 in January, Activision shares have risen steadily, and are now trading in the $12 range. With a war chest stuffed with nearly $3 billion in cash and ratingsof mostly “Buy” or “Strong Buy” from analysts, Activision may warrant closer study by individual investors, too.

Activision’s rival, Electronic Arts Inc. (Nasdaq: ERTS) also has some potential-big-hit titles coming in the year’s second half, but saw its losses more than double to $1 billion for the fiscal year that ended March 31. Like most game publishers looking to cash in on the holiday shopping season – primetime for consumer spending – EA is saving its best for the second half of 2009.

Titles such as “Madden NFL 10,” “The Beatles Rock Band” and “Left 4 Dead 2″ will sell well, but the outlook for EA on Wall Street is mixed, with the majority of analysts rating the company as a “Hold.”

Some analysts say that EA can weather the current downturn in consumer spending, as it sits on more than $1.6 billion in cash, according to its annual regulatory filing with the Securities Exchange Commission (SEC), but the outlook for the 2009 Christmas shopping season remains uncertain.

Will iSpend?

Following a sharp drop in its stock after the revelation that its chief executive officer’s health may be worse than previously thought, shares of Apple Inc. (Nasdaq: AAPL) have slowly been climbing back toward its 52-week high of $180.91. The shares are currently trading at about 21% below that peak.

The Cupertino, Calif.-based company on June 8 removed a barrier that had stopped many consumers from purchasing its popular iPhone when it lowered the price of its 8-gigabyte 3G model to $99. With wireless plans starting at around $70 per month, Apple’s phone – and perhaps more importantly, its app store – will find its way into the hands of many more consumers in the second half of 2009.

Couple the 8GB iPhone 3G with the newly released, feature-rich 3GS model – and then stir in a barrage of television commercials – and the result should be a marked improvement in revenue.

It is unlikely that Palm Inc.’s (Nasdaq: PALM) Pre will put a dent in iPhone sales, partly because of sustained shortages as Apple floods the market with its phone. However, Sprint Nextel Corp. (NYSE: S) customers locked in their contracts looking to upgrade to a phone with a growing app catalog will see the Pre’s similarities with the iPhone.

Sprint Chief Financial Officer Bob Brust told investors via a webcast at Wachovia Corp.’s Annual Mid-Year Equity Conference that Pre shortages still exist weeks after its launch.

“We still have a backlog of subscribers but it’s not unmanageable and we get shipments every week,” Brust said. Sprint is the exclusive carrier of the Pre.

Analysts estimate that 50,000 to 100,000 Pres were sold in its debut weekend earlier this month, while Apple said the new iPhone sold 1 million units in its opening weekend.

Source: Rebounding Tech Sector Stars Could Play Key Role in U.S. Economy’s Second-Half Rebound

[Editor's Note: This tech-sector preview is the opening installment of a new Money Morning series that will make economic projections for key U.S. sectors for the last half of 2009. As part of that series, look for forecasts for housing, energy, U.S. stocks and the emerging markets.] ]]> http://www.contrarianprofits.com/articles/rebounding-tech-sector-stars-could-play-key-role-in-us-economy%e2%80%99s-second-half-rebound/18629/feed 0 http://www.contrarianprofits.com/articles/investment-news-briefs-tuesday-june-23-2009/18216 http://www.contrarianprofits.com/articles/investment-news-briefs-tuesday-june-23-2009/18216#comments Tue, 23 Jun 2009 15:30:58 +0000 Money Morning Staff http://www.contrarianprofits.com/?p=18216 Oil Takes a Spill; SEC Expands Madoff Investigation; Sony Could Lose Largest Game Publisher; Nasdaq Outpaces Other Indices; Walgreens Misses Street Estimates; U.S. Car Brands Close Gap with Toyota Quality…

• In spite of tense geopolitical situations in the Middle East, light sweet crude for July delivery yesterday (Monday) fell $2.62, or 3.8%, to settle at $66.93 a barrel on the New York Mercantile Exchange (NYMEX). Large and violent protests in Iran over the outcome of its recent election would normally raise concerns about supply disruptions and drive up the price of oil. Instead, the market is looking past this tense backdrop in the world’s No. 4 oil producer because of a large supply worldwide, Alaron Trading energy analyst Phil Flynn told CNN…

If you want to invest in video games there are, essentially, four ways to do it…

• Investing in video game publishers.
• Investing in video game retailers.
• Investing in companies that make video game consoles.
• Investing in companies that make video game accessories.

