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EYE ON EARLY CYCLE STOCKS

As we have said many times, economic bottoms are processes, not points. We continue to receive incremental data points in number of different industries that suggest sequentially things are getting less bad…

Early Cycle Technology

Today, Research Edge technology analyst Rebecca Runkle noted some news out of Xilinx that supports our thesis that we are beginning to see a bottom process take hold, setting the stage for a market recovery. Xilinx guided Q4 revenues (Mar09) to a 13-18% sequential decline vs prior guidance of a 15-25% decline. They also commented that gross margin guidance of 61% to 63% and operating expense guidance of flat to slightly down sequentially remain unchanged. From a timing standpoint demand metrics fell off a cliff in late 2008. While the spigots were turned off in Q4 the global inventory build was not as big as when the dot.com bubble burst. Xilinx is a component company selling into the supply chain, where the data points (while still ugly) are beginning to be less bad.

Also, Dell CFO Brian Gladden said today that the company’s performance in January was not down as dramatically during January vs. December period as it was during October from September. He commented that the government business is relatively strong, while the large
e enterprise business is the weakest.

Early Cycle Consumer

Restaurant industry resource Malcolm Knapp’s reported January same-store sales numbers showed once again that the lights went out in December but came back on in January. Same-store sales growth came in down 4.1% with traffic down 6.0%. Although these are not strong results, on the margin, they show a definite improvement from December’s 9.5% comparable sales decline and 10.5% traffic decline.

We’re bullish on Brinker (EAT), and talked about that stock on our morning client call…

DELL, XLNX, and EAT are up +8%, +4%, and 2%, respectively, today for fundamental reasons that shouldn’t be ignored.

Howard W. Penney
Managing Director