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Joy Global | June 8, 2009 | Vol. 1  No. 10

Joy is the world’s largest producer of high productivity underground mining machinery for the extraction of coal and other bedded materials. It has significant facilities in Australia, South Africa, the United Kingdom, China and the United States as well as sales offices and service facilities in India, Poland, and Russia. Joy products include: continuous miners; longwall shearers; powered roof supports; armored face conveyors; shuttle cars; flexible conveyor trains; complete longwall mining systems (consisting of powered roof supports, an armored face conveyor, and a longwall shearer); continuous haulage systems; battery haulers and roof bolters. Joy also maintains an extensive network of service and replacement parts distribution centers to rebuild and service equipment and to sell replacement parts in support of its installed base. This network includes five service centers in the United States and eight outside of the United States, all of which are strategically located in major underground mining regions.

As the economy moves ahead and the U.S dollar collapses, inflation will rise as things become more expensive, as the buying power of the dollar will get weaker. In strong economic situations, bonds could be sold and the debt would be held by bond buyers.   At the current rate the U.S. is borrowing money, it will be difficult to find enough buyers to buy our debt.  Hence the Federal Reserve will monetize the debt by printing money to purchase the bonds. Essentially, the U.S. isselling and buying the same bonds and are monetizing the debt.  This will increase the money supply and as supply increases and demand falls, the currency will weaken.

Investing in commodities as well as the companies that service the industries involved in mining them will do very well going forward. This will happen because commodity prices will go up as the U.S. dollar falls.  Since major commodities like Oil are bought and sold using US dollars, and if the dollars buying power weakens, then the price of oil will go up.  As this scenario develops, alternative sources of energy will be sought out to combat the high price of oil.  The least expensive and most abundant source of energy is coal.  Joy Global is the world’s largest supplier of mining equipment for the coal industry and is also an extremely well managed company.  It has a free cash flow return on invested capital of 28% and a price to free cash flow of 9.  It has a FireRock Element of $104.60 which results in a FireRock Percentile of 33%.  The impending collapse of U.S. currency and future surge of inflation, Joy Global is an opportunity to take advantage of.
 
http://biz.yahoo.com/e/081219/joyg10-k.html

This is for information purposes only.  This is not to be construed as investment advice in any way whatsoever.  Please see our disclaimer below.

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IBM | June 1, 2009 | Vol. 1  No. 9

The company creates business value for clients and solves business problems through integrated solutions that leverage information technology and deep knowledge of business processes. IBM solutions typically create value by reducing a client’s operational costs or by enabling new capabilities that generate revenue. These solutions draw from an industry leading portfolio of consulting, delivery and implementation services, enterprise software, systems and financing. The Company’s major operations include Global Technology Services segment (GTS), Global Business Services segment (GBS), Software segment, Systems and Technology segment, and Global Financing segment.

Global Technology Services (GTS) primarily provides IT infrastructure services and business process services, delivering business value through the company’s global scale, standardization and automation.

Global business Services (GBS) primarily provides professional services and application outsourcing services, delivering business value and innovation to clients through solutions which leverage industry and business process expertise.

Software consists primarily of middleware and operating systems software. Middleware software enables clients to integrate systems, processes and applications across a standard software platform. IBM middleware is designed to open standards, which allows the efficient integration of disparate client applications that may have been built internally, or provided by packaged software vendors or system integrators. Operating systems are the software engines that run computers.

Approximately two thirds of external software segment revenue is annuity based, coming from recurring license charges and ongoing subscription and support from one time charge (OTC) arrangements. The remaining one third of external revenue relates to OTC arrangements, in which the client pays one upfront payment for a perpetual license. Typically, arrangements for the sale of OTC software include one year of maintenance. The client can also purchase ongoing maintenance after the first year, which includes product upgrades and technical support.

The current IBM has been transformed over the last five years, under the strong leadership of their brilliant CEO Sam Palmisano, the company has transformed itself into a major service company.  Using their own technology, IBM   allows professionals like PhD scientists and engineers to leverage High Performance Computing (HPC) to solve real world problems with mathematics that could not be solved previously.  How has this new business model affected the bottom line at IBM? Well in 2004 the company had a price to free cash flow of 18 and a free cash flow return on invested capital of 20%.  In 2009, IBM is expected to have a free cash flow return on invested capital of 51% and is currently trading at9.8 times its free cash flow.  In 2004, the company’s FireRock Element was $124 and it was trading at a 79% FireRock Percentile, which was a hold.  Today its element is $391 and it has a FireRock Percentile of 26%, which is a strong accumulate rating.   

http://biz.yahoo.com/e/090428/ibm10-q.html

This is for information purposes only. 

