Would you like some volatility to go along with your morning coffee?

Since I last came out with my top 5 stocks for November,  the market’s gyrations have certainly put everyone on edge, and make buying stocks at this juncture definitely not for the faint of heart, or those with very short term investing time frames.

I recently wrote that now was a fantastic time to buy shares of companies you have been watching and where the fundamentals present an excellent risk/reward scenario.

My watch list is no different, and this month I have a broad range of stocks that I am looking at for possible inclusion into the PeakStocks.com portfolio.

These stocks enter and exit my Top 5 as constant fluctuations in both price, market conditions, and business fundamentals constantly alter the investment thesis.

Please note that my Top 5 Stocks for December aren’t yet formal recommendations.

I have more due diligence that I have to perform on them, but they are compelling enough with the research that I have done to be at the absolute top of my list, at least as of this writing.

I’ll break down this post into 2 parts:

• Let’s Start With What We Know: Let’s first quickly take a look at the current stocks in the portfolio, and what actions, if any, should be taken
• Top 5 Stocks for December: The latest companies that I am high on, and why

Let’s Start With What We Know

My top picks from my own portfolio

Before we get into the new names that are on my list, let’s first take a look at the names in my portfolio, and how I feel about them:

#1: GeoEye:  Strong Buy

GeoEye Inc. (NASDAQ: GEOY): GeoEye is a leading provider of global space-based and aerial imagery and geospatial information.

GeoEye’s imagery is used in a broad array of applications that include: government monitoring and surveillance, intelligence gathering, construction planning, scientific research such as environmental monitoring, and the online mapping industry via Google (NASDAQ: GOOG), Yahoo! (NASDAQ: YHOO), Microsoft (NASDAQ: MSFT) and other partners.

GeoEye is my highest pick right now, and the first place where you should put new capital to work.

Now that GeoEye’s latest satellite, GeoEye-1 has successfully launched and is producing usable imagery, the only thing holding back this stock will be the final approval of that imagery from the National Geospatial-Intelligence Agency (NGA) which should arrive within 30 days or less.

Once GeoEye starts generating revenue from this new satellite, GeoEye’s year-over-year comparisons will make the stock look ridiculously cheap, which it is.

Now that GeoEye-1 is launched and all but up-and-running, GeoEye is the best company in the commercial imagery space when compared to its rival DigitalGlobe (NYSE: DGI).

If you’ve got new money to invest, GeoEye is my #1 recommendation.

New to the GeoEye story?

• Read my analysis of the company’s latest quarterly earnings release and conference call here.
• Read my initial buy recommendation here.
• or listen to my EXCLUSIVE interview with GeoEye’s management team here.

#2: AAR Corp:  Strong Buy

AAR Corp. (NYSE: AIR): AAR Corp. is a diversified company that provides products and services to the aviation, aerospace, and defense industries worldwide. It operates in four segments: Aviation Supply Chain; Maintenance, Repair, and Overhaul (MRO); Structures and Systems; and Aircraft Sales and Leasing.

I just put out an exclusive post on AAR Corp. comparing its valuation to that of the overall aerospace and defense industry, as well as how AAR stacks up to its peers.

Needless to say, AAR is a deeply undervalued stock, even accounting for a slowdown in its business.

I re-recommended purchase of AAR’s shares at that time for $11.75 each, and while the stock has shot up to around $16.00, I still feel that it is undervalued, but not by quite as much as I did before.

Don’t take my word for it, do your own due diligence and pay special attention to how low AAR is trading compared to its book value, tangible book value, and the recent insider buying.

If you’ve got new money to invest, AAR is my #1-B choice for new money right now.

New to the AAR story?

• Read my last company update here.

#3: eHealth, Inc.: Buy

eHealth, Inc. (NASDAQ: EHTH) offers Internet-based insurance agency services to individuals, families, and small businesses primarily in the United States. The company’s e-commerce platform, which is accessed directly via ehealth.com and ehealthinsurance.com, enable individuals and families to research, analyze, compare, and purchase health insurance products online.

For anyone that is self-employed, runs a small business, or as more and more companies stop paying for employee health insurance, needs to purchase their own health insurance, it is becoming increasingly crucial that individuals find affordable health insurance and eHealth gives them the power of choice.

eHealth just reported solid earnings, and reaffirmed their guidance for the remainder of 2008, which says a lot since they were already 1 month into their final quarter and had great visibility into their current business trends, and the affects of the slowing economy on their business.

eHealth is also initiating a stock buy back program for up to 10% of their shares outstanding, and have recently begun several initiatives to increase their exposure and customer awareness as they try to take advantage of the downturn in the economy whereby folks are trying to save money anyway they can, by showing how affordable and cheap health insurance can be.

New to the eHealth story?

• Read my last company and earnings update here.

#4: Rick’s Cabaret International, Inc.: Buy

Rick’s Cabaret International, Inc. (NASDAQ: RICK): Rick’s Cabaret International, Inc., owns and operates upscale adult nightclubs serving primarily businessmen and professionals.

Rick’s nightclubs offer live adult entertainment, restaurant, and bar operations in Houston, Austin, San Antonio, Minneapolis, Minnesota, New York, Dallas Fort Worth, Charlotte, and other cities under the names Rick’s Cabaret, XTC, and Club Onyx.

As of September 30, 2008, Rick’s operated 19 adult nightclubs.

Rick’s is a best-in-breed player, and one of the few public companies that operate in this space.

With the recent headwinds in the economy, it will be interesting to see by how much Rick’s is affected, but incredibly, Rick’s just announced that their same-store, or same-club sales were actually up in the month of October!

You can read all about that here.

Rick’s has also recently announced a stock buyback program and there has been some slight insider buying, plus the company recently preannounced Q4 and full fiscal year (ended September) earnings and results which were mostly very positive, including or excluding Rick’s recent acquisitions.

In fact the company still had positive same-store (or same-club) sales growth in what is an extremely difficult retail environment.

For this reason, I believe that with Rick’s stock price being where it is, a 1/4 position buy is warranted for long term investors with a strong stomach for volatility, and a long time horizon, as Rick’s will emerge from any current downturn in a much stronger position for future growth due to its continued strong cash flow and margins, as well as intelligent acquisitions.

New to the Rick’s story?

• Read my last company update here.

#5: uWink, Inc.: Buy

uWink Inc. (Nasdaq: UWKI.OB): uWink, Inc. is an entertainment and hospitality software development company that develops casual, interactive, social games, in addition to licensing the rights to those games and their proprietary touch-screen ordering and gaming interface to restaurants, entertainment venues and the hospitality industry.

uWink also owns and operates three restaurants under the uWink brand name that utilize this technology.

The company’s CEO is Nolan Bushnell, the founder of Atari Inc. (OTC: ATAR.PK) and Chuck E. Cheese (NYSE: CEC), and what uWink is doing with their proprietary software should lead them to a huge market in a few year’s time.

uWink just announced a big deal to test out their touch screen terminals in a Chili’s Too Margarita Bar owned and operated by Delaware North, a global hospitality, food service and retail provider, at the Fort Lauderdale Hollywood International airport, as well as other deals that are in the pipeline that could prove to be a huge boon for uWink the company, and uWink the stock.

What is significant about the deal that uWink already has in place is what it portends for uWink, especially in light of the fact that if this pilot program goes well, you might be seeing these terminals in not only more Chili’s restaurants owned by Brinker International (NYSE: EAT), but also other restaurants and businesses within the hospitality industry that are also owned and operated by Delaware North, and other companies.

You can read all about this breakthrough deal here.

Finally, uWink also just completed their installation of 100 terminals at a retirement community showing the expansive scope of the possible uses for their budding technology.

uWink is just scraping the surface of their potential.

If you’ve got new money to invest, uWink is my lowest recommended stock because of potential liquidity issues, its risky nature, and penny stock status.

New to the uWink story?

• Read my last company earnings update here.

• Warning: uWink trades with very high bid/ask spreads. Learn how to protect yourself from getting screwed by the market makers.

#6: AuthenTec, Inc.: HOLD

AuthenTec (NASDAQ: AUTH): AuthenTec is the world’s leading provider of fingerprint sensors and solutions to the wireless, PC and Access Control Markets.

If you’ve been following my picks lately, it will come as no shock that AuthenTec is hurting as a result of a significant customer loss, that will severely impact 2009-2010 sales and earnings, and raises serious questions as to whether or not AuthenTec can even sustain themselves as an ongoing company.

That being said, AuthenTec just released earnings, and as I wrote then, things weren’t horrible.

There were some positive developments including news that the customer loss that they thought was going to affect their revenue and earnings in the back half of 2009, will not actually impact them until well into 2010, thus allowing AuthenTec more time to make up the difference and find new customers and applications to overcome this loss.

You can read all about AuthenTec’s last company update and conference call about these issues here.

With shares trading at around $1.50 per share as of this writing, the downside is limited as a result of AuthenTec having $2.38 per share in cash, and a tangible book value of about $2.58 per share.

With a market cap of only $42 million, and having $67 million in cash on their balance sheet with no debt, the stock is currently trading well below cash value!