Game Publishers

These are the companies that make the games. And Electronic Arts Inc. (NASDAQ:ERTS) and Activision Blizzard (NASDAQ:ATVI) are the best bets right now.

Electronic Arts is the publisher of the popular Madden franchise, which gives it a consistent intake every year. Adding to its arsenal with a game like Spore will no doubt boost its bottom line even further.

Activision Blizzard is another strong contender. Guitar Hero has proven extremely popular, as has World of Warcraft. And while the new Call of Duty probably won’t sell as well as its hugely successful predecessor, Call of Duty 4, it will no doubt turn a respectable profit.

Avoid THQ Inc. (NASDAQ:THQI), which seems to have forgotten what games are and Take-Two Interactive (NASDAQ:TTWO), which is overly reliant on its controversial Grand Theft Auto series. Take-Two also had a good opportunity to be taken over by the much larger Elecrtonic Arts, but a deal never got done, which raises questions about the company’s management.

Accessories

As the unrivaled success of the Wii showed, innovation in video game accessories can pay off. For every console, as well as the PC, there are multiple games that can be enhanced by the use of a new input medium.

Games such as Guitar Hero, a game where you use a guitar shaped controller to play along with music, Flight Simulator X – the premiere flight simulator game is greatly enhanced by the use of a joystick, and the Dance Dance Revolution series, which features games that are best played with a dance pad, are always emerging on the market.

While, most of the accessories are made by the company of the game that requires them, there are external controllers that are always there competing for the market. Some companies that make these include MadCatz Interactive Inc. (AMEX:MCZ), a peripheral company specializing in mainly console accessories and Logitech International (NASDAQ:LOGI) a Swiss company that specializes in mostly in PC peripherals.

Retailers

While many electronics stores and retailers sell video games, there are some specifically designed to do so. The biggest of these in the world is GameStop Corp. (NYSE:GME). GameStop stocks new, used and old games, as well as multiple accessories and consoles. The largest video game retailer in Europe is GAME Group PLC (London:GMG). They operate similarly to GameStop.

Consoles

More than $9 billion was spent on video game consoles last year. Nintendo, Microsoft, and Sony all have new systems on the market, and they’ve all proved formidable.

[...] All of these companies are reasonably solid investments, but, in terms of gaming, Sony Corp. (NYSE:SNE) and Nintendo Co. (Pink Sheets:NTDOY) look like they are going to have some very good years.

Sony has got an amazing games division that is producing very high quality games for its console.  And Nintendo is always going to be in demand, though it needs to start making more games for the Wii and DS.

Microsoft Corp. (NASDAQ: MSFT), on the other hand, needs to acquire more exclusives, plus this report has nothing to do with the upcoming Windows 7, which is the biggest part of Microsoft’s business.

Hon Hai Precision Industry Co.

Hon Hai Precision Industry Co. (OTC: FXCNF) is a technology company based in Taiwan. It manufactures the Mac mini, the iPhone and the iPod for Apple Inc. (AAPL), cell phones for Nokia Corp. (NOK), and motherboards for Intel Corp. (INTC).

Of course, it also manufactures PS2, PS3, Xbox 360, and Wii – the four most popular gaming consoles – making it a tremendous play on the video game industry.

Emerging Markets: The Future of the Gaming Industry

The Middle East, China, India, Africa, and South America all have extreme pirating problems where video games are concerned. Thus, most companies have trouble expanding into these markets.

The Chinese market is a rapidly growing area for video games. However, the video games that the Chinese are enjoying are not what the West is enjoying. Chinese consumers love MMORPGs. While an average Western MMORPG, like Everquest for example, will reach 500,000 users. An AVERAGE Chinese MMORPG will attract well over 1,000,000 users very quickly.

Of World of Warcraft’s 10 million subscribers, 1.5 million live in China. Analysts estimate that the WoW Chinese market, alone, could eventually have 10 million users.