This is not to be construed as investment advise in any way whatsoever.  Please see our disclaimer below.

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Foster Wheeler | May 22, 2009 | Vol. 1  No. 8

Foster Wheeler, which operates worldwide, designs, engineers and constructs onshore and offshore upstream oil and gas processing facilities, natural gas liquefaction facilities and receiving terminals, gas-to-liquids facilities, oil refining, chemical and petrochemical, pharmaceutical and biotechnology facilities and related infrastructure, including power generation and distribution facilities, and gasification facilities. Its Global Engineering & Construction Group provides engineering, project management and construction management services, and purchases equipment, materials and services from third-party suppliers and contractors.

The Global Engineering & Construction Group is also involved in the design of facilities in new or developing market sectors, including carbon capture and storage, solid fuel-fired integrated gasification combined-cycle power plants, coal-to-liquids, coal-to-chemicals and bio-fuels. Global E&C Group owns one of the leading refinery residue upgrading technologies (referred to as delayed coking) and a hydrogen production process used in oil refineries and petrochemical plants.  Our Global E&C Group performs environmental remediation services, together with related technical, engineering, design and regulatory services.

Foster Wheeler in our opinion has an abundant amount of free cash flow as it is one of those special companies that require little in the way of capital expenditures to keep their company running at optimum performance.  In 2009, Foster Wheeler is expected to have capital spending amount to just 12% of cash flow and have total free cash flow of $408 million. $408 million is not a significant number , however, it is when you are working off of a capital base of $650 million; in other words its free cash flow return on invested capital is equal to 63%.

As the US dollar eventually craters, oil will spike up again and Foster Wheeler will be in the right place at the right time. In a perfect storm, this is a great stock, as very few have insight into its amazing financial numbers but more importantly recognizing its amazing management. . The FireRock Element has the stock valued at $157.72 which places it as a strong accumulation, percentile of 15%.  The company will probably bring that free cash flow to the market and be a major buyer of its own shares as the company’s board announced a $750 million share buyback last year.  Foster Wheeler is a perfect play on the weakening US dollar and is an excellent way to invest in the inflation increase that will occur over the next decade.

http://biz.yahoo.com/e/090224/fwlt10-k.html

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Imperial Oil  | May 15, 2009 | Vol. 1. No. 7 

Imperial Oil is one of Canada’s largest integrated oil companies. It is active in all phases of the petroleum industry in Canada, including the exploration for, and production and sale of, crude oil and natural gas. In Canada, it is one of the largest producers of crude oil, natural gas and natural gas liquids and the largest refiner and marketer of petroleum products. It is also a major supplier of petrochemicals. Exxon Mobil Corporation owns approximately 69.6 percent of the outstanding shares of the company.

Imperial Oil is unique in its industry as its management is extremely superior. The reason for this statement is because the oil industry is very capital intensive and most companies equal or surpass their cash flow with their yearly capital expenditures. They are able to do so because of the high debt that they take on their balance sheets.  Imperial Oil on the other hand has long term debt of just $27 million compared to their market capitalization of $31.87 billion.  It also has capital expenditures which are just 26.5% of its cash flow.  To succeed in the stock market, you need to find companies that are extremely well managed and that are situational unique. In 2008, it is evident that with Imperial Oil you have a company that pumped out $2.78 billion in free cash flow and had a free cash flow return to invested capital of 37%. 

Even with the sharp drop in oil prices over the last year, Imperial Oil is still expected to have free cash flow numbers of $1.9 billion and a ratio of free cash flow return to invested capital of 24%. The U.S. is a country that over the next few years will take on massive amounts of debt on its balance sheets and will have to print trillions of its dollars in order to keep its ship afloat.  This will introduce the law of supply and demand into the U.S. currency situation.  As supply increases the U.S. currency will be worth less and as the U.S. dollar gets weaker, oil (which is denominated in U.S. dollars) will go up in price.  Canada which is a commodity based economy will prosper in such a scenario and as inflation soars, its currency should remain strong.