I do not recommend purchase of shares in AuthenTec for those that are risk averse, and for only those who can stomach further losses, or are playing this stock for the bounce back that might come as a result of a takeover.

For AuthenTec’s intellectual property alone, there is value in the shares of the company, and I would not be surprised to see AuthenTec bought out by a larger player within the next 6-12 months because of their dirt cheap valuation, and the assets that they do possess.

If you own shares of AuthenTec, now is not the time to sell. There is some value here that is not currently priced into the shares of the stock.

If you don’t own shares, tread lightly, and at your own risk.

New to the AuthenTec story?

• Read my last company update here.

#7: PROS Holdings, Inc.: SELL

PROS Holdings, Inc. (NYSE: PRO), is a leading provider of pricing and revenue optimization software worldwide, in five major markets: airline, hotel, cruise, manufacturing and services.

PROS has proprietary pricing algorithms and systems that have been developed and refined over many years of implementation and experience, that provide the company with a distinct competitive advantage over the many rivals that troll the pricing optimization space.

When I recommended the purchase of PROS shares, I did not fully appreciate the potential severity of the downturn in IT spending, and the markets in which PROS operates.

Even with the stock trading around $7.00 per share, I thought that there was more downside risk than upside potential.

With shares now trading at $4.50 as of this writing, recommending selling shares at $7.00 when I did was indeed a prudent thing to do, as the shares are now down over 35% from where I recommended they be sold not too long ago and even dipped down to a 50% decline in the recent market turmoil.

I detailed my exact reasons for selling shares of PROS here.

The question now becomes, with the shares significantly lower than before, is PROS actually a bargain at these prices? (See page 2)

I definitely think we are getting there especially in light of the recent insider buying that is now taking place.

It is one of the final signs of what I have been looking for to decide to wade back into the PROS waters.

New to the PROS story?

• Read my last company update here.

Now let’s look at my Top 5 Stocks for December…

Related Stocks:  AUTH, EHTH, GEOY, GOOG, MSFT, PRO, PROS, RICK, UWKI, YHOO

We’re at that juncture where it’s time to once again check in on uWink and their latest quarterly earnings release (or rather the 10-Q), and what this means for our investment going forward.

One thing is certain: the economy has hit uWink’s restaurants hard, and while I’ve written countless times how uWink is not a restaurant company, but rather a software development company, we are now at a critical juncture in the company’s genesis in that with the stock price where it is, and uWink’s cash burn rate, something will need to happen one way or another rather quickly.

uWink’s shares aren’t for the faint of heart, but for those interested in uWink’s Q3/2008 results, as well as in where uWink is headed and what progress is being made on getting their terminals inside more restaurant chains and other hospitality venues, read on.

New to the uWink story?

uWink is an entertainment and hospitality software development company that develops casual, interactive, social games, in addition to licensing the rights to those games and their proprietary touch-screen ordering and gaming interface to restaurants, entertainment venues and the hospitality industry.

uWink also owns and operates three restaurants under the uWink brand name that utilize this technology.

uWink’s CEO is Nolan Bushnell, who also founded Atari Inc. (OTC: ATAR.PK) and Chuck E. Cheese’s, now known as CEC Entertainment (NYSE: CEC).

Want More?

• Start: with my initial buy recommendation and company overview here.
• OR: read about uWink’s latest deal to test their terminals at a Chili’s Too Margarita Grill, and possible expansion plans to other Chili’s restaurants here.

I’ll break down this report into 4 parts:

• Hit Me With The Numbers: Woodland Hills Continues to Struggle
• Other Business Highlights: Cash on Hand: How Long Can uWink Survive?
• Where Is uWink Headed?: uWink Has Several Pilot Projects in the Works
• Bottom Line: Something Will Happen, One Way or Another

Hit Me With Some Numbers

Another Steep Decline in Same-Store Sales

Before we can look ahead, we need to analyze what just took place.

uWink’s Q3 was a disaster in terms of comparing their sales year-over-year from their Woodland Hills, CA location, even when including the 2 recently opened locations in Hollywood, CA and Mountain View, CA.

Here’s a brief overview of the carnage:

uWink’s earnings highlights (growth from previous year’s Q3/there are no analysts that cover uWink):

• Q3 sales of $1.03 million (up 53% vs. $.67 million in Q3/07)
• Sales of $2.08 million for the 9 months ended September 30, 2008 (up 5.5% from the same period in 2007)
• Q3 operating loss of -$1.66 million (a increase of 62.6%, from a -$1.02 million loss in the prior year)
• Q3 net loss of -$1.64 million, or -$0.13 per diluted share (a increase of 11.0%, from -$1.48 million, or -$.23 per diluted share, (There was a lower share count last year.)
• Gross margin of 71.1% (flat sequentially from Q2/2008, and down from 71.3% from prior year)
• Same-store sales down 48.7% (ONLY at the Woodland Hills location, was also down 38.2% in Q2/2008)

Per restaurant revenue breakdown (3/9 months ended September 30):

• Woodland Hills: ($338,232/$1,304,601) vs. ($659,560/$1,899,532 in 2007)
• Hollywood: ($527,082/$609,152)
• Mountain View: ($74,527/$74,527)
• The percentage of revenue attributed to uWink’s 3 restaurant locations was 91% in Q3/08, and 96% for the 9 months ended September 30, 2008 (vs. 98% and 96% for the same periods in 2007)

My Take: Now if we parse the numbers further, we see that there are some decent things and bad things to be found.

Let’s start with the bad.

If you notice, uWink’s 9-month period ended September 30, 2008, showed revenues that were essentially flat with the same period in 2007.

This is a big problem in that this year’s comparable period includes revenue from 3 locations vs. just one location last year.

The only caveat is that the Mountain View location was only open for 2 weeks during the reporting period, so we can scratch those numbers as immaterial, but the Hollywood location was open for the entire period.

You can see that the discrepancy occurred as a result of a huge shortfall in the year over year comps at the Woodland Hills location, where the tough economy is wrecking absolute havoc on uWink’s operations there.

The shortfall is essentially a 50% decline in same-store sales at this location, which follows a 38% decline in same-store sales from last quarter as well.

As I wrote last time around, it’s a damn good thing uWink isn’t looking to their restaurants to prop up their future growth or continued execution, or else they would be in big trouble.

As it stands now, uWink is in the process of renegotiating the lease agreement with the owner of the Woodland Hills location so that the lease terms become more in line with the current economic climate, and thus allow uWink to continue their goal of being cash flow even to positive in all 3 locations.

My last conversation with management I was told that as of now, they are cash flow even or better at all locations except the Woodland Hills location, which once they renegotiate lease terms, will then fall into this same threshold.

So what’s the good news?

It’s small as of right now, but portends the future of what uWink is trying to do and their continued execution in that realm.

It comes in the form of the restaurant revenues becoming a smaller percentage of their overall revenues.

This year uWink has started to secure some of the deals and revenue that they need to survive in the form of software licensing deals from their terminals, which is what they are ultimately after.

The restaurants merely serve as testing grounds for their technology and software, and as examples for what it can do for those companies in the hospitality industry that uWink is trying to court for long term relationships.

Bottom Line: uWink is getting crushed on the retail front. The good news is that they won’t be relying on their restaurants to prop up future revenue and profit, and therefore, as long as they can break even with these locations, they are useful for promotional purposes as well as testing grounds for uWink’s concepts.

Now let’s take a look at uWink’s liquidity position…

Related Stocks:  UWKI

I feel that the more information you have about a particular company, stock or the market in general, the better decisions you can make regarding your investments and what actions you should take in regards to those investments.

Today’s guest author is Jae Jun, he runs a blog called Old School Value focused on finding value in all sorts of situations while adhering to the Old School principles of Graham, Buffett, Fisher and other great investors.

Jae will be presenting his investing thesis on a company called ValueVision Media Inc. (NASDAQ: VVTV).

ValuVision Media is just the sort of company that I look for: Small, underfollowed by Wall Street, unjustly sold off by the market, and ripe for the picking.

I think this is a great read for those looking  for a solid long term play that is trading at ridiculous price levels relative to its underlying value.

Please note that this is not a formal recommendation, just an information piece designed to allow you access to companies that I might never cover, but that are worth a look for your portfolio.

Asset Play with ValueVision Media Inc.

By Guest Columnist: Jae Jun, Old School Value

It’s 2am and you can’t sleep. You get up, go to the kitchen, grab a drink, turned on the T.V., flip through the channels and come across someone rotating their torso on the latest ab machine. You tell yourself to turn it off, but your brain is numb and hypnotized and you just keep watching those abs crunch..

24hr home shopping - that’s the name of the game for ValueVision Media Inc (NASDAQ: VVTV), so grab yourself a cuppa because this analysis is a loooong one.

(You can also skip the whole business part and go straight to the valuation)

Business Summary

VVTV operates in television home shopping, e-commerce, direct mail and online marketing. The company’s live 24 hour every day television programming is distributed primarily through cable and satellite affiliation agreements and the purchase of month to month full and part time lease agreements of cable and broadcast television time.

