Bridgepoint Education (NYSE: BPI, $24.78) was recommended at our recent idea forum in New York.  The presenter highlighted the company’s technological leadership, particularly its new cloud-based Constellation platform for learning that’s been getting strong reviews from faculty and students, and its Waypoint Outcomes electronic assessment system.  The company had a very solid 2011, but guided down for 2012 EPS.  The presenter notes that management tends to be very conservative with its guidance.  BPI is one of the most unloved names on the Street with 53% short interest.   The bears cite Warburg Pincus’s 66% stake in the stock as a huge overhang, but the presenter notes that Warburg’s distributions have been small and likely to remain so.  Bridgepoint is also viewed negatively because of its accreditation by the Higher Learning Commission, which has been under the investigation by the Education Department.  The company has applied to move its accreditation to WASC and has received a favorable nod with the switch likely to become effective later this year.  As a low-cost education provider, the company should benefit from constraints on public education financing on the state and local level.   BPI has $7/share in cash and operating margins approaching 30%.  The upside is 40-50% based on $3-$4 EPS in the next 2-3 years.

The success of Spotify since being launched in the United States has caused several competitors to rexamine their current strategies. Beats, the licensing company best-known for its Monster Cable-licensed headphones and majority owned by HTC, is rumored to be acquiring MOG subscription music service. MOG has been experimenting with the free music offering that Spotify has become known for since their successful launch. This would allow Beats to in turn create an end-to-end offering of tuned playback, combining the playback device (HTC smartphones), music itself (via MOG) and the headphones (licensed by Monster Cable). Ross Rubin believes, “HTC has been focused on exploiting the opportunity to replace digital cameras with smartphones as the primary imaging device, an opportunity that has a parallel in the competition between portable music players and smartphones. Premium placement on HTC smartphones might be enough to justify the deal. However, like all smartphone vendors, HTC must balance the need to launch its own services with carrier priorities.”

Ross has more than 16 years of experience analyzing consumer technologies. Prior to founding Reticle Research, he was executive director and principal analyst at The NPD Group, where he provided analysis on a wide range of technology topics to clients and helped to launch several research products. Before NPD, Ross founded and developed the consumer access and technology service at Jupiter Research, where he served as vice president and chief research fellow. Ross is a senior columnist for Engadget, where he has written the Witched On column since October 2004, and a columnist for ABCNews.com and Tecca, where he writes Rubin’s Roundup. Ross has appeared on ABC, The Today Show, CNN, CNBC and Fox News and is frequently quoted by media outlets such as The New York Times, The Wall Street Journal, Bloomberg Businessweek, San Jose Mercury News, Associated Press and other leading publications. To learn more about Reticle Research please visit http://www.reticleresearch.com/.

Our March 22nd Retail Roundtable featuring Dwight Hill and John Kyees focused on department stores and the recent changes at JC Penney. John is pessimistic about the potential profitability of the retailer’s decisions, as the changes were company-wide, not tested in select districts or regions. He also feels that the profits must be driven by new, better merchandise. Dwight is more optimistic about Penney’s and said that decreased merchandise, friendlier employees, and focus on consistently low prices rather than coupons and sales will appeal to the “busy mom” in their customer base. Penney’s will not alienate their target customer, but rather offer enhanced brands at similar prices for bargain shoppers. Penney’s has the potential to pull the market share from Kohl’s because of their customer similarities, but is also expected to pull from Macy’s.  

John discussed Urban Outfitters and was complementary of new CFO Frank Conforti. He is also optimistic about the company as a whole, saying its customer-base is there and that their problem is procuring the right merchandise. Urban seems to have consistent traffic to their stores but lacks high conversion rates, which may be due to their recently homogenous merchandise; John feels Urban is best when they have a more diverse selection of clothing. For general retail trends, cotton prices are expected to be half of what they were last year, allowing companies like Urban with short lead time to recover more quickly, and the higher cost of precious metals may somewhat adversely affect jewelers. Regional grocers, particularly Winn Dixie, are still feeling pressure from chains like Walmart, and to compete they must procure unique merchandise and create a better shopping experience, as they cannot compete with the low costs of larger chains.

At our recent roundtable, Larry Cornett and Rob Enderle discussed Google’s ability to increase revenues on its existing platforms. Larry sees Google’s entrance into the social media market as troubled due to the failure of Google+ to focus on the company’s strength: algorithms and big data. However, Google has the opportunity to use Google+ for internet based advertising, differentiating it from Facebook’s more traditional methods. Google’s search engine will continue to be dominant, as its higher traffic means they can derive more accurate algorithms. However, Google and Microsoft consider Siri a threat to search-driven advertising revenues, as the platform provides information without requiring an individual to see or hear an advertisement. Another foreseeable problem in the industry is data shortage, particularly for streaming companies such as Netflix. Google has attempted to control data by investing in dark fiber to create more future networks.

