Welcome to edition 24 of Suria Investment Newsletter (SINLetter), a free monthly investment newsletter. The objective of this newsletter is to provide you with unbiased initial research and basic facts about individual stocks and other financial instruments so that you can research them further before deciding to add them to your portfolio or not. If you are reading this and are not a subscriber, you can subscribe by going to www.sinletter.com/subscribe.aspx and you will start receiving this newsletter from next month. I have provided relevant links throughout this newsletter, but if you have any questions or comments, feel free to write to me.

June Blog and Forum Entries:

While the forums were relatively quite in June, the blog was more active and given below are some of the blog and forum entries in case you missed them.

• Stocks That Almost Made The Cut: June 2007
  
  
• An Interview With Tata Consultancy Services
  
  
• Portfolio Updates June 14, 2007
  
  
• WisdomTree Investments AUM Crosses $4 Billion
  
  
• Festival of Stocks #41
  
  
• Forum: Carry Trade

If you would like to post to the forums and do not have your password, you can use the Request Your Password link from the Login page. If you do not receive blog entries by email, you can still subscribe to receive blog entries by email here.

New Watchlist:

In our quest to improve and expand SINLetter, we have created a new feature called Watchlist that will allow me to share with you stocks that I am in the process of analyzing for future editions of SINLetter. I have been doing something similar with the Stocks That Almost Made The Cut blog entries but this feature will provide a bird's eye view of all the stocks on my watch list.

A subscriber wrote to me in late April asking about the stocks that I was looking into at that time. I told him that I was analyzing the baby clothing wholesaler Carter's (CRI), the investment bank Thomas Weisel Partners Group (TWPG) and the alternative energy company Hoku Scientific (HOKU). While Thomas Weisel has declined a little since then and Carter's has gone up a little, Hoku has posted a gain of more than 80% in less than three months after announcing a 10 year contract to supply polysilicon to SINLetter pick Suntech Power (STP). Hopefully I can unearth other Hokus in the future and the watchlist will be an early alert mechanism for subscribers.

Every time I add or remove a stock from the watchlist, you will receive an email since SINLetter subscribers are automatically subscribed to the watchlist. You can manage your subscriptions to the newsletters, blog entries and watchlist from a central location after logging into SINLetter using your email address and your password. If you do not know your password, you can retrieve it by using the forgot password link.

Portfolio Performance:

It gives me great pleasure to see the SINLetter model portfolio more than double in the span of less than two years. As of market close on July 9, 2007, the portfolio is registering gains of 100.54% since its August 2005 inception. The monthly, quarterly and "since inception" performance is tabulated below. The since inception numbers in this table are as of June 30, 2007 since this newsletter was delayed by a week thanks to my mini-vacation to the Pacific Northwest.

Performance Metric	Dow	S&P 500	Nasdaq	SINLetter
June 2007	-1.61%	-1.78%	-0.05%	1.5%
Second Quarter 2007	8.53%	5.81%	7.50%	3.60%
Since Inception (Aug 2005)	26.22%	21.69%	18.58%	97.45%

Our growth stocks SanDisk (SNDK) and Suntech Power (STP) had an outstanding June and the first week of July has also been kind to them. SanDisk benefited from increased demand for flash memory and improved pricing for NAND flash, which was under pressure earlier this year due to too much supply. The 64 Gbit Samsung NAND flash chip in the new Apple iPhone may be contributing to the demand for NAND flash and hence the 5.4% increase in flash prices last week. SanDisk is now firmly in positive territory in the model portfolio with a gain of 6.53% and I am glad I stuck with the stock despite a drop of almost 25% after I added it to the portfolio in November 2006.

Shares of WiMax and Wi-Fi equipment provider Airspan Networks (AIRN) have taken a hard hit in recent months making it the worst performer of the SINLetter model portfolio after having lost almost half of its value. Hedging our WiMax bet with competitor Alvarion (ALVR), which is now posting a gain of 42.5% in the portfolio, has certainly helped reduced the sting of the Airspan loss but the pain still exists. Airspan lost a lot of ground in a hurry recently after the company announced that second quarter revenue is going to come in at $22.5 million, well below its earlier forecast of $27 to $30 million.