Most Chinese play MMORPGs in internet cafés (since most of them have limited Internet access). A large percentage of Chinese, however, do play free MMORPG’s. Free MMORPGs usually are completely free to play, but players can pay money to expand the gaming experience (bigger map to play on, more areas etc.) or improve their character (items, weapons character stats, etc.). While this doesn’t seem to like it would make a lot of money, it actually does, thanks to the addictive nature of most MMORPGs.

Some of the bigger names in the Chinese MMORPG market are Giant Interactive Group Inc. (NYSE:GA), Perfect World Co. Ltd. (Nasdaq:PWRD), Shanda Interactive Entertainment Ltd. (Nasdaq:SNDA), and The9 Ltd. (Nasdaq:NCTY).

Unfortunately, China is China. As such, the government always thinks of something ‘imaginative’ to do with the gaming market. The ‘Fatigue System’ is a means by which the government gets to control how long its citizens spend online playing games.

This system requests that games stop rewarding players after three hours of play in one day. Additionally, the system also requests an ID for players so as to be able to control their play more easily. While the system was originally meant for all gamers, it has been limited to gamers under the age of 18, due to the initial outcry it garnered.

China is also notorious for having the largest game sweatshop industry in the world. A game sweatshop is where a person is paid to play a game intensively and to make an extremely good character in it. That character is then sold to whomever wants it.

Chinese censorship is surprisingly low as the government only censors games that are anti-Chinese or portray Tibet and Taiwan as independent nations.

India’s market has yet to fully realize the potential of video games (putting the pirating aside). India is regularly compared to China in 2001. The online video games market is picking up but the overall market is still small. The few Indians who do game, do so like the Chinese: in Internet cafés. Unfortunately, there aren’t any enormous MMORPG makers (or equivalents) in India, yet.

The Middle East is generally also a pirating heaven though there are some legitimate shops usually selling games that haven’t been translated. Countries like Saudi Arabia also tend to ban certain games that are conceived as anti-Muslim.

If you wanted to invest in one of the Chinese MMORPG makers, the one that looks the best thanks to its pricing model and quality of games is Giant Interactive.

PS. This is an excerpt from a three-part guide to investing in the video game industry. For the complete version, please go to Money Morning’s archive pages.

Source: The Investor’s Guide to The Video Game Industry – Page 2

• Crude oil for September delivery gained $4.58 yesterday (Wednesday) to close at $126.77 a barrel on the New York Mercantile Exchange, MarketWatch reported, after the Energy Information Administration announced crude supplies fell 100,000 barrels to 295.2 million barrels for the week ended July 25.

• Comcast Corp. (CMCSA), the largest U.S. cable television provider, announced yesterday (Wednesday) that net profit in the second quarter rose to $632 million, or 21 cents a share, from $588 million, or 19 cents a share, in the prior year, Reuters reported. Comcast stock gained 89 cents, a 4.64% increase, to close at $20.07 on the news.

• Navigation system maker Garmin Ltd. (GRMN) lowed its full-year outlook to $4.13 per share from an earlier estimate of $4.40 per share in light of the weakening U.S. economic conditions, Forbes reported. Yesterday (Wednesday), the firm missed earnings expectations for the quarter ended June 28, causing shares to plunge over 20%.

• UAL Corp. (UAUA), parent of United Air Lines Inc., filed suit yesterday (Wednesday) against the Air Line Pilots Association union, The Wall Street Journal reported. UAL is seeking an injunction against an unlawful sickout, which caused United to cancel an abnormal number of flights.

• Private employers added 9,000 jobs in July, a private report by ADP Employer Services said yesterday (Wednesday). In June, the private sector slashed 77,000, according to revised data. June was originally reported as 79,000 jobs lost.

• Nisssan Motor Co. Ltd. (ADR: NSANY) said yesterday (Wednesday) that it plans to offer buyouts to about 6,000 workers at its two Tennessee plants and eliminate a night shift at one of them, Reuters reported. Citing lower demand for pickup trucks and sport utility vehicles the company said it would offer technicians and salaried employees a lump sum of $100,000 or $125,000, depending on tenure, as well as medical and car purchase benefits.