Larry and Rob also discussed Facebook’s difficulty getting into international markets that have previously banned them and concerns over privacy. There may also be a shift from app revenue, as Zynga is moving away from hosting games on Facebook and instead creating their own platform. In regard to freemium software like Zynga provides, Larry felt that it can be a sustainable form of revenue where the most successful platforms being those where people feel obligated to upgrade, such as storage platforms. Companies that were thought to be risky were Yelp, as it has a damaged reputation from filtering negative reviews for preferred advertisers, and Groupon, because the model is not effective or sustainable. They felt that companies like LivingSocial are in a better position to expand. In the handheld operating system market, Microsoft is in the best position to compete with Apple on tablets and smartphones.

A New York portfolio manager likes Comverse Technology (NASDAQ: CMVT, $6.62).  This provider of billing and customer management solutions for wireless, wireline and cable operators has been plagued by an accounting scandal related to option backdating by a former CEO, but these issues have been resolved for the most part.  In January, the company announced it intended to distribute all shares of its Comverse subsidiary to shareholders and potentially remove its holding compaby structure in the second half of fiscal 2012.  The company also has a majority stake in Verint (NASDAQ: VRNT), a leading provider of actionable data intelligence solutions.  Despite higher profitability and a better growth rate, Verint is trading at a 20% discount to its major competitor NICE, due to the overhang from the CMVT’s stake.   Once the above-mentioned spinoff is finalized, the discount should go away.   Combining the cash on the balance sheet, conservatively valued Comverse subsidiary, CMVT’s stakes in Verint, which include shares and a convertible debt holding, a majority stake in Starhome, a smaller business, and NOL’s, the upside is 40%+.

Rising gas prices have brought the United States energy policy back into the forefront of the American people. Gas prices are consistently over $4 per gallon now and in some parts of the country have already surpassed John Hofmeister’s prediction of $5 per gallon in 2012. While wind and solar are novel ideas both are in their infancy right now and start-up costs are very high, which is why 95% of domestic energy consumption comes from traditional oil, natural gas, coal, and hydropower. John believes because of this we need to develop a long-term energy plan that looks at 0-10, 10-25, and 25-50 years so we can transition intelligently with the technologies we know. Demand from China and India are increasing at 10-12% a year and both have little oil resources so both will rely heavily on imports to meet the increasing demand. China alone had 20 million new cars purchased last year and expect another 20 in 2012. Therefore, the United States will be competing with these two countries for oil imports over the coming decades and big oil companies such as Shell, BP, and ConocoPhillips will not be able to meet the demand. The United States currently uses 18 million barrels of oil per day and John believes that the country should increase domestic oil production from 6 to 10 million barrels a day just like in the 1970-1980’s, convert 3 million from natural gas into methanol, 2 million from ethanol, 2 million from hydrogen fuel cells, and create deals with Mexico and Canada for energy production in exchange for technology to meet demand. To hear his whole interview please visit http://www.youtube.com/watch?v=Xfaz9VTPMQk.

Upon retirement from Shell as President in 2008, John Hofmeister founded and currently heads the nationwide membership association, Citizens for Affordable Energy. This Washington, D.C.-registered, public policy education firm promotes sound U.S.energy security solutions for the nation, including a range of affordable energy supplies, efficiency improvements, essential infrastructure, sustainable environmental policies and public education on energy issues. You read more about Citizens for Affordable Energy and his recently published book Why We Hate The Oil Companies at his website http://www.citizensforaffordableenergy.org/. John will be participating in our upcoming Energy Roundtable with Kevin Lindemer in New York on April 9th at 1 PM. Please contact Michael Igelnik at migelnik@roulstonresearch.com if you are interested in attending or dialing-in for the event.

Wal-Mart ended the year strong with increased sales and traffic at stores in the United States. Domestically the store seems to be on the right track with a $122.3 billion year-over-year increase in sales with U.S. stores accounting for 60%. The company’s success was credited toward focusing on lower-cost merchandise in the fourth quarter to cater to cost-conscious consumers, which caused operating growth to be lower than sales growth for the quarter. Dwight Hill believes that focusing on price and not profit helped drive traffic, but questioned how long the business could continue leveraging operating expense. He stated, “Investing in price as a traffic driver however is a delicate balancing act, as they must keep a close eye on leveraging those expenses. Clearly that customer is back, but they are keeping expenses in check.” In addition, with rising gas prices Dwight believes that shoppers will look even harder to save money. He explains, “I think trips will decline and it will become even more important for retailers to get those customers on every trip. As people feel a pinch in their pocketbook, they will focus on what they need.” First quarter earnings will be important to see if this strategy is sustainable or whether slowing operating growth will be a problem moving forward.

Dwight Hill has spent 21 years in the retail industry, having held leadership positions with Deloitte, Neiman Marcus, Michael’s Store and Zale’s. His industry and consulting experience spans multiple formats, including specialty, luxury, department store, grocery/mass and convenience. As Senior Manager and Global Retail Strategy Consultant at Deloitte from 2003 to 2011, Dwight conducted analyses of customer data, led design of service strategies and operating models, led cross-functional assessments, analyzed store and identified cost effective merchandise flow strategies for Limited Brands, JC Penney, Michaels, Radio Shack, Neiman Marcus, Lord & Taylor, Winn-Dixie, 7-Eleven, Stein Mart, Toys R US, BJ’s and many other companies. This article was originally posted in the Northwest Arkansas News.