In addition, VVTV distributes its programming through a company owned full power television station in Boston, Massachusetts. It also markets and sells an array of merchandise through Internet retailing websites, www.shopnbc.com and www.shopnbc.tv.

The company has an exclusive license agreement with NBC Universal (NBCU), for the worldwide use of an NBC branded name and peacock image through May 2011.

The products sold through the company’s electronic media segment is made up of jewelry, watches, computers and other electronics, housewares, apparel, health and beauty aids, fitness products, giftware, collectibles, seasonal items and other merchandise.

Growth Strategy

Congratulations, you’ve made it past the boring business summary. The way you felt as you read that first section pretty much sums up the business. Frustrating, boring, no growth.

The truth is, home shopping is just so…. 80’s. No wonder the company has been operating at a loss for the past 6 years and that probably won’t change anytime soon.

Although the company is undergoing a restructuring, I don’t believe the amount of fat trimming will be enough to produce a consistent yearly profit. The company has reduced its workforce by 10%, consolidated its distribution and fulfillment operations into a single warehouse and closed a retail outlet store.

“The company’s organization structure was simplified and streamlined(??) to focus on profitability.”

I don’t see this as anything more than just cost cutting from external pressures.

But surely there must be a company or growth strategy, right?. Here is what the quarterly report had to say:

• optimize mix of product categories offered on television and the internet in order to appeal to a broader population of potential customers
• continue the growth of the internet business through the innovative use of technology and marketing efforts
• obtain cost-effective distribution agreements for our television programming with cable and satellite operators, as well as pursuing other means of reaching customers such as through webcasting, internet videos and internet-based broadcasting networks
• increase the productivity of each hour of television programming by focusing on ways to maximize margin dollars per hour and increase the number of customers within the households
• enhance our television broadcast quality, programming, website features and customer support
• leverage the strong recognition of the NBC brand name
• change the product mix to focus on the female, repeat-purchaser core customer. Reduce high ticket items such as electronics that drives one time customers, but not repeat business.

Of the six strategies, I am dismissing all of them but the last one. I could be blind, but I don’t see anything that Amazon, Google, Home Shopping Network or any other retailer hasn’t already done.

Competitive Moat

If VVTV was a true retailing business, it’s competitive advantage and moat would be nil. However, VVTV is also a broadcaster with its network as its main assets. Nevertheless, competition is a nightmare. It may have the assets of a broadcaster, but the market in which it competes consists of brick and mortar stores, discount stores, warehouse stores, other television home shopping networks, internet retailers, infomercial companies, catalog and mail order retailer and other direct sellers.

Its main competitor however is QVC Network and Home Shopping Network. Both these competitors are much larger in terms of revenue and customers and reaches a broader range of households. VVTV reaches 72 million households.

The average selling price, or ASP, per unit was $224 in the 2008 second quarter and $233 in fiscal 2007. This is about 4x higer than its bigger rivals, but it also means there are more high ticket one time purchasers than repeat customers.

Bottom line - No moat in retailing. Narrow moat in the network business due to the high costs of startup.

Now let’s take a look at some of the risks and the valuation involved with this company…

Some of these author’s viewpoints agree with mine, and some don’t.

I feel that the more information you have about a particular company, stock or the market in general, the better decisions you can make regarding your investments and what actions you should take in regards to those investments.

Today’s guest author is Jonathan Keim, he runs a blog called BreakoutInvestments.com, a site that is devoted to the often misunderstood art of technical analysis.

I often don’t agree with technical analysis as it goes against one of my primary investing tenets: That of long term investing because of solid fundamentals that are yet to be reflected in the price of the company in question.

Now, while I don’t try and time the market, I often do buy positions in the stocks I recommend in 1/4 position increments and cost-average.

That being said, I feel that it could be helpful to look at some charts and statistics associated with volume, moving averages and sentiment to try and find a price that is more beneficial to us as investors when I was going to buy more of the stock anyway.

I feel it gives us another dimension of information to make a better decision.

Does this mean that I won’t buy if the “charts” say not to? Nope, not at all.

On the flip side, does it mean that I will buy even if the “charts” scream not to? Yep, you betcha.

My timing is related in direct proportion to the stock’s underlying fundamentals relative to its stock price, with an eye on catalysts that should provide the boost in price and justify a purchase.

At any rate, I wanted to share Jonathan’s take on my top recommendation GeoEye, Inc. (NASDAQ: GEOY), and give you another perspective on how chartists would look at this company, in relation to how I would look at it.

The bottom line? Jonathan “agrees” with me in the sense that GeoEye under $18.00 represents an absolute steal of a price, assuming all underlying fundamentals remain intact (that’s my analysis on top of his).

Either way, enjoy a break from my usual rhetoric and take a look at GeoEye from a totally different perspective.

Related Stocks:  GEOY

This includes:

• Rick’s Cabaret International, Inc. (NASDAQ: RICK), which had some bad news in the form of a lawsuit, and then some really good news in the form of higher than expected sales and same-club sales numbers which caused the stock to pop.
• eHealth, Inc. (NASDAQ: EHTH), which recently announced a share repurchase program to buy up to 10% of the company’s shares.

Let’s get right to it.

New to the Rick’s Story?

Rick’s Cabaret International, Inc., owns and operates 19 upscale adult nightclubs serving primarily businessmen and professionals.

Rick’s nightclubs offer live adult entertainment, restaurant, and bar operations in Houston, Austin, San Antonio, Minneapolis, Minnesota, New York, Dallas Fort Worth, Charlotte, and other cities under the names Rick’s Cabaret, XTC, and Club Onyx.

Rick’s differentiates themselves by providing an atmosphere where they can offer a unique quality entertainment environment that includes highly experienced and well screened entertainers, high quality managers hired from within the adult entertainment industry, complying with all local, state and federal laws at all times, and finally, providing an atmosphere and ambiance, including exclusive VIP rooms, that appeal to upscale clientele.

Want more?

• Read my last company update here.

Rick’s: Good News, Bad News

Let’s  start with the bad…

Early last week Rick’s Cabaret was sued by a woman in Houston, Texas who claims that Rick’s was at least partially responsible for her son’s death late last year (Dec. 2007), when a dancer from Rick’s killed him while driving under the influence.

The lawsuit claims that Rick’s encourages its dancers to drink with patrons, and thus was responsible for sending the dancer home while intoxicated and without taking proper precautions to ensure that the dancer was not driving home drunk.

You can watch a news feed of the story here.

According to the lawsuit, the dancer’s blood alcohol was .215, more than twice the legal limit for blood alcohol concentration.

While a civil lawsuit has already been filed against the dancer in question on charges of wrongful death, the charges against Rick’s have only recently been added.

The lawsuit states:

“The more drinks the customers bought for the dancers, the more Rick’s would profit. The dancers’, including Liem’s (the dancer in question), decision to consume alcohol while on the job was not voluntary. Rather, it was mandatory in order to continue successful employment at Rick’s.”

Rick’s lawyer, Robert Axelrod, and spokesman Allan Priaulx both said the company does not comment on ongoing litigation.

So what does this mean?

It’s really tough to say.

I’m no legal expert, and Rick’s won’t comment for obvious reasons, so I’m not sure what the company’s take on the whole situation is.

The monetary ramifications aren’t clear either because there were no specific amount of damages noted in the filing.

Is this a case of an angry family coming after anyone they can to try and squeeze a public company in their hour of need, or do they have a legitimate complaint and lawsuit that shows Rick’s to be negligent in protecting not only its dancers, but, once those inebriated dancers are unleashed, to the public at large?

At this stage, I won’t venture to guess either way, but am passing along the information since it is material to those who own Rick’s as I do.

In the end, I don’t see this costing Rick’s much in terms of pure dollars, but it could have long lasting ramifications in terms of the company’s overall perception in the public eye.

Now some good news…

On the bright side Friday, and believe me there wasn’t much bright side in the market on Friday, Rick’s surprised many, including myself, when they announced that not only have sales increased 113% year over year in October (mostly due to acquisitions), but more importantly, same-club sales which measure sales at clubs that have been operated for one year or more, rose a stunning 8%.

The top line figure was obviously goosed via the acquisitions that Rick’s has been folding into its operations, but the same-club comps are irrespective of the acquisitions since they don’t include recent purchases less than 12 months old.

The CEO Eric Langan stated: “These results are so outstanding that we have made an exception to our policy of announcing sales only on a quarterly basis, so that we could bring the news out sooner.”

I’ll add to that that they were also probably spurred on because of Rick’s precipitous stock price declines in the face of a tumultuous market, and the aforementioned lawsuit, but who’s counting.

Rick’s further went on to say that sales were up nearly 30 percent at the company’s flagship New York City club, which had a record month and that each of the company’s brands — Rick’s Cabaret, XTC Cabaret and Club Onyx — reported sales increases over the previous year.

Bottom Line

I thought that Rick’s would handle the economic downturn better than their stock price was reflecting, and even with analyst’s lowering their estimates to $1.25 per share on average for next year, that still represents 25% growth assuming no additional acquisitions!

With Rick’s trading at around $5.00 per share, that means the company’s forward P/E ratio for next year is a stunningly low 4!