Imperial Oil’s parent company Exxon Mobil Inc. for example is expected to have a free cash flow return to invested capital of just 12% in 2009 or half of Imperial Oil’s expectation.  Finding an oil company that outperforms an industry legacy like Exxon Mobil, is something special.  Our FireRock Element for Imperial Oil is $152, which at its current price would give it a FireRock percentile of around 25% (strong accumulate). With global turmoil brewing among the geography of the oil industry and military movements occupying those significant oil producers, oil may spike up in the near future. In the long term, domestic monetary policies could disrupt US currency and inflation will soon have a significant presence.  Now is the time to look to oil and commodity plays to prepare for the next 3-5 years.

This is for information purposes only.  This is not to be construed as investment advise in any way whatsoever.  Please see our disclaimer below.

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Terex Corp.  | May 8, 2009 | Vol. 1. No. 6

Terex is a diversified global manufacturer of equipment focused on delivering reliable, relevant solutions for the construction, infrastructure, quarrying, surface mining, shipping, transportation, power and energy industries.  The company operates in five segments: (i) Terex Aerial Work Platforms, (ii) Terex Construction, (iii) Terex Cranes, (iv) Terex Materials Processing & Mining and (v) Terex Road building and Utility Products.

Terex Aerial Work Platforms designs, manufactures, refurbishes and markets aerial work platform equipment, telehandlers, power products and construction trailers. Products include material lifts, portable aerial work platforms, trailer-mounted articulating booms, self-propelled articulating and telescopic booms, scissor lifts, telehandlers, construction trailers, trailer-mounted light towers, power buggies, portable generators, related components, replacement parts, and other products. Customers use Terex products to construct and maintain industrial, commercial and residential buildings and facilities, as well as in a wide range of infrastructure projects.  Aerial Work Platforms products go principally under the Terex® and Genie® brand names.

Terex Construction designs, manufactures and markets two primary categories of construction equipment and their related components and replacement parts:

• Heavy construction equipment, including off-highway trucks, scrapers, hydraulic excavators, large wheel loaders and material handlers; and

• Compact construction equipment, including loader backhoes, truck-mounted articulated hydraulic cranes, compaction equipment, mini and midi excavators, site dumpers, compact track loaders, skid steer loaders and wheel loaders.

Construction, forestry, rental, mining, industrial and government clients use these products in construction and infrastructure projects and in coal, minerals, sand and gravel operations. 

Terex Cranes designs, manufactures and markets mobile telescopic cranes, tower cranes, lattice boom crawler cranes, truck-mounted cranes (boom trucks) and telescopic container stackers, as well as their related replacement parts and components.  These products are used primarily for construction, repair and maintenance of commercial buildings, manufacturing facilities and infrastructure.

Terex Materials Processing & Mining designs, manufactures and markets materials processing equipment (including crushers, impactors, washing systems, screens and feeders), hydraulic mining excavators, highwall mining equipment, high capacity surface mining trucks, drilling equipment, related components and replacement parts, and other products.  Construction, mining, quarrying and government customers use these products in construction and infrastructure projects and commodity mining.

Terex Roadbuilding, Utility Products and Other designs, manufactures and markets asphalt and concrete equipment (including pavers, transfer devices, plants, mixers, reclaimers/stabilizers, placers and cold planers), landfill compactors, bridge inspection and utility equipment (including digger derricks, aerial devices and cable placers), as well as related components and replacement parts.  Government, utility, infrastructure and construction customers use these products to build roads and bridges, construct and maintain utility lines, trim trees and for other commercial operations . Terex is a company that has been affected in the last year as every business segment that they operate in has been in a deep recession.  The stock price has fallen from an all time high of $89.02 in September 2007 to a low of $7.34 in February 2009.  At its current price Terex is trading as if the economy were in the 1929 Depression with no hope of recovery.  But in reality, timing is perfect as the products that Terex builds will work well with the stimulus package that is being put forth by Congress and the President. 

If you look at the detailed analysis of Terex’s divisions above and think about the infrastructure that will be renovated and built in the next 3-5 years it is easy to see that Terex will go from a bust cyclical turn to a boom period.  FireRock Research has Terex with a FireRock Element® of $63.79 which falls in the range of 20% or strong accumulate on our FireRock Percentile gauge.   We believe this stock has great management and an incredibly strong product line. In 2008, the company pumped out $5.40 per share in free cash flow and we see those numbers showing up again in the next 3-5 years.  If you were to discount the current price 3-5 years out, you will see that you are getting this stock at an incredible value.

