sony

ALCOA INC. $35.12, New York symbol AA, earned $0.79 a share in the first quarter of 2007, up 12.9% from $0.70 a year earlier. These figures exclude restructuring costs. Revenue rose 11.3%, to $7.9 billion from $7.1 billion, due to higher aluminum prices and sales of aerospace parts and building materials. The latest earnings exceeded earlier forecasts of $0.76 a share, and the stock gained 2%. Earnings should continue to improve as the company realizes more of the benefits from its recent restructurings. New projects in Iceland and Brazil should also help Alcoa take advantage of strong global demand for aluminum. Alcoa is a buy....

GAMESTOP CORP. $32.57, New York symbol GME, earned $0.81 a share in its fourth fiscal quarter ended February 3, 2007, up 47.3% from $0.55 a year earlier. (All per share amounts reflect the recent conversion of the class A and B shares into a single class of common, and a 2-for-1 split.) Sales grew 35.3%, to $2.3 billion from $1.7 billion. Same-store sales soared 26.5%, as new video game systems from Sony and Nintendo attracted shoppers during the busy Christmas shopping season. The latest earnings exceeded earlier forecasts of $0.80 a share on sales of $2.1 billion, and the stock jumped 11%. In addition, GameStop now predicts same-store sales in the next quarter will rise 12% to 14%, as Sony starts selling its PlayStation 3 machine in Europe. Demand for new game machines and software should continue to spur GameStop’s sales. But the company is vulnerable to growing competition from discount retail chains, particularly with its stock at 25 times earnings....

ANHEUSER-BUSCH COMPANIES INC. $51.16, New York symbol BUD, gained nearly $2 on rumors it is thinking about merging with European brewer InBev. A merger would create the world’s largest brewer, and undoubtedly run into anti-trust problems in several countries. It would also take years of restructuring before the merged company started to realize any cost savings. Regardless of whether the deal goes through, we still like Anheuser-Busch’s long-term prospects. It has around 50% of the United States beer market, and this makes it easier for the company to pass along rising costs to consumers. Major investments in breweries in Mexico and China also add to its appeal. Anheuser-Busch is a buy....

GAMESTOP CORP. (New York symbols GME $56 and GME.B $56; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 75.8 million; Market cap: $4.2 billion; WSSF Rating: Extra risk) sells new and used video game players and software through over 4,600 stores in the United States and 14 other countries. GameStop was a wholly owned subsidiary of Barnes & Noble Inc. up until February 2002. That’s when Barnes & Noble sold its GameStop class A common shares (one vote per share) to the public at $18 each. In November 2004, Barnes & Noble handed out its GameStop class B shares (10 votes per share) to its investors as a special dividend. GameStop now wants to convert the class B shares into class A shares, which would improve liquidity. The conversion requires stockholder approval....

Many studies show that one of the best ways for a company to unlock hidden value is to spin off a subsidiary as a separate company. Shares of the new company sometimes fall in the first few months, as many investors tend to sell their new stock. But over time, both the parent and the spin-off usually outperform comparable stocks. In the past two years, several of our recommendations have completed spin-offs. All of these new companies have done well. That’s not surprising, since they came from well-managed parent companies with long histories of rising profits. Here are five recent spin-offs. We like all of them, but only three are buys right now....

MICROSOFT CORP. $30.60, Nasdaq symbol MSFT, earned $0.26 a share in its second fiscal quarter ended December 31, 2006, down 23.5% from $0.34 a year earlier. The company is absorbing costs associated with new hardware and software that are not yet profitable but could make major profit contributions in the next few years. Revenue in the quarter grew 5.9%, to $12.5 billion from $11.8 billion. This figure excludes $1.5 billion in revenue from sales of coupons that let buyers of new computers upgrade to the new Windows Vista operating system. Microsoft has already released the corporate version of Vista, and will start selling the consumer version next week. Vista will probably have a hard time matching the huge initial sales of previous upgrades, but should generate substantial cash flow. The company’s Xbox 360 video game machine is also selling well, and new services like movie downloads will expand its revenue....

INTERNATIONAL BUSINESS MACHINES CORP. $94 (New York symbol IBM; Conservative Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Above average) is the world’s largest computer company. It specializes in large, mainframe computers for corporations and governments. It’s also a leading maker of software. Revenue fell from $85.9 billion in 2001 to $81.2 billion in 2002 as the economy slowed and demand for new computers and services fell. Revenue grew to $89.1 billion in 2003, and to $96.3 billion in 2004, but fell to $91.1 billion in 2005 after the company sold its personal computer operations for $1.75 billion. Profits fell from $4.35 a share (total $7.7 billion) in 2001 to $3.95 a share ($6.9 billion) in 2002, but rose to $5.05 a share ($8.6 billion) in 2004. Total profit in 2005 slipped to $8.5 billion. But per-share earnings rose to $5.22 due to fewer shares outstanding....

In the past year, the SEC has investigated more than 120 companies over the backdating of executive stock options. The agency thinks companies improperly or illegally manipulated the exercise price on stock options they granted to their managers, to expand the manager’s profits at the expense of investors. Only four of our recommendations are on the SEC list. Any restatements will likely be small, but serious charges could come out of this investigation. That’s why we think you should limit your total exposure to companies that are included in the investigation. APPLE COMPUTER INC. $90 (Nasdaq symbol AAPL; Aggressive Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Extra risk) hit a new all-time high on speculation that it will soon launch a iPod music player/mobile phone. Hold....

TEMPLETON GROWTH FUND $11.36 (CWA Rating: Conservative) (Franklin Templeton Management Limited, 1 Adelaide Street East, Suite 2101, Toronto, ON. M5C 3B8. 1-800-387-0830; Web site: www.templeton.ca. Buy or sell through brokers) is invested 28.4% in the U.S., 14.2% in the UK, 9.5% in Japan, 9.3% in the Netherlands, 4.8% in Spain, 3.8% in Switzerland, 3.7% in Canada and 3.4% in Germany. The fund’s top holdings include Royal Dutch Shell (Netherlands oil & gas), Koninklijke Philips Electronics NV (Netherlands consumer electronic & electrical products), Cheung Kong Holdings (Hong Kong conglomerate), Sony Corp. (Japanese electronics), Akzo Nobel (healthcare & chemicals), BP plc (UK oil & gas and chemicals), and ING Groep NV (Dutch financial services). The fund made 6.2% over the last year, compared to a gain of 5.4% for the benchmark Morgan Stanley Index. The fund’s MER is 2.35%....

SONY CORP. ADRs $44 (New York symbol SNE; Conservative Growth Portfolio, Manufacturing & Industry sector; WSSF Rating: Above average) will have to absorb part of the $400 million cost to recall faulty batteries it sold to computer maker Dell Inc. Sony feels the recall will have only a small effect on its profits. In its first fiscal quarter ended June 30, 2006, Sony earned $0.27 per ADR (total $281 million). It lost $0.08 per ADR ($66 million) a year earlier. Each American Depository Receipt represents one common share. After several delays, the company now plans to launch its new PlayStation 3 video game player on November 17. Although priced higher than competing products, PlayStation 3’s advanced features should make it a strong seller....