Yep, you read that right…a P/E of 4 for a company that is growing sales, earnings, is free cash flow positive in a huge way, and is expected to grow both top and bottom line numbers even if they don’t acquire another club in all of 2009.

Oh, and Rick’s recently increased their stock buyback program to $5 million, which represents about 10% of the shares outstanding at current prices.

What gives here?

Well, there are several reasons, I’ll list a few:

• Rick’s is a small cap stock that has been getting hammered as hedge funds liquidate positions in smaller, riskier stocks
• Rick’s is a sin stock, and suffers from poor perception and lack of analyst coverage, although there currently are 2 analysts that cover Rick’s
• Rick’s is carrying some debt on their balance sheet, so that could be spooking the market in these troubled debt financing times, even though Rick’s will be able to pay off all their debt through the cash flow generated from their operations
• The recent controversy surrounding the company and stock regarding the aforementioned lawsuit as well as reports out of Las Vegas that Rick’s is participating in paying a bounty to cab drivers; a practice that is illegal, but standard procedure in Sin City

So where does that leave our investment?

For now, I am comfortable with the 1/4 position that we hold.

Until we can get more stabilization in the market whereby small/micro-cap stocks are not being sold indiscriminately, as well as a higher visibility into Rick’s expected 2009 operations, I want sit back and keep my smallish position size.

If you don’t own shares of Rick’s then now is a good time to take on a very small position for the riskiest portion of your portfolio, and for long term investment only.

If you own shares, hold them and look to add on further weakness in the stock, and further clarity when Rick’s reports full fiscal year 2008 earnings, and guides for 2009 in the coming weeks.

Now let’s turn our attention to the good news at eHealth…

Related Stocks:  EHTH, FEED, RICK

While I wrote previously that I did not expect the Q3 earnings to be anything special (they weren’t), GeoEye did update the status of GeoEye-1 on the call, and why it has taken longer than expected  for the full checkout and imagery certification so that GeoEye can begin selling imagery to its customers.

What follows is a summary of GeoEye’s earnings announcement and conference call, and what you need to know if you own, or are thinking of owning the stock.

New to the GeoEye story?

GeoEye provides space-based, and aerial imagery and geospatial information through high-resolution and low-resolution imagery, imagery-derived products, and image processing services to customers worldwide.

This capability benefits a broad array of industries including national defense and intelligence, online mapping, state and local governments, environmental monitoring and land use management, oil and gas, utilities, disaster management, insurance and others.

Want more?

• Read my initial buy recommendation here.
• or listen to my EXCLUSIVE interview with GeoEye’s management team here.

I’ll break down this report into 4 parts:

• Hit Me With The Numbers: Sales, Earnings: All Down, I’ll Explain
• Other Business Highlights: Solid cash reserves, honing in on Service Level Agreement (SLA) with NGA
• Conference Call Highlights: GeoEye-1 close to being fully certified and operational
• Bottom Line: GeoEye is Still a Go

Hit Me With Some Numbers

Sales, Profit Down as Expected

Here are some of GeoEye’s earnings highlights (growth from previous year’s Q3/analyst’s estimates where applicable):

• Quarterly sales of $35.9 million (down 33%, from $53.8 million in the prior year/vs. $34.87 million projected by analysts)
• Quarterly operating income of $8.3 million (down 65%, from $23.8 million in the prior year)
• Quarterly net income of $6.0 million, or $0.27 per diluted share (down 79.3%, from $22.0 million, or $1.21 per diluted share in prior year/vs. $.12 per share projected by analysts)
• Gross margin of 49.9% (down from 64.4% from prior year, but up from 43.5% in Q2/2008)
• Operating margin of 23.1% (down from 47.9% from prior year, but up from 15.4% in Q2/2008)
• Net margin of 16.8% (down from 40.9% from prior year, but up from 7.0% in Q2/2008)

My Take: GeoEye’s quarterly sales actually weren’t that bad, especially when put into context and losing orders from the National Geospatial-Intelligence Agency (NGA) that were given to GeoEye’s only competitor, DigitalGlobe (NYSE: DGI), as a result of the delayed launch and checkout of GeoEye-1.

At any rate, GeoEye’s margins were higher as a result of a better mix of products, namely selling more imagery as opposed to their “Production and Other” segment which manipulates the imagery and has higher expenses associated with it.

Like I said before, I don’t really care about what GeoEye has done in the past, and in about 1 more month, we can look solidly to the future and into 2009, as GeoEye begins selling imagery from GeoEye-1, which I’ll have more details on below.

Other Business Highlights

Solid Cash Reserves for Construction of GeoEye-2

• GeoEye is currently finishing the calibration and checkout phase of GeoEye-1 and expects to start commercial operations with GeoEye-1 next month. (More below.)
• GeoEye is currently in negotiations with the National Geospatial-Intelligence Agency (NGA) regarding the establishment of a Service Level Agreement (SLA) that the they believe will streamline the order flow from NGA. The Company expects to sign this agreement shortly.
• GeoEye’s cash and short term investments balance was $149.9 million at Sept. 30, 2008, as compared to $234.3 million at Dec. 31, 2007.
• This balance, coupled with the remaining milestone payments from NGA of $11.6 million, provides more than sufficient cash to fund the amounts due to complete the GeoEye-1 program.
• As of September 30, 2008, GeoEye has expended approximately $471 million of the $502 million for the launch, build-out and insurance on GeoEye-1.
• The remaining $31 million represents final amounts to contractors not yet incurred, interest to be capitalized during the commissioning phase and contingencies.
• GeoEye does not provide forward guidance, which I like.
  

My Take: There was nothing shocking or untoward in GeoEye’s earnings release other than the fact that they again had to delay their 10-Q filing as a result of some accounting errors, which would not materially affect their revenue or profits.

They assured investors that they have taken steps to correct this problem (more below), and from now on, all accounting should be streamlined and free from further restatements and adjustments.

I’ll talk more about it in a minute, but GeoEye ended the quarter with a nice cash hoard, which they will be using to start the construction and build out of their NEXT satellite, GeoEye-2.

Yep, you always have to be looking ahead since it takes 3-4 years to build out and launch one of these birds.

Finally, as I’ll also discuss below, GeoEye will be entering into a Service Level Agreement (SLA) with the NGA which will vastly improve their order flow and streamline their revenues and profits from quarter to quarter.

Now let’s take a look at some conference call highlights…

Related Stocks:  GEOY

When GeoEye announces its 3rd quarter 2008 earnings on Tuesday morning, I won’t so much be focused on this earnings announcement, but more so on a status update on GeoEye-1 and when GeoEye expects to begin delivering usable and approved imagery to the National Geospatial-Intelligence Agency (NGA) and its other customers.

In this post I’ll go over the important aspects that we need to be aware of before GeoEye announces earnings and then break them down into the following parameters:

• What went right in the quarter: What were some of the positive developments that occurred within the company in the last 3 months.
• What went wrong in the quarter: What were some of the negative developments that occurred within the company in the last 3 months.
• What I want to see: All things considered, what I realistically want to see from the company as it relates to their business.
• What we need to see: At the minimum, what we need to see for our investing thesis to still hold and an investment in this company to be prudent.
• What we’ll probably see: After weighing what’s been going on for the last 3 months, what we can realistically expect when they do announce their earnings.
• Bottom Line: What it all means, and what you should do.

New to the GeoEye story?

GeoEye provides space-based, and aerial imagery and geospatial information through high-resolution and low-resolution imagery, imagery-derived products, and image processing services to customers worldwide.

This capability benefits a broad array of industries including national defense and intelligence, online mapping, state and local governments, environmental monitoring and land use management, oil and gas, utilities, disaster management, insurance and others.

Want more?

• Read my initial buy recommendation here.
• or listen to my EXCLUSIVE interview with GeoEye’s management team here.

Q3 Earnings Most Likely Won’t Be Great

Focus will be on outlook

It was quite an eventful quarter for GeoEye with the successful launch of GeoEye-1 as well as the U.S. government pulling out of a potentially competing venture to launch their own commercial grade satellites into space in 3-4 years.

Let’s take a look at the quarter that was, and what I expect in the next 3 months.

What Went Right In the Quarter

GeoEye-1 Successfully Launches, Government Drops BASIC Program

There was a lot of good stuff in the quarter as far as GeoEye was concerned. Let’s get right to it.

• GeoEye-1 Launch, Initial Check-Out Successful: On September 6th, 2008, GeoEye-1 was successfully launched from Vandenberg Air Force Base in California, and achieved a successful orbit, and initial check out.

Since that time, GeoEye has released the first image ever taken by GeoEye-1, and updated the status of the satellite saying that so far, everything is working well, and they are going through the full calibration and check-out process, which could take anywhere from 45-90 days from launch.

GeoEye-1's first image ever taken of Kutztown University in Pennsylvania

We are now in the 60-70 day mark, so the imagery should be fully certified and GeoEye should update us on this conference call as to the status of their ongoing calibration, and imagery delivery schedule.

