Before the bell: Futures higher ahead of housing data

Goldman Sachs cut its view of U.S. department stores to Neutral from Attractive. Specifically, the broker downgraded J.C. Penney (NYSE: JCP) and Nordstrom Inc. (NYSE: JWN) to Neutral from Buy after its commodity team upped 2008 oil price forecasts to $149 a barrel.
Still, Goldman upgraded TJX Cos. (NYSE: TJX) to Buy from Neutral and removed Kohl's Corp. (NYSE: KSS) from its conviction-buy list in favor of Wal-Mart Stores Inc. (NYSE: WMT).

By now I'm getting confused with all the deals Apple Inc. (NASDAQ: AAPL) is signing with wireless operators to sell the iPhone in different countries around the world. I believe the past two weeks we heard of at least two deals, including one with a S.Korean company. Today, French wireless operator Orange said it has signed a deal to sell its iPhone in the Middle East, Africa and several European countries. Orange will be the exclusive iPhone provider in Belgium and Romania. It seems that by now Apple's got the world covered.

General Motors Corp. (NYSE: GM) is apparently considering launching its Chevrolet brand in South Korea. In its attempt to stay ahead of fast growing Toyota (NYSE: TM), GM will try to capture a larger share of S.Korea's growing market for imported cars.

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MAJOR PAPERS:

• According to internal company and agency documents, the Wall Street Journal reported that the FAA is investigating into why AMR Corporation's (NYSE: AMR) American Airlines ordered mechanics to skip specific safety instructions to detect damage to planes from potential lightning strikes.
• In order to compete more effectively against Apple Inc's (NASDAQ: AAPL) iPhone, the Wall Street Journal reported that Research in Motion Limited (NASDAQ: RIMM) is planning to introduce "Thunder," a touch-screen version of its BlackBerry device.

• Yahoo! Inc (NASDAQ: YHOO) is trying to quickly put the finishing touches on a search advertising deal with Google Inc (NASDAQ: GOOG) as billionaire Carl Icahn launches a proxy fight for control of Yahoo's board, according to the New York Post. Yahoo! hopes to announce a deal with Google to create an open platform system within the next week, two inside sources said.
• The New York Post reported that a partnership of MGM Mirage (NYSE: MGM) and investment company Dubai World may seek to buy the Drake Hotel site from developer Harry Macklowe. If a deal is reached, MGM and Dubai World would assume $580M in defaulted debt and interest, inside sources said.

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About a month ago I posted Serious Money: AAPL, EBAY, GE, GOOG, MSFT, TWX, WMT, YHOO -- one more look, covering the original Great Eight stocks we focused on at BloggingStocks. These were based on reader interest, which they do still generate today.

Apple Inc. (NASDAQ: AAPL) was the big winner among only four that had appreciated. The following indicates commonly used metrics for tracking and comparing stocks.

Reviewing the stocks in order of lowest to highest P/E ratio (TTM):

• Time Warner (NYSE: TWX) 14.84
• General Electric (NYSE: GE) 14.91
• Microsoft (NASDAQ: MSFT) 17.08
• Wal-Mart (NYSE: WMT) 18.29
• Yahoo Inc. (NASDAQ: YHOO) 34.25
• Apple Inc. (NASDAQ: AAPL) 37.82
• Google Inc. (NASDAQ: GOOG) 40.28
• eBay (NASDAQ: EBAY) 95.24

It is interesting to note that only two of the eight have a below market P/E ratio, while only two are average. On the other hand, four are double the average and beyond, which leads me to believe the overall market consensus is that it is still very early in the game for these stocks and their futures are yet to be determined. The P/E ratios of the four are also the most volatile as are the stock prices.

Reviewing the stocks in order of lowest to highest P/S ratio (TTM):

• Wal-Mart (NYSE: WMT) 0.60
• Time Warner (NYSE: TWX) 1.24
• General Electric (NYSE: GE) 1.88
• Microsoft (NASDAQ: MSFT) 4.70
• eBay (NASDAQ: EBAY) 4.91
• Yahoo Inc. (NASDAQ: YHOO) 5.14
• Apple Inc. (NASDAQ: AAPL) 5.68
• Google Inc. (NASDAQ: GOOG) 10.08

Reviewing the stocks in order of lowest to highest Return on Equity (TTM):

• Microsoft (NASDAQ: MSFT) 45.28%
• Apple Inc. (NASDAQ: AAPL) 28.69%
• Google Inc. (NASDAQ: GOOG) 21.11%
• Wal-Mart (NYSE: WMT) 20.42%
• General Electric (NYSE: GE) 19.03%
• Yahoo Inc. (NASDAQ: YHOO) 10.96%
• Time Warner (NYSE: TWX) 6.12%
• eBay (NASDAQ: EBAY) 3.82%

The RoE is a common measure of company management effectiveness. If this is your guide and you are a Yahoo shareholder, then you might have a strong desire to see Microsoft's unsuccessful bid for Yahoo be accepted. Even if you did not get the full value based on CEO Jerry Yang's vision (or ego), you might see far greater growth under the new management.

