Wii are buying Nintendo Co. Ltd (Nasdaq:NTDOY)

• Buy NTDOY under $34

• Sell NTDOY after Christmas 2007 or at $60, set stop loss at $27

Background

NTDOY is not a cheap stock, it gained about 100% in 2006 and it has a current P/E ratio of about 38. NTDOY has a market cap of about $33 billion. At first glance NTDOY appears expensive considering the recent price appreciation and the historical revenue and profit growth numbers at Nintendo. However, at Wall Street Mayhem we believe that NTDOY is classic example of a stock that will continue to outperform for the next few years. The Wii will power massive revenue growth and Nintendo will reap the benefits for years to come.

Long Live the Wii

The Nintendo Wii is the undisputed champion of the holiday season for 2006. The Wii appears to not only be trouncing the Playstation 3 and the Xbox 360 for video game enthusiasts, but it has also opened the world of video games to entirely new groups of people.

Wii Sports is wildly innovative and just plain fun to play. People of all ages and backgrounds enjoy playing Wii sports. The game appeals to just about everyone and it has opened video games to a completely new audience. Through the interactive nature of the Wii controllers, the Wii has managed to transcend the stigma of traditional video games and open up gaming to the mass market. However, Wii Sports is just scratching the surface considering the potential of future games on the Wii. Due to the interactive nature of the Wii controllers, game developers should be able harness the potential of the Wii with fully immersive, truly interactive games. Sony and Microsoft will be left in Nintendo’s interactive dust.

Nintendo’s business prospects closely parallel those of Apple Computer (Nasdaq:AAPL) about two years ago. Two years ago Apple was just entering a massive growth phase for their Ipod. Shares of Apple at that time had already had two consecutive years of returns over 100% and the stock was expensive with a P/E over 35 and a market cap that had quickly grown to about $40 billion. In early 2005, the editors of Wall Street Mayhem liked Apple’s growth potential and we felt they had a truly innovative product with long lasting consumer appeal. However, we did not buy Apple stock in 2004 because we felt that it was too expensive considering the recent run, the P/E ratio, and the ballooning market cap. We are not going to make the same mistake with NTDOY.

The Nintendo Wii is a product that will not only reap massive profits, but it will revitalize the Nintendo brand name for many years to come. For Apple, the Ipod resonated so well with consumers that demand carried over to other apple products. Consumers who bought the Ipod considered buying an Apple computer for the first time. The Wii will have the same consumer resonance as the Ipod. Subsequent Nintendo products will fly off the shelf due to the brand loyalty created by the Wii.

At Wall Street Mayhem we think that demand for the Wii will continue to be strong until after Christmas 2007. The Nintendo Wii hardware is relatively inexpensive and simple to manufacture (unlike the Xbox 360 and the Playstation 3) so Nintendo should be able to catch up to the Xbox 360 in total units sold by Christmas 2007. The Nintendo Wii will really pick up momentum during the Christmas 2007 shopping season as there will be a full range of games for sale and Nintendo will have time to catch up with demand for Wii hardware. Wii Sports 2 will likely be released in time for the 2007 Christmas rush and Wall Street Mayhem believes that it will become the best selling video game of all time.

Time for vacation and an update on Biomira (Nasdaq:BIOM)

We are starting the holiday a few hours early this year (what happened to the pre-holiday half trading day?) Anyhow, we are going into the Christmas holiday with two short term open positions, a long in Biomira (Nasdaq:BIOM), and a short in Syneron Medical (Nasdaq:ELOS). Typically, we like to go into the Christmas break without any short term holdings, but this year we still like the prospects for both of these trades. The Biomira event should happen within the next 1-2 weeks and ELOS still seems inflated from the Cramer hype.

Although the share price of BIOM has trickled down the last few days, the event we have been waiting for should happen soon. Today, the phase III study information for Stimuvax was updated on Clinicaltrials.gov and the study is now listed as “recruiting” from the previous “not yet recruiting”.

Therefore, an announcement about the first patient enrolled in the trial is imminent. For a full explanation of the BIOM trade see last week’s post http://wmayhem.com/?p=9. For anyone who has not yet pulled the trigger on BIOM, we think shareholders will see a nice jump with the upcoming announcement, so now is a good time to get in BIOM.

Link to Stimuvax study design: http://clinicaltrials.gov/ct/show/NCT00409188?order=1

We will be posting a few new long term picks over the weekend, but as of now we are officially on vacation.

Have a great holiday weekend everybody!

Update on Nasdaq Stock Market Inc. (Nasdaq:NDAQ)

NDAQ hit our stop loss this morning, so we sold our shares for a loss.  Apparently, the rest of the market did not think the failed takeover attempt was fully reflected in the share price yet.  We still like NDAQ going forward as a relative valuation play against the other exchanges, but we have to protect against large losses so we are out of NDAQ for now.

Update on Gmarket (Nasdaq:GMKT)

GMKT hit our target price this morning, so we covered and are out of this trade. GMKT dropped even faster than we had expected. This trade made over 3.5% in less than one trading day, so we are sticking to our target price even though it appears that GMKT has additional downside potential. If you haven’t already done so, take your profits now.

Two for one Cramer short sell special

• Short Sell ELOS at $27.60 or higher

• Buy to Cover ELOS at $27, stop loss cover at $28.25

• Short Sell GMKT at $25.95 or higher

• Buy to Cover GMKT at $25, stop loss cover at $26.50

It’s time to short sell ELOS and GMKT. Neither of these companies is up on any real news or business developments. These stocks have both been “Cramerized”. Although the timing is tricky when trying to get short after Cramer hypes a stock, both ELOS and GMKT are loosing momentum and they both have nice moves to the downside ahead.