• Exclusive Deal With Google: GeoEye also announced this quarter an exclusive deal with Google (NASDAQ: GOOG) whereby Google, via Google Earth and Maps, will be using GeoEye-1’s imagery on an exclusive basis, meaning that GeoEye will not be selling this particular satellite’s imagery to any other company.

GeoEye will however continue to sell imagery from its IKONOS satellite to other search and mapping providers such as Yahoo (NASDAQ: YHOO) and other online portals for their online imagery needs.

• U.S Government Cancels BASIC Program: The U.S government canceled what could have been a potentially detrimental and competitive program called the Broad Area Space-Based Imagery Collection satellite system, or BASIC, which would have launched two commercial grade satellites similar to the ones already in use by GeoEye and their only U.S. based rival DigitalGlobe (NYSE: DGI).

It looks like GeoEye was a beneficiary of the current economic downturn in a move that was widely viewed as controversial and was perceived to have directly violated previous presidential directives.

The bottom line is that the measure was struck down, and we can all breath a sigh of relief that the U.S. government won’t be launching their own commercial satellites to compete with GeoEye.

You can read all about the BASIC program and its implications for GeoEye here.

What Went Wrong in the Quarter

Another lackluster quarterly earnings performance

There wasn’t much that went “wrong” in the quarter, other than the actual quarterly revenue and earnings performance that GeoEye announced the last time around.

As I explained then, because of the continued launch delays of GeoEye-1, GeoEye’s revenues were going to fall short, and in turn their profitability, as their customers, and specifically their largest customer the NGA, shifted their satellite imagery purchases to DigitalGlobe because at that time they had the better satellite with the highest resolution.

Now that GeoEye-1 has been launched and is close to being ready to deliver full-fledged imagery, that balance has shifted back to GeoEye, and in turn, we should see a big boost in GeoEye’s revenue and earnings starting with the 4th quarter of 2008 and extending into all of 2009, which should be a banner year for the company.

Now let’s take a look at what I expect out of GeoEye on this earnings call…

Related Stocks:  GEOY, GOOG, YHOO

While it appears eHealth is seeing some of the same headwinds that are affecting other businesses, they are weathering the storm much better, and in fact continue to grow and pursue growth aggressively, in an environment in which individuals and families are losing their jobs and health insurance and are in need of the services that eHealth provides.

eHealth continues to be profitable, generate huge amounts of free cash flow, and is aggressively marketing their products while times are tough, and actually increasing their market share and health care coverage to individuals.

I have been, and continue to be, impressed by eHealth’s value proposition, wide moat, and tenured management team, and this quarter’s earnings and outlook did nothing to dampen that confidence.

What follows is a summary of eHealth’s earnings announcement, conference call highlights, and my take on the company’s latest quarter and results, and what you should do if you do or don’t own eHealth’s shares.

New to the eHealth story? 

eHealth, Inc. (NASDAQ: EHTH) offers Internet-based insurance agency services to individuals, families, and small businesses primarily in the United States. The company’s e-commerce platform, which is accessed directly via ehealth.com and ehealthinsurance.com, enable individuals and families to research, analyze, compare, and purchase health insurance products online.

For anyone that is self-employed, runs a small business, or as more and more companies stop paying for employee health insurance, needs to purchase their own health insurance, it is becoming increasingly crucial that individuals find affordable health insurance and eHealth gives them the power of choice.

eHealth offers various health insurance products, including medical health insurance coverage, such as preferred provider organization; health maintenance organization and indemnity plans; short-term medical insurance; student health insurance; health savings account eligible health insurance plans; and ancillary products, such as dental, vision, and life insurance.

Because of the fixed-cost nature of health insurance (there is no discounting online or otherwise in this highly regulated industry), eHealth is probably one of the only ways that most individuals will ever see what different health insurance offerings they could purchase from up to 175 different companies.

Want More?

• Start: with my initial company write up here.

I’ll break down this report into 4 parts:

• Hit Me With The Numbers: Q3 in-line with estimates, margins down
• Other Business Highlights: Maintains Q4 guidance, strong cash flow
• Conference Call Highlights: Nice and boring
• Bottom Line: eHealth still a solid addition to your portfolio

Hit Me With Some Numbers

eHealth in line with estimates, maintains guidance, margins decline

Here are some of eHealth’s earnings highlights (growth from previous year’s Q3/analyst’s estimates where applicable):

• Quarterly sales of $28.5 million (up 24% from prior year/vs. $28.76 million projected by analysts)
• Quarterly operating income of $4.5 million (down 7% from prior year)
• GAAP quarterly net income of $3.0 million, or $.12 per share (down 19% from $3.73 million, or $.14 per share in the prior year/vs. $.12 per share projected by analysts)
• Non-GAAP quarterly income of $3.67 million, or $0.14 per share (down from $4.06 million, or $.15 per share in the prior year)
• Operating margin of 15.7% (down from 21.0% from prior year)
• Submitted applications: 117,300 (up 19.8% from prior year)
• Cash Flow: $8.26 million (up 7% from $7.71 million prior year)
• Free Cash Flow: $7.32 million (down 1% from $7.41 million prior year)

My Take: eHealth had previously lowered their guidance due to the slowing economy, and because the company new that they would be spending more money to aggressively pursue those that were without jobs, and looking to save money and cut costs, without compromising health insurance coverage.

As this quarter’s results show, eHealth kept to their lowered guidance, and had rational and reliable explanations as to why margins decreased, etc.

Any way you slice it, 24% growth is fantastic in this environment, and if it weren’t for higher advertising expenses, the bottom line would have followed as well.

There has been a trend of lower submitted applications over the course of the last year or so, but eHealth is now entering a more sustained period of growth as opposed to the hyper growth days when it was a start up and nascent company.

Management has spoken of long term growth rates in the 15-20% range, and that would be fine with me, and Wall Street as well, especially in light of eHealth’s cash generating capabilities.

Other Business Highlights

Maintains Guidance, Everything Still On Track

• Q4/2008 revenue expected to be about $30.24 million vs. analyst’s estimates of $29.55 million.
• Q4/2008 non-GAAP income per share to range between $0.10 and $0.17 ($.14 midpoint) vs. analyst’s estimates of $.13 per share.
• For the entire fiscal year of 2008, eHealth is projecting sales from $111.5 million to $113.5 million ($112.5 million midpoint), vs. analyst’s estimates of $112.1 million.
• For the entire fiscal year of 2008, GAAP earnings per share are expected to be in the range of $.50 - $.57 ($.54 midpoint), vs. analyst’s estimates of $.54.
• Ended Q3/2008 with approximately $143 million in cash and investments vs. $136 million in Q2, and no debt.
• Capital Expenditures (CAPEX) were $.93 million in Q3.

My Take: eHealth had previously lowered their full year guidance after their Q2 earnings release, and I’m sure it was a relief for Wall Street to not have to deal with any more revisions.

In fact, management pegged their shortfall so well, that they are actually running on pace to beat the lowered guidance by a wide margin in Q4, but we won’t count those chickens until they are hatched, especially in the environment we are in now.

On another positive note, eHealth ended the quarter with $143 million in cash and equivalents, which is a huge cash hoard that represents about $5.70 per share in cash on the books.

Now let’s take a look at the analyst conference call highlights and management’s discussion of the business.

Related Stocks:  EHTH

With rare exception, stocks of all shapes and sizes are getting pummeled and are presenting us with great buying opportunities for those with a long term investment horizon.

I recently wrote that now was a fantastic time to buy shares of companies you have been watching and where the fundamentals present an excellent risk/reward scenario.

My watch list is no different, and this month I have a broad range of stocks that I am looking at for possible inclusion into the PeakStocks.com portfolio.

These stocks enter and exit my Top 5 as constant fluctuations in both price, market conditions, and business fundamentals constantly alter the investment thesis.

Today I wanted to give you a heads up on some of the stocks that I was watching for possible inclusion into my portfolio, specifically ones that are high on my list, and most likely to be added as formal recommendations in the weeks to come as they reach desirable price points, and present wonderful opportunities for long term investors.

Please note that my Top 5 Stocks for November aren’t yet formal recommendations.

I have more due diligence that I have to perform on them, but they are compelling enough with the research that I have done to be at the absolute top of my list, at least as of this writing.

I’ll break down this post into 2 parts:

• Let’s Start With What We Know: Let’s first quickly take a look at the current stocks in the portfolio, and what actions, if any, should be taken
• Top 5 Stocks for November: The latest companies that I am high on, and why

Let’s Start With What We Know

My top picks from my own portfolio

Before we get into the new names that are on my list, let’s first take a look at the names in my portfolio, and how I feel about them:

#1: GeoEye:  Strong Buy

GeoEye Inc. (NASDAQ: GEOY): GeoEye is a leading provider of global space-based and aerial imagery and geospatial information.

GeoEye’s imagery is used in a broad array of applications that include: government monitoring and surveillance, intelligence gathering, construction planning, scientific research such as environmental monitoring, and the online mapping industry via Google (NASDAQ: GOOG), Yahoo! (NASDAQ: YHOO), Microsoft (NASDAQ: MSFT) and other partners.