Reviewing the stocks in order of lowest to highest Return on Assets (TTM):

• Microsoft (NASDAQ: MSFT) 19.78%
• Google Inc. (NASDAQ: GOOG) 14.21%
• Apple Inc. (NASDAQ: AAPL) 14.09%
• eBay (NASDAQ: EBAY) 9.02%
• General Electric (NYSE: GE) 2.01%
• Wal-Mart (NYSE: WMT) 8.80%
• Time Warner (NYSE: TWX) 4.14%
• Yahoo Inc. (NASDAQ: YHOO) 3.44%

The RoA makes Yahoo's management seem even more inept, earning only a fraction of Microsoft's shareholder value. My pal Warren would frown on Yahoo's poor showing in these categories. Providing shareholder value is chief among his pursuits, and since he is the largest shareholder of Berkshire Hathaway (NYSE: BRK.A), he continues to benefit the most from this goal.

It is impossible to predict the future with any great reliability or consistency, but if one were to look for a secure investment for the future with demonstrated success and the potential of being a part of growing industries, then only Microsoft appears to fit the bill. It is the only company among the eight that is fairly priced and increases shareholder value in a big way based on these metrics.

Two other criteria I look at but did not review here are dividends and cash-flow. In that regard, Microsoft would also prove rewarding.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of BRK.B, EBAY, and TWX.

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One of the messages out of the Google (NASDAQ:GOOG) shareholder meeting was that management plans to make more money on huge video-sharing site YouTube. Without going into detail, the search company said it would bring out sets of software tools which would make it easier for marketers to use the site more effectively.

According to Reuters, Eric Schmidt, the company's CEO "said getting the video sharing site to make money is the Web search company's top priority for the year." It is a nice promise, but it is hard to see how it will work.

Unlike new video sites including Hulu, a premium content web destination used by the large media companies to showcase their video, most of the YouTube content is posted by the ordinary citizen. The clips are primarily short and of poor quality. For some time, one of the most popular videos on YouTube was "The Farting Preacher." That may not be the kind of content big marketers find appropriate to use to draw new customers.

YouTube's problem is not its size. It is the largest video site in the world, based on visitors. But, it is also a website based on a community of people who see its as a place to homestead with the own content. Advertisers may never be comfortable with that.

Douglas A. McIntyre is an editor at 247wallst.com and the author of the Ten Stocks Over $10 letter.

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So, it is pleasing to think that if the new Sprint-Clearwire venture can build out is national presence successfully and capture customers tired of limited high-speed internet service, the world will be its oyster. Of course, other companies are contributing to the venture as well, including Google, Inc. (NASDAQ: GOOG). Why would Google want to put money into this? Because this could be Google's most important investment ever.

Bypassing the telephone and cable companies that have a stranglehold on most of the high-speed internet business in the U.S. has long been the dream of Google. It doesn't want a middleman in the way of it connecting consumers and businesses with the information they seek. Although Google wasn't successful in the recent FCC radio auctions (maybe by design), finding a way to provide internet service directly to its customer base would give Google on a much more powerful perch than it has even today. Google could even buy the new Clearwire partnership outright once it's established.

I think they're starting to get giddy in the Google board room.

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MOST NOTEWORTHY: Google, Boyd Gaming and Microsoft were today's noteworthy initiations:

• Kaufman Bros. believes Google (NASDAQ: GOOG) has "only begun to scratch the surface" of its local market opportunity. Shares were assumed with a Buy rating and $680 target.
  
• Banc of America believes Boyd Gaming (NYSE: BYD) will face financing challenges with its Echelon resort, and initiated shares with a Sell rating and $14 target.
  
• Lehman reinstated Microsoft (NASDAQ: MSFT) with an Equal Weight rating and $34 target based on peaking Vista/Office 2007 cycles, uncertain online strategy, and increased investment.

OTHER INITIATIONS:

• Goldman started AON Corp. (NYSE: AOC) with a Neutral rating.
  
• Broadpoint initiated Covanta (NYSE: CVA) with a Buy rating and $32 target.
  
• Companhia Vale Do Rio Doce (NYSE: RIO) was assumed at Citigroup with a Buy rating and $48 target.