If the company can maintain its 30% gross margins (the margins should be higher due to low sales of traditional low margin wireless products) and has flat SG&A expenses, the loss in the second quarter would be in the range of $8 to $9 million. With almost $29 million in cash and investments on the balance sheet at the start of the quarter, the company will not have to raise additional capital at least until mid-2008 even at this higher rate of cash burn. If the company cannot show improved sales of WiMax products over the next six months and turn profitable in 2008 as analysts expect, it will be time to sell Airspan and move on.

Johnson & Johnson (JNJ), announced a massive $10 billion buyback today but the stock basically yawned at the news and barely appreciated 1% in response. With a market cap of $181.67 billion, this buyback (if it happens) only works out to 5.5% of the total outstanding shares. After performing well through most of 2006, the stock has seriously lagged the market this year despite the fact that Warren Buffett continues to accumulate Johnson & Johnson. I like the defensive position this stock provides to the model portfolio, the above average 2.7% dividend yield, the current valuation and the decision by the company to acquire Pfizer's (PFE) consumer products portfolio, which includes Listerine, Neosporin, Band-Aid and Acuvue contact lenses among many other well recognized brands. If you are still not convinced about the wisdom of retaining Johnson & Johnson in the portfolio, check out this outstanding blog entry about the company's intrinsic value by Joe Ponzio of FwallStreet.com.

Gold had another losing month, dropping to close the month of June at $647.50 per troy ounce, a loss of $13.10 or 1.98%. This comes on the heels of a 2.85% drop in May. The first week of July has helped the glittering metal recoup some of its May and June losses.

Portfolio Readjustment:

I would prefer to leave the model portfolio untouched at this point but have to make adjustments to make room for our new pick. I am going to sell the second half of our position in Mattel (MAT) and register a gain of 30.15% in little over 9 months. I still like the long-term prospects of this dividend yielding toy maker and plan on retaining it in my personal portfolio just like I did with other SINLetter model portfolio alumni like Royal Philips (PHG), Intel (INTC), Nokia (NOK), Pfizer (PFE) and CMGI (CMGI).

Performance of the Ten Stocks For 2007:

The ten stocks for 2007 that I picked in December 2006 have outperformed all the major indices during the first half of the year with six gainers and four losers. Amgen (AMGN) continues to suffer under the weight of unsuccessful trials for its cancer and anemia drugs, Nautilus (NLS) has been hurt by the slowing housing market and Barclays (BCS) has been hurt by Royal Bank of Scotland's $95.5 billion rival bid for Dutch bank ABN Amro (ABN).

With the exception of Banco Santander Chile (SAN), all the other gainers posted double digit gains, helping the group post a gain of 10.4% for the year. These gains do not include any regular dividends or the $4 per share special dividend by Diamond Offshore Drilling (DO). Oddly enough, even though Banco Santander Chile (SAN) has better margins, faster revenue growth, a higher dividend yield and a more attractive valuation than rival Banco de Chile (BCH), the stock did not even budge in response to the recent "strategic alliance" talks between Banco de Chile and Citigroup (C).

Vote For SINLetter:

SINLetter has in the past made it into top financial blogs lists such as the one complied by TheStreet.com columnist, entrepreneur and hedge fund manager James Altucher and the Top 60 Finance Blogs list put together by Valuewiki. SINLetter was recently nominated for the Blogger's Choice Awards under the Best Business Blog category and already has a few votes. The exposure from getting to the top (or near the top) of this list would be enormous. So please share your love by spending a couple of minutes to register and vote for my blog by clicking on the image below. I hope I get a chance to wake up tomorrow and see a healthy number of votes.

If just a handful of you were to vote for SINLetter, it would become the top rated business blog overnight on Blogger's Choice Awards.