GeoEye is my highest pick right now, and the first place where you should put new capital to work.

Now that GeoEye’s latest satellite, GeoEye-1 has successfully launched and is producing usable imagery, the only thing holding back this stock will be the final approval of that imagery from the National Geospatial-Intelligence Agency (NGA) which should arrive within 30 days.

Once GeoEye starts generating revenue from this new satellite, GeoEye’s year-over-year comparisons will make the stock look ridiculously cheap, which it is.

Now that GeoEye-1 is launched and all but up-and-running, GeoEye is the best company in the commercial imagery space when compared to its rival DigitalGlobe (NYSE: DGI).

If you’ve got new money to invest, GeoEye is my #1 recommendation.

New to the GeoEye story?

• Read my initial buy recommendation here.
• or listen to my EXCLUSIVE interview with GeoEye’s management team here.

#2: AAR Corp:  Strong Buy

AAR Corp. (NYSE: AIR): AAR Corp. is a diversified company that provides products and services to the aviation, aerospace, and defense industries worldwide. It operates in four segments: Aviation Supply Chain; Maintenance, Repair, and Overhaul (MRO); Structures and Systems; and Aircraft Sales and Leasing.

I just put out an exclusive post on AAR Corp. comparing its valuation to that of the overall aerospace and defense industry, as well as how AAR stacks up to its peers.

Needless to say, AAR is a deeply undervalued stock, even accounting for a slowdown in its business.

I re-recommended purchase of AAR’s shares last week at $11.75 each, and while the stock has shot up to $16.00, I still feel that it is undervalued, but not by qite as much as I did before.

Don’t take my word for it, do your own due diligence and pay special attention to how low AAR is trading compared to its book value, tangible book value, and the recent insider buying.

If you’ve got new money to invest, AAR is my #1-B choice for new money right now.

New to the AAR story?

• Read my last company update here.

#3: uWink, Inc.:  Strong Buy

uWink Inc. (Nasdaq: UWKI.OB): uWink, Inc. is an entertainment and hospitality software development company that develops casual, interactive, social games, in addition to licensing the rights to those games and their proprietary touch-screen ordering and gaming interface to restaurants, entertainment venues and the hospitality industry.

uWink also owns and operates three restaurants under the uWink brand name that utilize this technology.

The company’s CEO is Nolan Bushnell, the founder of Atari Inc. (OTC: ATAR.PK) and Chuck E. Cheese (NYSE: CEC), and what uWink is doing with their proprietary software should lead them to a huge market in a few year’s time.

uWink just announced a big deal to test out their touch screen terminals in a Chili’s Too Margarita Bar owned and operated by Delaware North, a global hospitality, food service and retail provider, at the Fort Lauderdale Hollywood International airport.

What is significant about this deal is what it portends for uWink, especially in light of the fact that if this pilot program goes well, you might be seeing these terminals in not only more Chili’s restaurants owned by Brinker International (NYSE: EAT), but also other restaurants and businesses within the hospitality industry that are also owned and operated by Delaware North, and other companies.

You can read all about this breakthrough deal here.

Finally, uWink also just completed their installation of 100 terminals at a retirement community showing the expansive scope of the possible uses for their budding technology.

uWink is just scraping the surface of their potential.

If you’ve got new money to invest, uWink is my #1-C choice and is only a few notches below the other two stocks because of its risky nature, and penny stock status.

New to the uWink story?

• Read my last company update here.

• Warning: uWink trades with very high bid/ask spreads. Learn how to protect yourself from getting screwed by the market makers.

#4: eHealth, Inc.: Buy

eHealth, Inc. (NASDAQ: EHTH) offers Internet-based insurance agency services to individuals, families, and small businesses primarily in the United States. The company’s e-commerce platform, which is accessed directly via ehealth.com and ehealthinsurance.com, enable individuals and families to research, analyze, compare, and purchase health insurance products online.

For anyone that is self-employed, runs a small business, or as more and more companies stop paying for employee health insurance, needs to purchase their own health insurance, it is becoming increasingly crucial that individuals find affordable health insurance and eHealth gives them the power of choice.

eHealth just reported solid earnings this week, and reaffirmed their guidance for the remainder of 2008, which says a lot since they were already 1 month into their final quarter and had great visibility into their current business trends, and the affects of the slowing economy on their business.

I will be coming out with a full analysis and breakdown of eHealth’s latest quarter shortly, but in the mean time, if you don’t own any shares, you should consider picking a small position here, and adding more on any weakness.

New to the eHealth story?

• Read my last company update here.

#5: Rick’s Cabaret International, Inc.: Buy

Rick’s Cabaret International, Inc. (NASDAQ: RICK): Rick’s Cabaret International, Inc., owns and operates upscale adult nightclubs serving primarily businessmen and professionals.

Rick’s nightclubs offer live adult entertainment, restaurant, and bar operations in Houston, Austin, San Antonio, Minneapolis, Minnesota, New York, Dallas Fort Worth, Charlotte, and other cities under the names Rick’s Cabaret, XTC, and Club Onyx.

As of September 30, 2008, Rick’s operated 19 adult nightclubs.

Rick’s is a best-in-breed player, and one of the few public companies that operate in this space.

With the recent headwinds in the economy, it will be interesting to see by how much Rick’s is affected, but odds are they are definitely going to be affected.

The good news is that Rick’s has recently announced a stock buyback program, there has been some slight insider buying, and the company recently preannounced Q4 and full fiscal year (ended September) earnings and results which were mostly very positive, including or excluding Rick’s recent acquisitions.

In fact the company still had positive same-store (or same-club) sales growth in what is an extremely difficult retail environment.

For this reason, I believe that with Rick’s stock price being where it is, a 1/4 position buy is warranted for long term investors with a strong stomach for volatility, and a long time horizon, as Rick’s will emerge from any current downturn in a much stronger position for future growth due to its continued strong cash flow and margins, as well as intelligent acquisitions.

New to the Rick’s story?

• Read my last company update here.

#6: AuthenTec, Inc.: HOLD

AuthenTec (NASDAQ: AUTH): AuthenTec is the world’s leading provider of fingerprint sensors and solutions to the wireless, PC and Access Control Markets.

If you’ve been following my picks lately, it will come as no shock that AuthenTec is hurting as a result of a significant customer loss, that will severely impact 2009-2010 sales and earnings, and raises serious questions as to whether or not AuthenTec can even sustain themselves as an ongoing company.

That being said, AuthenTec just released earnings this week, and as I wrote, things weren’t horrible.

There were some positive developments including news that the customer loss that they thought was going to affect their revenue and earnings in the back half of 2009, will not actually impact them until well into 2010, thus allowing AuthenTec more time to make up the difference and find new customers and applications to overcome this loss.

You can read all about AuthenTec’s last company update and conference call about these issues here.

With shares trading at around $2.00 per share as of this writing, the downside is limited as a result of AuthenTec having $2.38 per share in cash, and a tangible book value of about $2.58 per share.

With a market cap of only $53 million, and having $67 million in cash on their balance sheet with no debt, the stock is currently trading below cash value!

I do not recommend purchase of shares in AuthenTec for those that are risk averse, and for only those who can stomach further losses, or are playing this stock for the bounce back that might come as a result of a takeover.

For AuthenTec’s intellectual property alone, there is value in the shares of the company, and I would not be surprised to see AuthenTec bought out by a larger player within the next 6-12 months because of their dirt cheap valuation, and the assets that they do possess.

If you own shares of AuthenTec, now is not the time to sell. There is some value here that is not currently priced into the shares of the stock.

If you don’t own shares, tread lightly, and at your own risk.

New to the AuthenTec story?

• Read my last company update here.

#7: PROS Holdings, Inc.: SELL

PROS Holdings, Inc. (NYSE: PRO), is a leading provider of pricing and revenue optimization software worldwide, in five major markets: airline, hotel, cruise, manufacturing and services.

PROS has proprietary pricing algorithms and systems that have been developed and refined over many years of implementation and experience, that provide the company with a distinct competitive advantage over the many rivals that troll the pricing optimization space.

When I recommended the purchase of PROS shares, I did not fully appreciate the potential severity of the downturn in IT spending, and the markets in which PROS operates.

Even with the stock trading around $7.00 per share, I thought that there was more downside risk than upside potential.

With shares now trading at $5.50 as of this writing, recommending selling shares at $7.00 when I did was indeed a prudent thing to do, as the shares are now down over 20% from where I recommended they be sold not too long ago.

I detailed my exact reasons for selling shares of PROS here.

The question now becomes, with the shares significantly lower than before, is PROS actually a bargain at these prices? (See page 2)

I definitely think we are getting there, but wouldn’t venture to guess until after their next earnings announcement on 11-6-08.

New to the PROS story?

• Read my last company update here.

Now let’s look at my Top 5 Stocks for November…

Related Stocks:  AUTH, EHTH, GEOY, GOOG, MSFT, PRO, PROS, RICK, UWKI, YHOO

AuthenTec (NASDAQ: AUTH), the world’s leading provider of fingerprint sensors and solutions to the PC, Wireless and Access Control markets, released their Q3/2008 earnings and held their analyst conference call Thursday, October 30th after the market closed.