• ArcelorMittal (ADR: MT) had a second-quarter surge in earnings, as high steel prices offset soaring mineral costs. Net income rose to $5.84 billion from $2.72 billion a year earlier. Revenue was $37.84 billion, from $27.2 billion a year earlier.

• Nintendo Co. Ltd.’s (OTC ADR: NTDOY) quarterly profit rose 31.5% on the runaway success of its Wii game console. The Wii outsold Sony Corp.’s (SNE) PlayStation 3 and Microsoft Corp.’s (MSFT) Xbox 360, putting Nintendo in the leading position in the three-way game console battle, Reuters reported. April-June net profit rose 33.7% to $1 billion (¥107.27 billion) on sales of $3.9 billion (¥423.38 billion), up 24.4%.

Source: Global Investing Roundups Thursday, July 31st, 2008

 Shadow Stocks: The Low-Risk, High-Profit Way to Play the Leading Global Trends

By Horacio Marquez

Most investors know them as “exchange traded funds,” or ETFs. But we refer to them as “shadow stocks,” and with good reason.

We’ve labeled them as shadow stocks because they “shadow” the performance of a particular market, index, or sector. They’re baskets of stocks that – like mutual funds – enable you to buy or sell a portfolio of securities in a single purchase.

Unlike mutual funds, however, you can trade shadow stocks just as you would an individual stock: You can buy and sell them at intraday prices on U.S. stock exchanges, you can buy options on them, and you can even sell them “short.”

These relatively new, highly focused forms of mutual funds offer investors a diversified way to play economic sectors, global financial trends, market events and other so-called “special situations.”

But no matter how you label them – whether you refer to them as shadow stocks or as ETFs – one thing is certain: For individual investors, shadow stocks are the most-innovative, and most-powerful investment vehicle to hit the financial markets in at least two decades.

There are three key reasons why this is true. Shadow stocks:

• Offer a risk/reward profile that’s much better than either individual stocks or regular mutual funds can offer.
• Provide a way to make investment plays that would otherwise be out of reach.
• Give you terrific diversification and liquidity, offering significant safety.

Now that we’ve listed these important benefits, let’s look at each one in more detail.

Shadow Stocks: The Super Sector Selectors

If you want to succeed as an investor, there’s one key fact you need to understand. It’s so important, in fact, that in my research, writing and presentations I refer to it as Shadow Stock Profit Secret No. 1:

• It’s not the stock you buy, it’s the sector you play.

I’m always stunned by how few people actually are aware of this basic fact. But study after study bears this out: More than 50% of any gain an investor realizes in an individual stock is due to the sector it’s in, not the stock itself.

Indeed, because they are so well focused, shadow stocks (or ETFs), allow you to play the sector, theme, or global trend that will generate most of your gain.

What’s more, since they are a “fund,” shadow stocks offer risk diversification that individual stocks could never offer. If you identify a great global trend to play for a profit – but pick the wrong stock (it has an earnings disappointment, a liability lawsuit or gets caught up in a financial crisis) – you could actually incur major losses, despite having chosen a winning trend.

Putting Profits Back in Reach

That brings us to Shadow Stock Profit Secret No. 2:

• Shadow Stocks Put the “Out of Reach” Back Within Your Reach.

Here at Money Morning last year, we uncovered a fascinating investment opportunity – only to realize there was no direct way to profit from it.

Our global money-flow analysis pointed to Taiwan as a lucrative long-term investment opportunity. Drilling down, we uncovered a terrific profit play: Hon Hai Precision Industry Co. Ltd., a Taiwan-based company that manufactures all three of the hot new video game consoles that have been duking it out in the $10 billion worldwide video-gaming market. With those gaming systems, we’re talking, of course, about:

• Sony Corp.’s (ADR: SNE) PlayStation 3
• Microsoft Corp.’s (MSFT) X-Box360
• And Nintendo Co. Ltd.’s (OTC ADR: NTDOY) Wii

Hon Hai isn’t some little wannabe: As the maker of every global gizmo from Hewlett-Packard Co. (HPQ) PCs to the hot new Apple Inc. (AAPL) iPhone, Hon Hai has grown into a global leader so dominant that BusinessWeek magazine labeled it as an “earnings machine.” In fact, it’s now the biggest electronics manufacturer on the planet.