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MAJOR PAPERS:

• The Wall Street Journal reported that an alliance of cable, Internet and chip titans will announce plans to invest $3.2B in a company that will deliver Web access for laptops and cellphones using WiMax. The venture, valued at over $12B, includes Sprint Nextel Corporation (NYSE: S) and Clearwire Corporation (NASDAQ: CLWR) and will be backed by Comcast Corporation (NASDAQ: CMCSA), Time Warner Cable Inc (NYSE: TWC), Intel Corporation (NASDAQ: INTC) and Google Inc (NASDAQ: GOOG).
• According to people familiar with the matter, Robert Verrone, one of the most zealous commercial real-estate lenders during the industry's boom, will leave Wachovia Corporation (NYSE: WB) within the next week, the Wall Street Journal reported.

• Bloomberg reported that the Department of Justice is probing whether UBS AG (NYSE: UBS) helped clients evade American taxes. In an e-mailed statement, the firm said one senior bank employee was "briefly detained" by authorities.
• Bloomberg also reported that Vallejo, California's city council voted to go into bankruptcy. Officials said that after talks with labor unions failed to win salary concessions from police and fire fighters, the city does not have enough money to pay its bills.
• According to a rumor, TechCrunch reported that the Yahoo Inc (NASDAQ: YHOO) board of directors yesterday authorized Yahoo chairman Roy Bostock, rather than CEO Jerry Yang, to call Microsoft Corporation (NASDAQ: MSFT) CEO Steve Ballmer about re-starting negotiations.

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Walt Disney (NYSE: DIS) also reported quarterly results after the market close Tuesday that also beat expectations. Interestingly, it seems that of all companies, the entertainment giant isn't getting hit by the economic slowdown as other companies do. Disney shares were up 2.3% in premarket trading.

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Kaufman initated Google (NASDAQ:GOOG) with a "buy" and set a $680 price target according to Briefing.com. The news service also reports that Lehman resumed coverage of Microsoft (NASDAQ:MSFT) with an "equal-weght" rating and a price target of $34.

Thomas Weisel maintained at "overweight" rating on Cephalon (NASDAQ:CEPH) although the FDA rejected broader use of its pain drug Fentora according to the AP.

Douglas A. McIntyre is an editor at 247wallst.com.

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There's been lots of buzz with Sprint Nextel Corporation (NYSE: S) lately. And it's to be expected -- in light of the intense competition, heavy customer churn, and the ailing stock price. For example, there were rumors that Deutsche Telekom is mulling a buyout of Sprint. Another possibility is that the company will unwind its Nextel merger.

Such things may happen. But, in the meantime, it looks like there may be another mega deal. According to a piece in the Wall Street Journal [a paid publication], it looks like Sprint is about to announce a $12 billion joint venture with Clearwire Corporation (NASDAQ: CLWR). Some of the key investors would include Google, Inc. (NASDAQ: GOOG) and Intel Corporation (NASDAQ: INTC).

Essentially, the new entity will roll-out a massive footprint for high-speed wireless Net access. No doubt, such a thing would be a nice thing for Google -- which needs a stronger mobile strategy -- as well as Intel, which needs to sell more chips. In other words, it's ideal for a multi-billion dollar cash call.

As for Sprint, this deal looks like a must-have. In other words, it will provide a differentiator in the tough marketplace.

There are still some big-time risks. After all, coordinating a project among a variety of heavyweights is never easy to manage.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.

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The New York Times quotes Harvard Business School (HBS) professor David Yoffie as saying "the right way to think about" Google Inc. (NASDAQ: GOOG) is as "the next Microsoft Corp. (NASDAQ: MSFT)." Setting aside for the moment, the arrogance that we need Yoffie to tell us how to think is the simple notion that he's wrong.

Here are three reasons why:

• Google is an innovator, Microsoft never has been. Microsoft got started by licensing an operating system for the PC. And it prospered by making it the dominant operating system and tying it to office software -- each component of which it copied or bought from an innovator. Google has won because it has developed an improved a search ad technology that gives advertisers a higher return on their investment;
• Google has succeeded because its product works better, Microsoft's not so much. Microsoft has lost market share in search advertising since it started to focus on it -- watching its share fall from 11% in 2005 to 5% today. The reason Microsoft has lost share is that its product simply does not work as well as Google's; and

• Microsoft can't compete with Google's superior algorithm in search advertising so it's trying to acquire its way in. Microsoft in the past has tried to take markets away from innovators by copying their products and using its operating system power to force people to use them. But this strategy is not working for Microsoft so it tried, unsuccessfully to do something it's never done well -- buy market share through acquisition. Google bought YouTube -- but not to take share from an innovative incumbent. Instead, Google wanted to use YouTube as the basis of creating a new market -- video search advertising.

This may be just an academic debate, but I think it matters for investors. If you think of Google as Microsoft, then you should sell it now. That's because Microsoft stock is down 44% from its January 2000 high a few months before Steve Ballmer took over as CEO while Google's has gone up 631% since it August 2004 IPO.

Despite its vast capital resources, Microsoft simply cannot innovate and Google can. That's why it matters that an HBS professor is telling you the wrong way to think about the two companies.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

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