After the mid-quarter update that AuthenTec abruptly held, there were many questions that needed to be answered about AuthenTec’s business going forward.

While Q3’s results were ahead of expectations, AuthenTec’s guidance for Q4, coupled with their already lowered guidance for all of 2009, inclusive of a significant customer loss, still call into question whether or not AuthenTec has the viability and products to succeed without being folded into another company as part of a larger pie.

However, that being said, AuthenTec’s earnings release and subsequent conference call where decidedly upbeat in relation to their previous mid-quarter call announcing a significant customer loss as well as lowered guidance.

What follows is a summary of AuthenTec’s earnings announcement, conference call highlights, and my take on the company’s latest quarter and results, and what you should do if you own AuthenTec.

New to the AuthenTec story? 

AuthenTec, Inc. is a fabless mixed-signal semiconductor company that provides fingerprint authentication sensors and solutions to the high-volume personal computer (PC), wireless device, and access control markets.

AuthenTec offers a range of fingerprint sensors that enable users to access and control multiple functions on an electronic device by touching or sliding their finger across the sensor.

The company’s fingerprint sensors utilize unique information in fingerprints to verify the identity of the individual, as well as the unique, individual fingers on the same person.

With more than 35 million sensors sold worldwide, AuthenTec’s award-winning sensors take full advantage of The Power of Touch® by utilizing the company’s patented TruePrint® technology to deliver the most convenient, reliable and cost-effective means available for enabling touch-powered features that extend beyond user authentication.

These sensors are used in various applications related to security, password replacement, financial transaction authentication, and personalization applications.

The company’s products are used in a range of PC products and related peripherals, including laptops, desktops, memory keys, hard drives, keyboards, mice, and other devices.

In addition, AuthenTec’s products also integrate into various wireless devices, such as mobile phones, and personal digital assistants and personal navigation device, as well as access control devices comprising door locks, time and attendance devices, and remote wireless entry keys.

AuthenTec primarily offers its products to original equipment manufacturers, original design manufacturers, and contract manufacturers and sells its products through a direct sales force, a network of independent sales representatives, and distributors.

Want More?

• Start: with my initial company overview here.

I’ll break down this report into 4 parts:

• Hit Me With The Numbers: Q3 was good, beats estimates
• Other Business Highlights: Lower Q4 guidance, 2009 might be better than thought
• Conference Call Highlights: Customer loss impact, Economic Impact
• Bottom Line: Nothing’s Changed: AuthenTec Still a HOLD with some upside from here

Hit Me With Some Numbers

AuthenTec Beats Estimates, Lowers Guidance, Margins Decline

Here are some of AuthenTec’s earnings highlights (growth from previous year’s Q3/analyst’s estimates where applicable):

• Quarterly sales of $18.4 million (up 22% from prior year/vs. $18.32 million projected by analysts)
• Non-GAAP quarterly income of $1.4 million, or $.05 per share (up 62% from $.86 million, or $.03 per share in the prior year/vs. $.03 per share projected by analysts)
• GAAP quarterly income of $.55 million, or $0.02 per share (up from $.52 million, or $02 per share in the prior year)
• Gross margin of 47.4% (down from 47.6% from prior year, and down sequentially from 48.5% in Q2/2008, and 49.6% in Q1/2008)

My Take: While this quarter was solid, our concern largely lies with the future, not the past.

Taking that into consideration, we see that AuthenTec has a disturbing trend of decreasing margins quarter over quarter, and year over year. AuthenTec attributes this to the ramping up of a new wireless packaging technology and the manufacturing inefficiencies that come with it.

Oh, and one more note: This year’s Q3 contained one extra week that was not included in the previous year’s results, goosing AuthenTec’s numbers.

This speaks to the problems that they are facing within their industry, as well as the overall market forces which are forcing their largest customers to delay or cut back on their purchases from AuthenTec entirely.

I’ll go into more detail below.

Other Business Highlights

Lower Guidance, Slowing Business Trends

• Q4/2008 revenue expected to range from $12.5 million to $13.5 million ($13.0 million midpoint) vs. analyst’s estimates of $17.85 million.
• Q4/2008 non-GAAP loss per share to range between (-$0.01 and -$0.03) in the fourth quarter vs. analyst’s estimates of $.02 per share profit.
• For the entire fiscal year of 2008, AuthenTec is projecting sales of about $65 million, vs. analyst’s estimates of $70.1 million.
• Operating expenses as a percent of revenue decreased to 47.1% from 49.53% in the year-ago quarter.
• Margins expected to range from 47-49% for the rest of 2008 because of the ramp-up of new chips with lower yields and inefficiencies typical of new product introductions and scaling.
• Operating cash flow: $1.9 million
• Ended Q3/2008 with approximately $67.8 million in cash and investments vs. $66.6 in Q2/2008
• Capital Expenditures (CAPEX) were $295,000 in Q3.
• Inventory was $6.9 million which represented 69 days on hand, compared to Q2/2008 which was $7.0 million or 68 days on hand.
• Sales breakdown was as follows: PC segment about 85% of total sales, Wireless segment about 10% of total sales, and Access Control was about 5% of total sales.

My Take: Revenue guidance was chopped significantly for Q4, largely due to the macroeconomic environment, but not, according to AuthenTec, as a result of customer or market share losses.

It appears that large OEM’s and ODM’s are scaling back their orders from AuthenTec as they attempt to work through the inventory that they have on hand right now.

In fact AuthenTec’s competitors, such as rival Atmel Corp. (NASDAQ: ATML), are experiencing the same declines in consumer demand, and OEM and ODM push-through.

I will say that AuthenTec has successfully battened down the hatches, and is conserving cash well, and even had a large cash surplus this quarter when many companies are having trouble staying afloat.

With the coming turbulence ahead, AuthenTec is going to need this extra cash.

Now let’s take a look at the analyst conference all highlights and management’s discussion of the business.

Related Stocks:  AUTH

Yuck.

That’s all I can say about AuthenTec right now…

After shocking the market a on September 8th with a mid-quarter “business update” the stock has cratered and sits now about 80% below previous levels.

At these prices the stock is trading below its cash on hand, and is priced for ultimate failure.

Is this warranted? Should we dump the stock now and get something instead of nothing, or is there a sliver of sound reasoning behind keeping shares for the short term?

Today we’re going to preview PeakStocks.com portfolio recommendation AuthenTec Inc. (NASDAQ: AUTH), which will be announcing their third quarter earnings and hosting their analyst conference call after the market closes on Thursday October 30, 2008.

In this post I’ll go over the important aspects that we need to be aware of before they announce earnings and then break them down into the following parameters:

• What went right in the quarter: What were some of the positive developments that occurred within the company in the last 3 months.
• What went wrong in the quarter: What were some of the negative developments that occurred within the company in the last 3 months.
• What I want to see: All things considered, what I realistically want to see from the company as it relates to their business.
• What we need to see: At the minimum, what we need to see for our investing thesis to still hold and an investment in this company to be prudent.
• What we’ll probably see: After weighing what’s been going on for the last 3 months, what we can realistically expect when they do announce their earnings.
• Bottom Line: What it all means, and what you should do.

New to the AuthenTec story? 

AuthenTec, Inc. is a fabless mixed-signal semiconductor company that provides fingerprint authentication sensors and solutions to the high-volume personal computer (PC), wireless device, and access control markets.

AuthenTec offers a range of fingerprint sensors that enable users to access and control multiple functions on an electronic device by touching or sliding their finger across the sensor.

The company’s fingerprint sensors utilize unique information in fingerprints to verify the identity of the individual, as well as the unique, individual fingers on the same person.

With more than 35 million sensors sold worldwide, AuthenTec’s award-winning sensors take full advantage of The Power of Touch® by utilizing the company’s patented TruePrint® technology to deliver the most convenient, reliable and cost-effective means available for enabling touch-powered features that extend beyond user authentication.

These sensors are used in various applications related to security, password replacement, financial transaction authentication, and personalization applications.

The company’s products are used in a range of PC products and related peripherals, including laptops, desktops, memory keys, hard drives, keyboards, mice, and other devices.

In addition, AuthenTec’s products also integrate into various wireless devices, such as mobile phones, and personal digital assistants and personal navigation device, as well as access control devices comprising door locks, time and attendance devices, and remote wireless entry keys.

AuthenTec primarily offers its products to original equipment manufacturers, original design manufacturers, and contract manufacturers and sells its products through a direct sales force, a network of independent sales representatives, and distributors.

Want More?

• Start: with my initial company overview here.

AuthenTec Inc.

Going Out of Business or Take-Over Target?

AuthenTec (NASDAQ: AUTH) absolutely dropped a bomb on the market when it announced the it was lowering guidance for the remainder of 2008 (not that big a deal), and losing a customer that represented about 30-45% of sales for next year (a HUGE deal).

You can read all about that debacle here.

So the question to ask as AuthenTec gets set to report their third quarter earnings and update us on their business trends is, what does this mean for the company as an ongoing concern, and will AuthenTec be able to make up for that customer loss somehow, and if not, what is their exit strategy?