     Terex, Inc. Form 10-Q(Quartely Report). 30 April 2009. EDGAR Database.
 http://biz.yahoo.com/e/090430/tex10-q.html

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Research in Motion Ltd.  | May 1, 2009 | Vol. 1. No. 5

Research in Motion Limited (”RIMM”) is a leading designer, manufacturer and marketer of innovative wireless solutions for the worldwide mobile communications market. Through the development of integrated hardware, software and services that support multiple wireless network standards, RIMM provides platforms and solutions for seamless access to time-sensitive information, including email, phone, text messaging (SMS and MMS), internet and intranet-based applications. RIMM technology also enables a broad array of third-party developers and manufacturers to enhance their products and services with wireless connectivity to data. The company’s products include BlackBerry smart phones and accessories, including cases, audio products, memory products, Bluetooth, chargers, batteries, and card readers.  It also provides, SureType, a keyboard technology, which allows users to compose messages using single-handed operation or two-handed thumb-typing.   Additionally, SurePress provides a touch screen technology that helps in navigation and typing. Its products provide access to time-sensitive information, including email, phone, short messaging service, internet and intranet-based applications.

RIMM’s portfolio of award-winning products, services and embedded technologies are used by thousands of organizations around the world and include the BlackBerry wireless platform, BlackBerry smart phones, software development tools, radio-modems and software/hardware licensing agreements. Founded in 1984 and based in Waterloo, Ontario, RIMM operates offices in North America, Europe and Asia Pacific.

RIMM has one of the best percentage ratings in our FireRock Database at 35%, which gives it an opinion of strong accumulate.  With a FireRock Element® valuation of $197.98 per share, RIMM has a long way to go before it becomes fully valued.  In 2009 and 2010, we estimate that the company will create about $2 billion in free cash flow per year, with a current market capitalization of $21 Billion.  This is a company that has zero debt on its balance sheet and its free cash flow to total capital employed comes in at over 20%, we see RIMM as a strong position for any portfolio.  It is expected that RIMM will grow their revenues at a 30%+ clip going forward.

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PetMeds Express Inc. | April 24, 2009 | Vol. 1. No. 4

PetMed Express, Inc.  is a leading nationwide pet pharmacy.  The Company markets prescription and non-prescription pet medications and other health products for dogs, cats, and horses directly to the consumer.  The Company offers consumers an alternative for obtaining pet medications for convenience, price, and speed of delivery.  The Company markets its products through traditional, online media, and mail/print advertising campaigns.  Those marketing campaigns aim to increase brand recognition of “1-800-PetMeds”, increase web traffic at www.1800petmeds.com, optimize customer acquisition, and maximize repeat purchases.

As of March 31, 2008, its product line contains approximately 750 stock keeping units (skus). These products include brand name medications such as Frontline Plus, K9 Advantix, Advantage, Heartgard Plus, Sentinel, Interceptor, Program, Revolution, Deramaxx and Rimadyl.  Additionally, the Company’s products included Non-Prescription Medications (OTC), which include flea and tick control products, bone and joint care products, vitamins and nutritional supplements, hygiene products, and Prescription Medications (Rx), which include heartworm preventatives, thyroid and arthritis medications, antibiotics, and other specialty medications, as well as generic substitutes.

PetMed Express offers the same medications that anyone can find in their local veterinary clinic, but at a deep discount from the regular price.  Add a strong FireRock Element® to a strong anti-recessionary business model and you have a potential winner at hand with Pet Med Express.

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Microsoft | April 17, 2009 | Vol. 1. No. 3

Microsoft Corporation is one of the largest computer software company’s and a leader its industry.   The company is divided into five divisions and they are the following;

1) Client = is responsible for the technical architecture, engineering and product delivery of the Company’s Windows product family.

2) Server and Tools = Server and Tools develops and markets software server products, services and solutions.

3) Online Services Business (OSB) = consists of adCenter as its on-line advertising platform with offerings for both publishers and advertisers, personal communications services, such as e-mail and instant messaging, online information offerings, such as Live Search, and the MSN portals and channels worldwide.

4) Microsoft Business Division (MBD) = offerings consist of the Microsoft Office system and Microsoft Dynamics business solutions. Microsoft Dynamics products provide business solutions for financial management, customer relationship management, supply chain management, and analytics applications for small and mid-size businesses, large organizations and divisions of global enterprises.

5) Entertainment and Devices Division (EDD) = is responsible for developing, producing, and marketing the Xbox video game system, including consoles and accessories, third-party games, games published under the Microsoft brand, and Xbox Live operations.