Sounds like a great investment, right?

Wrong.

Unfortunately, Hon Hai wasn’t registered with the U.S. Securities and Exchange Commission, meaning its shares weren’t available to U.S. retailer investors.

We didn’t give up, of course. While we couldn’t get around the SEC regulations, we did find another investment that held a big stake in Hon Hai – along with dozens of other Taiwanese companies with the same kind of potential. It was a “shadow stock” – an ETF called the iShares MSCI Taiwan Index (EWT). And Hon Hai’s Taiwanese shares were the fund’s largest holding.

Godzilla-Sized Meals Could Lead to ‘Super-Sized’ Profits

By Keith Fitz-Gerald

Japanese companies and local governments must now measure the waistlines of all employees and family members over the age of 40.

According to this new health-care initiative – which started this week – men whose girth exceeds 33.5 inches and women whose waistlines exceed 35.5 inches are considered overweight.

The new guidelines affect nearly 56 million people, or roughly 44% of Japan’s total population. They’re based on studies done by the International Diabetes Foundation in 2005, which looked at size and weight thresholds and used them to identify health risks.

Individuals who fail to meet these standards won’t be penalized or have to pay up personally. But their employers will – in the form of penalty payments and higher health-care premiums for every additional inch – thanks to this new waistline law that’s aimed at slimming down this island superpower.

As reported on CNN, NEC Corp. alone faces $19 million in such penalties. Other companies find themselves in a similar spot and could potentially owe hundreds of millions of dollars in punitive health-care fines.

Naturally, the law is controversial, with many believing that it’s at the very least unnecessary – and perhaps even represents an intrusion on a person’s individual liberties. However, others think it’s a very timely initiative, as well as one that’s badly needed.

Either way, the Ministry of Health aims to achieve its goal of reducing the Japanese overweight population by 10% in the next four years and an enviable 25% during the next seven years. It also intends to dramatically reduce national health-care costs at the same time.

The reason?

“Big” people have never populated the nation – but the people are getting bigger.

Since World War II, the average Japanese citizen has gained between three and six inches in height, 20 pounds in weight and, evidently, a bit too much around the waist. While the root causes are subject to debate, much of it comes down to more advanced medicine, changes in lifestyle and, to be perfectly blunt, and the introduction of Western foods including – you guessed it – fast food.

For years in Japan’s company cafeterias – long the domain of harried salary men eating quickly in order to get back their desks – a typical Japanese meal consisted of fish, pickles, some rice, and perhaps green tea, a accounts for between 600 and 800 calories. But Western alternatives – a McDonald’s Corp. (MCD) hamburger meal, for example – can tip the scale at nearly 1,400 calories.

With change, however, comes opportunity.Companies that design, manufacture and sell comprehensive obesity-management programs – not just games, or such one-off items as pedometers, scales and the like -stand to make out big.

One such firm is Konami Corp. (ADR: KNM), which we twice rode to profits (once 49.91% and then 39.31%) earlier this year in our sister publication, The Money Map Report. While most people know Konami as a video-game maker, the company actually operates a string of health-care clubs and is at the center of Japan’s new “healthy” movement.

Showing some real forward thinking, Konami has been able to market some of its leading games, like Dance Dance Revolution, as physical-education programs and medical devices. And those products are now being adopted worldwide by frazzled physical education teachers who find themselves faced with unmotivated, overweight kids. The problem is particularly acute here in America, where as many as 17% of our children are now obese, according to various studies.

Not only do such games offer an alternative to traditional exercises, but they’re also approved medical devices. And that means that school systems can introduce them – and count on insurance companies footing some, or all, of the bill.

Nintendo Co. Ltd.’s (OTC ADR: NTDOY) Wii is taking the same approach. With its Wii Fit programs, the company appears ready to duke it out in what may well be a newly emerging class of entertainment – video-weight-management programs.

In China, where Yum! Brands Inc. (YUM) has more than 3,000 restaurants – and where its KFC outlets are the dining venue of choice for many middle class Chinese consumers – we expect a similar onset of obesity. In fact, during my most recent trip there, I observed bigger Chinese in general than I’ve ever seen before.

