Fair Isaac Corp.

FAIR ISAAC CORPORATION $23.69 (New York symbol FIC; SI Rating: Average) (415- 472-2211; www.fairisaac.com; Shares outstanding: 49.3 million; Market cap: $1.2 billion) has cut its profit forecast for 2008 to $1.80 to $1.90 a share, from $2 a share previously. Fair Isaac’s main business is its FICO software, which lets creditors use information about a customer to calculate a credit score. The company’s sales growth could slow along with weaker U.S. housing markets. The U.S. subprime mortgage crisis has hurt the banks and other financial institutions that are Fair Isaac’s major customers. These customers may cut back on software spending in the near-term. However, over the longer-term, the subprime crisis will likely increase demand for Fair Isaac’s reliable credit-scoring software....

DIAMONDS NORTH RESOURCES $1.49, symbol DDN on Toronto, jumped as high as $2.05 this week, after it reported high diamond counts from the Tuktu-1 kimberlite on its 100%-owned Amaruk property in the Pelly Bay Diamond District of Nunavut. A total of 550 diamonds were recovered from an 81.75-kilogram drill-hole sample. Tuktu-1 yielded nearly seven diamonds per kilogram of kimberlite. That’s comparable to the initial results from the top diamond-producing mines in Canada. Here’s a case where we would recommend applying our sell-half rule. That’s when you sell half of a speculative stock such as Diamonds North that doubles in price for you, so you can get back your initial outlay....

BANK OF AMERICA CORP. $38.50, New York symbol BAC, has agreed to buy troubled mortgage lender Countrywide Financial Corp. (New York symbol CFC) for $4 billion in stock. In August 2007, Bank of America bought $2 billion of convertible preferred shares from Countrywide. The preferred shares are convertible under certain circumstances into Countrywide common shares at $18 a share, or about 14% below Countrywide’s then market price of $21.00. These preferred shares have since lost approximately 65% of their value. The merger will make Bank of America the largest mortgage lender in the United States, with 25% of mortgage originations and 17% of the mortgage servicing market. Bank of America can also market other services such as deposit accounts and credit cards to Countrywide’s large client base....

FEDEX CORP. $94.29, New York symbol FDX, earned $1.54 a share in its second fiscal quarter ended November 30, 2007, down 6.1% from $1.64 a year earlier. Higher fuel costs and weaker profits at its domestic less-than-truckload operations offset strong overseas growth. Revenue rose 6.2%, to $9.45 billion from $8.9 billion. The company has started passing along its rising fuel costs to its customers, but it will take several weeks before these surcharges take effect. The stock now trades at 14.4 times its likely fiscal 2008 earnings of $6.55. That’s reasonable in light of its expanding international operations, particularly in Asia. FedEx is a buy....

FAIR ISAAC CORP. $38 (New York symbol FIC; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 55.4 million; Market cap: $2.1 billion; WSSF Rating: Average) makes software that helps banks and businesses calculate the likelihood that a borrower will pay back a loan. Its FICO credit scoring system is now an industry standard. The company also makes software that help businesses detect fraudulent transactions. In the fiscal year ended September 30, 2007, Fair Isaac’s revenue fell 0.4%, to $822.2 million from $825.4 million. Earnings grew 1.2%, to $104.7 million from $103.5 million in the prior year. However, per-share earnings jumped 14.5%, to $1.82 from $1.59. That’s because the company repurchased $451.1 million of its stock. Fair Isaac spent 8.6% of its revenue on research in fiscal 2007....

Sales of computer software could weaken over the next year, if a slowing economy prompts computer users to delay upgrades or new purchases. That’s why we feel investors should stick with leading software makers like these five, whose size and customer base will help them stay profitable and generate cash flow for new product development. However, we see only three as buys right now. MICROSOFT CORP. $34 (Nasdaq symbol MSFT; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 9.4 billion; Market cap: $319.6 billion; WSSF Rating: Above average) is the world’s largest maker of computer software. Its flagship products, the Windows operating system and the Office suite of business programs, dominate their markets....

AASTRA TECHNOLOGIES $30.71 (Toronto symbol AAH; SI Rating: Speculative) (905-760-4200; www.aastra.com; Shares outstanding: 16.0 million; Market cap: $491.8 million) develops and markets products and systems for accessing communication networks, including the Internet. Aastra’s products include residential and business telephone terminals, screen telephones capable of accessing Internet content, cable modems, network access servers and digital video encoders, decoders and gateways for the broadcast, cable and telecommunications market. To cut risk, Aastra outsources all of its manufacturing. In the three months ended September 30, 2007, Aastra’s revenues fell 1.1%, to $141.1 million from $142.8 million. However, earnings per share rose 63%, to $0.44 from $0.27 on lower expenses. Sales in Europe were flat at $117.1 million, mainly due to weaker sales in France. North American revenues fell 4.8%, to $24 million, because of slower U.S. sales and the impact of a stronger Canadian dollar....

WASHINGTON MUTUAL INC. $29.09, New York symbol WM, earned $0.23 a share in the third quarter of 2007, down 70.1% from $0.77 a year earlier. The drop came from a nearly 500% increase in loan loss provisions, mainly due to weakness in the housing market. Writedowns of asset-backed securities also hurt earnings. Revenue fell 2.9%, to $3.4 billion from $3.5 billion. Washington Mutual hoped that recent moves to cut its exposure to subprime mortgages would make its mortgage operation profitable by the end of 2007. However, losses at this division will likely continue into 2008. The stock fell over 10% on the news. But the company’s other main businesses, retail banking and credit cards, continue to attract new customers and expand revenues. That should help Washington Mutual maintain its $2.24 dividend, which yields 7.7%....

FAIR ISAAC CORPORATION $39.47 (New York symbol FIC; SI Rating: Average) (415- 472-2211; www.fairisaac.com; Shares outstanding: 57.4 million; Market cap: $2.3 billion) faces increased pressure to put in place changes to boost its sales and profits, now that hedge fund Sandell Asset Management has acquired 5% of the company. Sandell has asked Fair Isaac to explore alternatives to enhance its shareholder value, including a possible sale of the company in whole or in part. Fair Isaac is already selling off unprofitable parts of its mortgage application operations, expanding into China and spending more money on research....

H&R BLOCK INC. $23.03, New York symbol HRB, moved up on news that investment firm Breeden Capital Management, which is headed by a former SEC chairman, aims to elect three of its nominees to H&R Block’s 11-member board of directors. Breeden owns 1.86% of H&R, and will probably put pressure on the company to cut costs or sell out to private investors. Meanwhile, H&R’s outlook is improving. The upcoming sale of its subprime mortgage subsidiary cuts its long-term risk, and will let it focus on its more profitable tax preparation and accounting operations. The extra pressure from Breeden should also push up the stock price. H&R Block is a buy....