Management Changes and Turnarounds:

If there is one criteria that I do not pay enough attention to while analyzing new opportunities, it is the management of the company. Most investors would consider this a serious flaw as the quality of management is one of the most important factors that determines the success or failure of the company and eventually your investment. It is widely known that most venture capitalists and angel investors invest in people rather than ideas or inventions. Ideas are a dime a dozen and even I come up with about half a dozen each year (SINLetter and MustFeed.com were two of these ideas). It is the execution of ideas that separates winners from losers. So why do I pay very little attention (I do glance at management pay) to such an important criteria?

There are two reasons for this. The importance of a good management team is well recognized by investors and especially Wall Street analysts, who for the most part are in close contact with management. Hence the impact of the management team has already been thoroughly explored and priced into the stock.

The second reason for my apathy towards the management team has to do with the time it would take to dig up the history of each member of the management team and figure out the dynamics of the team for each company analyzed. Retail investors also do not have the same access to management that analysts and institutional investors do. An alternative approach for retail investors would be to look at readily available statistics that measure management effectiveness such as Return on Assets (ROA), Return on Equity (ROE), earnings growth and sales growth over the last few years.

Investors usually look for a "catalyst" that could make the price of the stock move in either direction. One such catalyst that relates to management that I do pay attention to is a change in upper management, especially at a company that is struggling. A fellow newsletter editor whom I respect a lot, tends to primarily invest in companies where management has recently changed. While he does not explicitly state this on his website or in his research, you can easily arrive at this conclusion after following some of his picks. Oddly enough, in his experience, the companies in his portfolio where he had maximum contact with management turned out to be laggards. Is it possible that close contact with management hinders the stoic detachment with which one is supposed to treat his or her investments?

Management changes at struggling or turnaround companies, usually causes the price of the stock to jump as I noticed in potential turnaround situations like Six Flags (SIX) and Ford (F). Often these management changes are prompted by hedge funds or activist investors. According to a academic research paper titled "Hedge Fund Activism, Corporate Governance and Firm Performance. Turnarounds", this jump (usually 5 to 7%) is not temporary and persists for 12 months after a hedge fund announces their involvement in a company. One key drawback of this study is that it looks at events over a very short period of time from 2001 to 2005.

Based on this study and personal experience with turnaround situations, I have noticed that investing in a struggling company with a recent change in management is a highly risky strategy but can generate some outstanding gains if you have done your homework.

Blockbuster (BBI) $4.59

I was originally planning on featuring two merger arbitrage opportunities for this edition of SINLetter and adding Blockbuster (BBI) to the watchlist but then noticed an announcement about a change in management at Blockbuster last week. This catalyst along with an experience during my recent vacation lead me to make a last minute change and feature Blockbuster instead.

As most of you are aware, the rise of the DVD rental by mail model that Netflix (NFLX) perfected has had a dramatic negative effect on the bottom line of both Blockbuster and Movie Gallery (MOVI), the parent of Hollywood Video and Game Crazy. While Movie Gallery has headed into penny stock territory and is considering selling itself, Blockbuster has attempted to fight back by closing underperforming stores and launching its own rival DVD rental by mail service called "Blockbuster By Mail". Blockbuster also went one step further and launched a service called "Blockbuster Total Access" that allows subscribers to receive rentals by mails and send them back by mail or exchange it for a new rental at a neighborhood store. Despite having a Netflix membership, I would sometimes rent movies from a DVDPlay kiosk at Safeway (SWY) because my Netflix movies were "in transit" when I wanted to watch something. I have been reluctant to switch from Netflix to Blockbuster even though the Blockbuster service is cheaper and the in-store rental exchange option is very appealing to me.

The primary reason for my reluctance to switch has been the breath of Netflix's DVD catalog. While talking to some friends who currently use the Blockbuster service, I was surprised to learn that they found most of the movies they wanted to watch through Blockbuster's online rental service. I decided to do a comparison to see if I could find the 64 movies in my Netflix queue on Blockbuster and was surprised to find that Blockbuster had all but 4 of those titles. The expansion of Blockbuster's catalog to 70,000 titles might explain why I was able to find an Indian movie released in 1974 as well as a British television series released in 1977. Netflix currently has 80,000 titles.