• What went right in the quarter: Um…nothing really.

I’m not even exaggerating when I say that.

Aside from a couple of new deals announcing fingerprint sensor additions to various new PC models, which we knew were coming anyway, AuthenTec did little this quarter to enhance their standing in the investment community or their standing with analysts, this one included.

It’s all wait-and-see at this point.

• What went wrong in the quarter: Everything, including the very essence of AuthenTec as an ongoing concern, which has seriously been thrown into question at this point due to the severity of the customer loss, decreasing average selling prices for the sensors that AuthenTec sells, and the very fact that their competition is heating up, and hot on their tails.

Included in this bad news was the fact that margins are going to deteriorate further, AuthenTec’s competitive advantages are being eroded due to the very nature of the semiconductor industry, and the fact that PC and mobile phone manufacturers want smaller and cheaper sensors that last longer and use less silicon, and AuthenTec is having trouble meeting those requirements.

In addition, as a result of the slashing of estimates, the customer loss and the precipitous stock price decline, AuthenTec is now faced with several class action lawsuits, of which I and any other stockholder, will automatically be a part of should they be certified as legitimate and achieve class action status.

I’m not worried about those too much, as they always seem to come out of the woodwork when investors get bent out of shape because they were wrong about a company and lost money, but it’s one more thing to add to the negatives list.

You can read all about the earnings revision and mid-quarter conference call here.

Now it’s not all gloom and doom in that AuthenTec still has a large built-in client base, recurring sales and several new upcoming products that are all still positive developments

In addition, AuthenTec is trading below it’s cash value, and by the very nature of their intellectual property (IP), they could be of great value to another semi manufacturer as an add-on to already existing chip sets and product offerings.

With a market cap of about $50 million, and $60 million in cash, it isn’t inconceivable that AuthenTec could get bought out for double where it is at today, or about $4 per share, and still be a total bargain for a large semi, or PC company.

Now let’s look at what I want to see from this earnings announcement.

Related Stocks:  AUTH

Sometimes you get a gift, and you would be crazy to not take it.

Various valuation metrics as well as my discounted cash flow analysis (DCF) put AAR about 50-100% below fair market value without even accounting for a recovery in the marketplace!

Add this to recent insider buying, and the stock trading below tangible book value, and at a severe discount to its peers, and you get a classic low risk, high reward proposition that is hard to pass up.

It might take weeks, or it might take months, but I believe AAR at these levels represents a true bargain on a valuable business with a proven management team and execution strategy.

What follows are my reasons for picking up another 1/4 position today.

New to the AAR story?

AAR Corp. provides products and services to the aviation, aerospace, and defense industries worldwide.

It operates in four segments: Aviation Supply Chain; Maintenance, Repair, and Overhaul (MRO); Structures and Systems; and Aircraft Sales and Leasing.

Through its Aviation Supply Chain and MRO segments, AAR provides everything from aircraft parts, maintenance and logistics support, to the actual maintenance and repair of aircraft at its 4 MRO facilities at various locations throughout the U.S.

In addition, through its Structures and Systems segment, AAR provides vital products and services to the U.S. military including specialized construction of mobile shelters and pallets, as well as support and products for various military aircraft and aircraft support, storage and maintenance functions.

Finally, through its Sales and Leasing segment, AAR buys, sells and leases used aircraft for itself, on behalf of others, and through joint ventures.

Time To Go Shopping!

Here are my reasons why it’s prudent to add to your AAR position or start one immediately:

• AAR’s most recent earnings announcement and conference call exceeded expectations, and was as solid as can be, even in this current market. I went over their latest quarterly report in detail.
• As the current economy gets worse, more and more domestic airlines are outsourcing their MRO activities to cut costs and combat the rising price of fuel and the consumer slowdown.
• AAR is a diversified business, with a large chunk of their sales (40%) to the U.S. and other governments. Through this diversification, AAR can weather any economic storm better than other Aerospace and Defense companies.
• Insiders have begun to purchase shares of the company’s stock in moderate to large quantities over the last couple of months. This includes 5 different directors, and the CEO, David Storch, each purchasing anywhere from 4,000 - 24,000 shares at prices ranging from $10.20 - $17.16, with the most recent purchases being in the $10.20 - $12.60 range.
• Valuation metrics (more below) point to AAR trading below its peers, even though it has superior business fundamentals, and is a well diversified company with no direct competition for all 4 segments.
• AAR is trading below its fair book, and tangible book value by a wide margin, especially when compared to its peers (more below).

Now let’s take a look at some of those valuation metrics.

AAR Corp. (NYSE: AIR): AAR Corp. is a diversified company that provides products and services to the aviation, aerospace, and defense industries worldwide. It operates in four segments: Aviation Supply Chain; Maintenance, Repair, and Overhaul (MRO); Structures and Systems; and Aircraft Sales and Leasing.

AAR has gotten slammed to the mat along with most other stocks in the Aerospace and Defense sector over the last year or so.

I am issuing a BUY recommendation on shares of  AAR Corp. (NYSE: AIR) immediately.

I am initiating a BUY recommendation of AAR at or around $11.75 per share.

I’ll be coming out with a post later this evening explaining why.

New to the AAR story?

• Read my last company update here.

Well, it looks like our current economic climate was good for something.

The AP has reported that the U.S. government, feeling the pressure of the current economic crisis and as a result of the their need to bail out and possibly fund over $700 billion in debt, has canceled their proposed Broad Area Space-Based Imagery Collection satellite system, or BASIC, which would have launched two commercial grade satellites similar to the ones already in use by GeoEye (NASDAQ: GEOY), and it’s only U.S. based rival DigitalGlobe (NYSE:DGI).

I hate to say that I am happy for the way things are going right now, but if it had to happen, it looks like PeakStocks.com recommendation GeoEye is going to be a beneficiary of the downturn, and the government’s latest announcement, which would have put the U.S. government in direct competition with these two satellite providers, in a move that was widely controversial and was perceived to have directly violated previous presidential directives.

New to the GeoEye story?

GeoEye provides space-based, and aerial imagery and geospatial information through high-resolution and low-resolution imagery, imagery-derived products, and image processing services to customers worldwide.

This capability benefits a broad array of industries including national defense and intelligence, online mapping, state and local governments, environmental monitoring and land use management, oil and gas, utilities, disaster management, insurance and others.

Want more?

• Read my initial buy recommendation here.
• or listen to my EXCLUSIVE interview with GeoEye’s management team here.

How Did We Get Here?

As I wrote previously, it appeared that the U.S. government couldn’t leave well enough alone, and for some strange reason, was actually considering spending BILLIONS of dollars, to do the exact same thing that was already available to them for a fraction of the cost.

Government efficiencies huh?

The sad part in all of this is that the government actually tried this before with stinging failure.

In 2005, after many years of bumbling and stumbling, the government canceled a project called the Future Imagery Architecture (FIA), after indecision over what kind of capabilities it should have, skyrocketing costs, constant delays and general incompetence by the government and their building partners.

The project was canceled even before a single satellite was launched, wasting billions of dollars.

In fact, the primary contractor, Boeing (NYSE: BA), ran into technical problems developing the satellite and spent nearly $10 billion, blowing its budget by $3 billion to $5 billion before the Pentagon pulled the plug.

You can read all about that fiasco here.

Related Stocks:  BA, GEOY

It was pretty scary actually.

Not unlike the turmoil in the markets in the last year, especially in the last month or so, that has driven a lot of traders and regular folks watching their life savings severely decline in value, call out at night for their mommies…

I guess in retrospect, I picked the perfect time to start a stock website devoted to the most volatile and unpredictable stocks available on Earth right?

I mean, when things go bad, small-cap and micro-cap stocks go down far more than other performers, but the same holds true on the up side.

This begs the question: What should one do with their money now?

I’ll tell you what you should do with your money!

Grab every cent you can find, sell every piece of junk you have in your house, and find any cash that you’ve been saving for a rainy day, and put it to work in the market RIGHT NOW!

Stepping Back

Ok, let’s get a grip on the situation, and think about what can and should be done.

Most of us, me included, have gotten our butts handed to us over the last year, and more so over the last few weeks as things really went south in the market overall, and with smaller stocks in particular, as it only takes a few sellers with relatively large stakes liquidating their positions to hammer these stocks disproportionately more than their larger brethren.

But out of this rubble and what seems to be a debacle, comes amazing opportunity, if you know where to look.

Smart investors, the ones that aren’t forced to sell their positions to meet margin requirements, redemptions or panic thresholds, realize that although they may not know when things will turn around, they know they certainly will.

You may have heard that on Friday, one of the world’s most respected investors, Warren Buffett himself, wrote and op-ed piece in the New York Times stating as much.

In it Warren wrote:

“A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.”

I  couldn’t have said it any better myself.

I mean seriously, do we think that great companies with sound balance sheets, great businesses, and dedicated and fully invested management teams are never going to succeed again?

I know, and have been preaching since I opened shop here on PeakStocks.com, that the best place for new money has been, and always will be, small and micro cap stocks that are