Weight management is clearly becoming an issue there, too. And mark my words: Obesity will be an ultra-sensitive topic for the Chinese, who have long regarded fatness as a sign of prosperity, wealth and good fortune.

But that neither diminishes its potential impact nor the opportunity when it comes to profiting from the fight against obesity.

While it’s too early to predict choices there, our best guess is that companies like online-game developer Perfect World Co. Ltd. (ADR: PWRD) will adapt the single-player concept to reflect the Chinese predisposition toward massive multiplayer online adaptations. As a result, it will introduce new games that haven’t even been contemplated, yet.

Source: Godzilla-Sized Meals Could Lead to ‘Super-Sized’ Profits

It’s infinitely harder to dig up information on small cap, thinly traded companies than it is for stocks that trade on the big board or the NASDAQ.

But what if I told you I was looking at a bulletin board stock that had:

• A $76 billion market cap
• Was the leader in its industry
• Has been breaking new highs all year
• AND could be the buy of the year!

Well, that’s EXACTLY what I’m saying to you today.

When many people think about video games they tend to say, “Oh, that’s just kid’s stuff.” But I bet those are the same people who didn’t know that a game released only several short weeks ago — Grand Theft Auto IV — did more sales in one week ($500 million+) than Spider Man 3!

***********The Chance of a Lifetime***********

Guaranteed Triple-Digit Gains

I guarantee you’ll have at least 12 opportunities to double your money just over the year ahead.

The goal: for you to have the chance to make as much in trading profits over the next year to add an extra $150,000-200,000 to your trading portfolio…and for you to get the opportunity to make as much over the next five years to be up well over $1 million above where you’re starting from today.

It’s that simple. But, you have to read this to do it…

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This Isn’t Kid’s Stuff Anymore

Now please understand, I’m not the biggest gamer in the world. I’ll play some quick computer games once in a while and I’m addicted to Brick Breaker (game on my Black Berry), but I’ve never gotten into some of the bigger gaming trends like World of Warcraft, etc.

That is until I received the Nintendo Wii as a gift last summer.

And that’s why when I saw this question on TickerHound, I just had to write this article:

“Which video game stocks would you buy right now?”

Until I played the Wii I wouldn’t have given this topic a second thought. It just wasn’t an industry I was into, even though it was pretty clear that something big was happening here.

But after seeing the Wii in action and watching how friends and family — many of which have NEVER played video games before — got into playing with the system so much, I knew there was an opportunity here.

So I started to dig deeper into Nintendo’s stock and to my surprise the Japanese company had never done a public offering here in the States. Sure, the stock trades under the symbol: NTDOY, but it’s traded on the OTC bulletin board.

In fact, only five years ago this company was trading under $10 per share — today, it’s over $67! That’s a 635% profit for the patient investors out there who had the savvy to buy and hold Nintendo stock.

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25,498% in Just Six Months

Jumper: n. — An unknown Pink Sheets or Bulletin Board stock that’s destined for a transition to a major exchange after a period of steady — or explosive — growth in an overlooked segment of the market.

We got ‘em right here… Check it out…

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So Where’s the Opportunity Today?

Like I said, Nintendo’s new gaming console, the Nintendo Wii, is blowing the doors off the gaming industry right now.

In April 2008, the company sold more consoles than its top two competitors combined: Sony’s (SNE: NYSE) PlayStation and Microsoft’s (MSFT: NASDAQ) Xbox.

Not only that, but Nintendo is continuing to release games and pursue a strategy that isn’t solely directed at the typical gaming market, boys and young men. This company is going after women and seniors as well which is opening up some major opportunities for growth in the years to come.

The stock is pulling back a bit right now but I’d be a buyer as soon as it starts to move to the upside again.

Regards,
Wayne Mulligan

P.S.: For more on what readers have said about Nintendo and other video game investments, check this out…

Source: Could This Stock Be the Best Pink Sheet Play Ever?

That’s why here at Money Morning we’re more interested incompanies that can secure a lot of smaller contracts on a consistent basis – and that can transform those deals into predictable, double-digit growth.

We refer to these modest-contract specialists as the “Masters of the Small Bid.”