With such an impressive arsenal of products going for them, Microsoft can be considered a huge ATM machine for free cash flow. To be more specific, the company is expected to generate $15.2 Billion in free cash flow in 2009 (during a recession) and if you relate that to its total capital employed, that comes out to a free cash flow to total capital ratio of 37.8%. To put that into perspective, for every $1 of capital employed they produce about 38 cents of free cash flow.  With most companies averaging 5% free cash flow to total capital employed you can clearly see that Microsoft does about 700% better in this key area. That is why FireRock Research has a accumulate rating on the stock with a FireRock Element® of $53.27.  The stock also trades at about 10 times its price to free cash flow, which makes this a potential investment with long term capital appreciation through strong capital preservation. __________________________________________________________________________________ 

Lab Corporation of America | April 10, 2009 | Vol. 1 No. 2

Laboratory Corporation of America (LabCorp; LH) is one of the largest clinical laboratories in the world and offers more than 4000 routine and specialty tests on more than 370,000 specimens daily for over 220,000 clients nationwide.

LabCorp is a pioneer. It has affiliated itself with some of the most advanced genome research companies in the world and is the direct beneficiary of much of the pioneering research that is being done today. LabCorp is a conduit between the researchers making the discoveries and the actual patient who needs to be tested. In other words, LabCorp helps to make the discovery in the research lab, a reality in your doctor’s office.

The company has developed specialty and niche businesses based on certain types of specialized testing capabilities and client requirements, such as oncology testing, HIV genotyping and phenotyping, diagnostic genetics and clinical research trials. Labcorp’s services are in great demand and are both essential and help provide a cost effective way to control health care costs. This is due to the fact that though testing represents only approximately 4% of health care expenditures, it actually influences more than 70 percent of health care decisions. Health care costs are expected to double over the next decade as the baby boomer generation enters their senior years. LabCorp should be able to grow their business exponentially owing to superior management. We predict that LabCorp will help one practice capital preservation with the prospect of achieving good long term capital appreciation once the markets reverse their current trend. __________________________________________________________________________________ 

Coach Inc. | April 3, 2009 | Vol. 1 No. 1

Coach was originally acquired by Sara Lee Inc. in 1985. In October of 2000 it decided to sell 7.38 million shares to the public at $16 a share followed up by its distributing the remaining shares of the company to shareholders.  Starting with 170 stores in 2000, management was able to grow the total amount of stores to 399 in just eight years. Management grew the store count at an annualized rate of 11.25% with little or no debt. The company’s stores are mainly concentrated in 5 major states and Japan, and can grow its store count 10 fold before it reaches a level of saturation.

Coach Incorporated  (NYSE : COH) is a specialty retailer that is the dominant player in the ladies handbag industry. Founded in 1941, the company sells its merchandise in some 399 company owned stores of which 107 are Coach factory stores. The company’s stores are mainly in the USA and Japan (149 stores) but can also be found in 24 other countries (167 stores) as well.  The Coach trademark is highly respected throughout the world and is seen as a status symbol.  Besides its company owned stores, Coach  also acts as a wholesaler to over 900 department stores and specialty shops including such names as Macy’s, Dillard’s and Sak’s. 62% of sales come from the sale of handbags and the remaining 38% come from accessory sales such as Movado watches, Jimlar footwear and Marchon eyewear. In the current market environment shares of Coach have fallen 74% from its all time high of $54 a share which was achieved in 2007 and has created the buying opportunity of a lifetime.  __________________________________________________________________________________   FIREROCK RESEARCH LLC (“FR” or “we” or “us”) Disclaimer: FR is not registered as an investment advisor under the Investment Advisers Act of 1940.  FR does not provide any personalized or customized investment advice.  The information from our website is not intended to be, and should not be construed in any manner whatsoever as, personalized advice.  Also, our website and the information provided by us should not be construed by any customer, subscriber or prospective as FR’s solicitation to effect, or attempt to effect, any transaction in a security.  Investments in the securities markets are speculative and involve substantial risk.  The information that we provided or that is derived from our website should not be a substitute for advice from an investment professional.  Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation.  No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our researchers, writers, independent contractors or employees from, and are not engaged in the business of, giving any particular recommendations on a particular security.  We are not recommending the purchase of any security.  Prior to making a purchase from FR, we strongly recommend consulting with your own investment advisor and/or money manger to make independent investigations before acting on the information that you obtain from FR or collect from our website.