GMKT only has one more full trading day (Friday Dec 22^nd) before the lockup shares hit the market on the 26^th (see full post http://wmayhem.com/?p=34) and ELOS has run too far too fast on a questionable dental laser outlook from Cramer. The market is showing continued selling pressure this afternoon which should also help these short positions.

Don’t forget the stop loss covers, these stocks are volatile.

Update on Biolase Technology Inc. (Nasdaq:BLTI)

The market is still weak, but BLTI is holding on to its gains for the day far. ELOS has turned and is heading lower, so we are selling the rest of our BLTI at $8.70.

Update on Biolase Technology Inc. (Nasdaq:BLTI)

BLTI has made a nice little move as more people have started to find out that this is a better way to play Cramer’s dental laser hype than buying an already inflated ELOS. Due to today’s selling pressure on the market as a whole, we recommend selling half of your position here (about $8.70) to lock in a profit. Hold the remaining half position until BLTI reaches the original target price of $8.89.

Biolase Technology Inc. (Nasdaq:BLTI), the dental laser play

• Buy BLTI at or under $8.46 (yesterdays close)

• Sell BLTI at $8.89, set a stop loss at $8.20.

Syneron Medical Ltd. (Nasdaq:ELOS) is up big this morning based on Cramer’s feature about the stock yesterday on Mad Money. Cramer was excited about ELOS because they are coming out with a new dental laser. He went on to explain that the dental laser market is large and growing rapidly.

Although we think that Cramer’s remarks about the dental laser market could be exaggerated, Biolase Technology Inc. (Nasdaq:BLTI) could get some carryover attention from ELOS. BLTI focuses on the dental laser market while ELOS is just getting into this game. If Cramer’s comments about dental lasers have any merit, then BLTI should benefit from growth in the dental laser market as much or more than ELOS since BLTI is a pure play in this field.

This is a short term play based entirely on the momentum and hype surrounding ELOS this morning. At Wall Street Mayhem we do not hold the same opinion about the dental laser market as Cramer. Actually, we hold no opinion about the dental laser market. However, there is enough hype surrounding ELOS this morning that we think BLTI is a good trade as long as you can get in at or below yesterdays close.

Is it time to enter a short position on Gmarket Inc. (Nasdaq:GMKT)?

Not yet, but keep an eye on it.

GMKT operates an e-commerce market place in South Korea and the company recently completed a Nasdaq IPO. Until recently the GMKT IPO had performed well, but was largely trading under the radar. Then a few days ago the stock got “Cramerized”. Cramer pumped the stock on Mad Money calling it “the next Ebay”. He went to claim that GMKT was priced like value stock, but is about to experience massive growth. As a result the stock shot from $21 to over $27 and now has settled back down a bit to the $26 level.

Although there is no denying that GMKT is growing quickly, Cramer made a few ridiculous claims about the stock. First he said that the GMKT site was “more aesthetically pleasing than Ebay”. You be the judge, here is the link www.gmarket.com. Cramer went on to imply that Gmarket had great potential in expansion to other countries. Although Gmarket is likely to continue expanding in South Korea, we think it is stretch to imply that this sort of expansion would work well in other countries. The reason GMKT performs well in South Korea is because it was created by South Koreans and it appeals to South Koreans. At Wall Street Mayhem we think Cramer went too far with this pick (surprise, surprise), he could have simply highlighted the stock and focused on the South Korean growth potential, instead he implied that GMKT was a true threat to Ebay throughout the world. Therefore, although GMKT does have good growth potential, this stock has gone too far to fast after the Mad Money piece.

The key to this trade is the lockup which is about to expire on December 26^th. On the 26^th insiders at Gmarket will have their first chance to sell the stock. Remember that the insiders at Gmarket are not former Internet gurus just starting another pet company. This is a South Korean company, started by South Koreans. At Wall Street Mayhem we think there will be enough insider shares for sale to knock the price down 10-15%. However, GMKT is a risky stock right now, and the power of this Cramer pump should not be underestimated. Therefore, we are not entering a short position on GMKT right now, but we hope to find a good entry point soon.

Is the Nasdaq Stock Market, Inc. (Nasdaq:NDAQ) undervalued?

• Buy NDAQ below $34.50

• Sell NDAQ at $40, set stop loss at $32

Nasdaq shares (we are talking about the company NDAQ, not the index in general) have taken a hit in recent weeks due to what appears to be a botched takeover attempt of The London Stock Exchange. However, at Wall Street Mayhem we feel that the failed take over attempt has now been priced into the stock and shares are attractive at this level.

NDAQ now sports a forward P/E of about 22, compared to a forward P/E of about 50 and the NYSE Group (NYSE:NYX). NYX share have been on fire and are marching to new highs fueled by its Euronext takeover. Analysts expect the NYX to have strong growth next year, somewhere in the 50% range. However, analysts expect NDAQ to have 100% growth even without the London Stock Exchange takeover.

The best reason to buy NDAQ now is a story that was largely overlooked by the market due to all of the takeover talk for the exchanges. Last week NDAQ announced that their share of trading in NYSE listed stocks has continued to improve. In November NDAQ cleared 14% of the trades in NYSE stocks, up from 13.4% in October. If you count the trades that went through broker-dealers the Nasdaq is involved in over 30% of all trades in NYSE listed stocks. These are not insignificant numbers. If NYX has soared in the last few months as a result of an improved outlook, this improvement will carryover to NDAQ as well.

NYX now boasts a market cap of about $16 billion while NDAQ’s market cap weighs in at a bit under $4 billion. At Wall Street Mayhem we think the spread between these market caps will decrease due to the increasing share of trading volume going to NDAQ in NYSE listed stocks. As long as NYX continues to perform, and as long as NDAQ holds steady or continues to grow its share of NYSE trades, NDAQ should narrow the gap between exchange values.