Let me explain…

As we’ve stated, the companies we’re targeting aren’t characterized by headline-grabbing mega-contract wins, but by their proven ability to land smaller, more-stable deals. You see, by spreading their risk across many smaller deals rather than just swinging from the heels every time, the companies we follow are able to generate a consistent stream of earnings – despite a slowing economy, a wrenching credit-crisis and damaged investor confidence.

In short, our “masters” have kept themselves in front of paying customers at a time when other firms are simply worried about having customers.

Let’s look at several strong examples.

A Sample of Strong-Bid Masters

It’s no coincidence that our first example – defense-contractor and aerospace expert Lockheed Martin Corp. (LMT) – has been around for decades, and is a proven survivor. Remembered as the designer of the P-38 Lightning fighter of World War II fame – an aircraft so deadly that Nazi leaders ruefully dubbed the twin-boomed airplane “The Fork-Tailed Devil” – Lockheed Corp. went on to build the graceful Lockheed Constellation airliner in the 1950s and the cutting-edge F-117A Nighthawk Stealth Fighter in the 1980s.

A disastrous foray into commercial jetliners – in which only 250 airplanes were sold, even though the program lasted from 1968 until 1984 – would have likely bankrupted many companies. But Lockheed’s been a survivor. Indeed, back in the 1990s, to keep pace with a wave of defense-sector consolidations that created a smaller group of bigger players, Lockheed linked up with Martin Marietta Corp. to form Lockheed Martin.

Lockheed Martin re-established its fame with the so-called “Skunk Works” advanced-technology unit, and even today remains a defense-sector heavyweight. But it’s also a Master of the Small Bid. For proof, just look at some recent deals.

Lockheed roared into April, landing a $50 million contract for the U.S. Navy on April 1, and a $234 million Air Force contract on April 2. A week later, the company landed a deal a day for four straight days, in the process rolling up $725 million in total business from the U.S. Army, the Turkish military, and Japan’s Mitsubishi Heavy Industries Ltd.

The rest of the month saw still more action as the Navy signed on Lockheed for a one-year, $15.5-million contract for continued program management and engineering services for the United Kingdom’s Trident II D5 Fleet Ballistic Missile (FBM) program. The company closed the month in a decisive manner with two more major deals on April 30. The National Aeronautics and Space Administration (NASA) signed a $39.5 million contract modification with Lockheed Martin Space Systems to implement an employee-retention program, while the Navy supplied a contract boost worth up to $190 million to supply tooling and special test equipment for its new F-35 Joint Strike Fighter.

Not a bad month’s work. And it’s certainly representative of how Lockheed generates a predictable earnings stream. Because of deals such as these, the company’s share price rose nearly 8% in the month of April alone. In May we’ve been seeing even more deals, and the stock is advancing again.

Clearly, small deals can have a big impact on a company’s bottom line.

The Gamer That Doesn’t Play Games

At a time when other gamers are worrying about the next best thing, Japan-based Konami Corp. (ADR: KNM) retooled one of their most successful releases, Metal Gear Solid, adapted it for mobile phones, and then built up a lot of buzz as they pushed it out to customers of the Verizon Wireless unit of Verizon Communications Inc. (VZ).

Not only did Konami save a lot of money because it wasn’t developing a new platform from scratch, it also kept its audience smaller to produce bigger returns per person.

While the pumped-up adolescent males soak up this stealth shooter game, Konami hasn’t forgotten to take care of the over-moneyed and under-served teenage-girl market with its recent new game, “Diary Girl.” The Nintendo Co. Ltd. (OTC ADR: NTDOY) Nintendo DS game provides girls of all ages the ability to interact with friends, while also organizing a calendar and address book in their own, password-protected electronic journal.

A month ago, Konami announced an agreement with Win Systems International Holdings Inc., to use Konami content in certain of Win’s pending lottery and gaming projects in Europe and Latin America.

Deals like this have caused Konami’s shares to seek higher ground. With a 19% gain over the past three months, the only thing that could help this company even more is if it had a highly awaited Sony Corp. (ADR: SNE) PlayStation 3 game coming in the near future – which just happens to be the case. Metal Gear Solid 4, the highly awaited PlayStation 3 game, will debut June 12.