Given this improvement in Blockbuster's online service, the involvement of activist investor Carl Icahn (who was recently featured in a Fortune magazine story called The hottest investor in America) and the appointment of former 7-Eleven Chief Executive James Keyes as its chairman and CEO, Blockbuster is beginning to look like a story that might have a happy ending while providing all the thrills of a turnaround stock. The parallels between Blockbuster and another turnaround story Wild Oats (OATS) are striking. Both companies have activist investors (Ron Burkle in the case of OATS), both companies embarked upon a strategy of closing underperforming stores and both of them also have similar total debt/equity ratios. I used to consult for the natural food industry and seriously considered investing in Wild Oats at about $8 in early 2005 but missed the turnaround and the subsequent 100% appreciation in its stock price.

Revenues at Blockbuster have been slowly rising over the last four quarters but the company remains unprofitable and faces many risks. While Blockbuster now has a game plan to compete against Netflix using the Blockbuster Total Access service, Netflix has already moved on to offering free movie downloads to its subscribers. Netflix now has about 2,000 titles for online download and another competitor Vongo.com has a similar number of titles available for online downloads at a low price of just $9.99 per month. I personally prefer DVDs to online downloads and I am sure a majority of current movie watchers have the same preference. However movie downloads are the future and Blockbusters has no choice but to move in that direction by acquiring a company like Vongo.com or building its own download service. If Blockbuster decides to build its own download service, this unprofitable company will have to spend even more money on its money losing online division. The company happens to have almost a billion dollars of debt on its balance sheet and capital to acquire other companies would be hard to come by.

However with the new CEO, I expect improved retail focus and I am encouraged by the subscriber growth at Blockbuster in the face of failed atempts by companies like Wal-Mart and even Amazon to capture the online DVD rental market. Blockbuster happens to be selling for 16 cents per dollar of sales (a Price/Sales ratio of 0.16) and if there is even a hint of the company becoming profitable again, the stock, which has fallen from $26 in 2002 to the current $4.59, is likely to see significant gains.

Did I mention that turnaround situations are risky (just ask investors of Gateway (GTW) or Imax (IMAX) who are still waiting for a turnaround) and the company may just as easily go bankrupt. Blockbuster may be best suited for investors who have an healthy appetite for contrarian bets and/or have a diversified portfolio that is anchored by core holdings like Johnson & Johnson (JNJ) and Procter & Gamble (PG).

Competitors:

Blockbuster faces stiff competition from a plethora of competitors including Movie Gallery (MOVI), Netflix (NFLX), online download services like Vongo.com, Cinemanow.com and Amazon.com's (AMZN) Unbox as well as DVD kiosk companies like DVDPlay and Redbox. Redbox is a division of Coinstar (CSTR), a company I wrote about in the blog post titled Coinstar Costs A Pretty Penny.

The Numbers:

Since my original focus for this newsletter was merger arbitrage opportunities and I decided to feature Blockbuster at the last minute, this newsletter has only one stock pick. I am considering a couple of other stocks and I will post them in a Stocks That Almost Made The Cut blog entry or on the new watchlist.

Every month we add featured stocks into a model portfolio started with a cash position of $100,000 on August 2, 2005. To keep calculations simple, trading costs and regular dividends are not included. Prices reflect the closing price as of the last trading day of the previous month. However as this newsletter was delayed, it represents the closing price as of July 9, 2007

Voluntary Disclosure: I currently own shares of Airspan Networks (AIRN), Medifast (MED), Tata Motors (TTM), Logitech (LOGI), Suntech Power (STP), Teva (TEVA), Mattel (MAT), SanDisk (SNDK), Alvarion (ALVR), WisdomTree (WSDT.PK), Unilever (UL), Gymboree (GYMB) and Nautilus (NLS) as well as put options on Countrywide Financial (CFC) and YRC Worldwide (YRCW).