Adobe Inc.

Today’s rebound in the market is reassuring, but I expect stocks to remain highly volatile for a month or more. After that, we could see a six-month rebound in prices. The U.S. bailout of major financial institutions raises inflation risk over the next few years, but it heads off panic. Nobody can predict market bottoms, but I suspect we are much closer to the bottom than the top. ADOBE SYSTEMS INC. $40.94, symbol ADBE on Nasdaq, rose this week after reporting earnings that exceeded consensus expectations. Excluding one-time items, earnings per share in the three months ended August 29, 2008 rose 11.1%, to $0.50 from $0.45 a year earlier. That beat expectations of $0.46 a share. Revenues rose 4.2%, to $887.3 million from $851.7 million. In the latest quarter, stronger sales of established products such as Acrobat, Flash and Photoshop software boosted Adobe’s revenues and earnings. However, sales of its Creative Suite 3 software fell 10%, as customers delayed purchases to wait for the launch of the new Creative Suite 4. That upgrade will be available in the fourth quarter of 2008....

ADOBE SYSTEMS INC. $44.28 (Nasdaq symbol ADBE; SI Rating: Average) (408-536-6000; www.adobe.com; Shares outstanding: 530.5 million; Market cap: $23.5 billion) develops, sells and supports computer software products and technologies that let users create paper documents, and create and manipulate electronic documents. It’s a leader in graphic arts and desktop publishing software. Adobe’s two main software products are Acrobat (electronic documents) and PhotoShop (photo editing). Both products dominate their respective markets. In the three months ended May 30, 2008, Adobe’s revenues rose 19.0%, to $886.9 million from $745.6 million. (All figures in U.S. dollars.) The increase came from strong sales of its Creative Suite 3 products and Acrobat software. Growing demand in Europe and Japan helped offset soft sales in North America. Earnings per share excluding one-time items rose 35.1%, to $0.50 from $0.37.

Plenty of funds for development

Adobe holds cash of $1.9 billion or roughly $3.45 a share. Debt of $350.0 million is a low 16% of its market cap of $21.6 billion. That gives it lots of room to finance new product development. The company spends a high 19% of sales on research....

SONY CORP. ADRs $37.83, New York symbol SNE, fell roughly 10% this week after it reported earnings that fell short of consensus forecasts. In its first fiscal quarter ended June 30, 2008, earnings fell 39.2%, to $0.31 per ADR from $0.51 a year earlier. The drop was mainly due to lower profits at its TV division, where intense price competition and rising raw material costs have squeezed profit margins. Lower results from its cellphone and movie operations also contributed to the weaker earnings. However, overall sales improved 16.2%, to $18.7 billion from $16.1 billion. If you disregard foreign currency changes, sales were unchanged. The slowing U.S. economy and weak dollar could hurt Sony’s growth in fiscal 2009. But recent cost cuts should improve its long-term profitability. As well, rising sales of its PlayStation 3 video game player should lead to more licensing revenue from game designers. Sony is a buy for long-term gains....

Watch Pat McKeough’s June 20 interview on the Business News Network “Market Call” program with Michael Hainsworth. Click on: http://watch.bnn.ca/market-call/june-2008/market-call-june-20-2008/#clip61441 to see the interview. Or, go to www.bnn.ca and you’ll find the link on the lower right side of the page....

Watch Pat McKeough’s June 20 interview on the Business News Network “Market Call” program with Michael Hainsworth. Click on: http://watch.bnn.ca/market-call/june-2008/market-call-june-20-2008/#clip61441 to see the interview. Or, go to www.bnn.ca and you’ll find the link on the lower right side of the page....

INTERNATIONAL BUSINESS MACHINES INC. $124 (New York symbol IBM; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.4 billion; Market cap: $173.6 billion; WSSF Rating: Above average) earned $1.65 a share in the three months ended March 31, 2008, up 36.4% from $1.21 a year earlier. Revenue rose 11.4%, to $24.5 billion from $22.0 billion. IBM continues to gain from its strategy of expanding its software operations, which generate higher profit margins than hardware sales. Software revenue grew 14% in the latest quarter. IBM also gets over 60% of its revenue from its international operations, which limits its exposure to a slowing economy in the United States. IBM is a buy....

BROADRIDGE FINANCIAL SOLUTIONS $18 (New York symbol BR: SI Rating: Extra risk) (201-714- 3000; www.broadridge.com; Shares outstanding: 140 million; Market cap: $2.5 billion) fell to as low as $15.25 a share recently after Standard & Poor’s lowered its credit rating on certain of the company’s obligations. The shares have since regained all of the drop. S&P is concerned that Broadridge is taking on too much risk, especially at its Ridge Clearing subsidiary, given today’s difficult financial environment in the U.S. Broadridge offers services to the investment industry in three main areas: investor communications; securities processing; and transaction clearing. Broadridge mails and processes 70% of all proxy votes. The company stands to gain from the increasing complexity of securities regulations and increasing levels of share ownership....

YAMANA GOLD $15.35, symbol YRI on Toronto, reports that earnings excluding one-time items were $0.06 a share in the three months ended December 31, 2007, compared to nil per share a year earlier. (All figures except share price in U.S. dollars.) Cash flow per share rose to $0.07 from $0.01. Revenues more than tripled to $218.6 million from $60 million. Earnings rose even though operating costs were higher and the Brazilian real rose 20% against the U.S. dollar. Most of Yamana’s costs are in Brazil, while the metal it sells is priced in U.S. dollars. Lower copper prices also hurt profits. Despite the higher profits, the stock fell because its earnings failed to meet consensus expectations. However, Yamana’s recent acquisition of Meridian and Northern Orion, plus earlier acquisitions, will give it an estimated 1.3 million ounces of gold production in 2008, and up to 2.2 million ounces by 2012. The company could generate more than $2 billion in cash flow annually by 2010....

ADOBE SYSTEMS $34.45, symbol ADBE on Nasdaq, rose over 8% this week after it reported earnings that exceeded consensus expectations. In the three months ended February 29, 2008, earnings per share excluding one-time items jumped 60%, to $0.48 from $0.30 a year earlier. Revenues rose 37.1%, to $890.4 million from $649.4 million. The increase came from strong sales of its Creative Suite 3 products and Acrobat software. Adobe holds cash of $1.7 billion or $3.06 a share, and has little long-term debt. The company has plenty of financing for new product development. Adobe spends a high 18.9% of sales on research and development. Adobe now trades at 21.0 times this year’s forecast earnings of $1.64 a share. That’s reasonable in light of its growth prospects....

SYMANTEC CORP. $17.88 (Nasdaq symbol SYMC; SI Rating: Average) (1-408-517-8000; www.symantec.com; Shares outstanding: 846.4 million; Market cap: $15.1 billion) makes software that helps protect computers from viruses and electronic attacks. Its best known product is the top selling Norton Anti-Virus program. Symantec continues to cut its reliance on sales to consumers by increasing its corporate operations. Security products and services for businesses also give it steadier revenue streams than consumer software sales. As part of this strategy, Symantec spent $13.5 billion in 2005 to acquire Veritas Software Corp., which specializes in data storage products for businesses and corporate security products. The deal was one of the biggest software industry acquisitions ever....