On Thursday, July 31, 2008 Motorola (MOT) reported their second quarter earnings. I was able to inform my New World Investor subscribers the good news the very day the company reported in their weekly Radar Report, keeping them informed right in time to invest in a very hot cellular stock.

Let me fill you in on how they did. Motorola sold more phones than expected in North America, keeping its #3 worldwide ranking behind Nokia and Samsung, and posted a small profit for the June quarter. Sales fell 7% to $8.1 billion, but that was well above the consensus expectation for $7.7 billion. They earned two cents a share pro forma, again soundly beating expectations for a three cent loss. Management said the September quarter would be breakeven to plus two cents even on seasonally slightly lower revenues, and then the December period will be better on the top and bottom line. They forecast six to eight cents profit for the year; Wall Street was at three cents.

MOT shipped 28.1 million phones in the quarter, above the consensus for 26.6 million. On the conference call, management said they will launch 50 new phones this year, including "advanced handsets," a code word for Apple iPhone competitors. Half of their phone portfolio in 2009 will be high-speed phones, up from 15% this year.

Wall Street like the news and bid the stock up 13% on Thursday. The company still plans to spin off the mobile phone business in the September 2009 quarter, and they are going to get the division straightened out before they do it.

Regarding my "outrageous" prediction of an impending U.S.-Iran détente, I found an interesting nugget going all the way back to January 23, 2008. On that day, Secretary of State, Condoleezza Rice, gave a keynote speech at the famous World Economic Forum in Davos, Switzerland where she made a surprisingly friendly gesture to the Iranian regime. She said that in this last year of the Bush administration, the United States and Iran could move towards a "new, more normal relationship." A few weeks ago, the countries negotiating with Iran in Paris signed a memorandum of understanding, and Secretary Rice also signed it, even before the U.S. said we would send someone. The Iranians were stunned. I wasn't.

Don't listen to the blather and saber-rattling you will hear from both sides as negotiations continue. This week Condi said Iran was "not serious" at the weekend talks. She says that for public consumption, using the press as a negotiating tool. It's all part of the process, and Saudi Arabia is willing to pay pretty much whatever it takes to get Iran to back off.

To find out how you can profit from this upcoming peace movement visit New World Investor today!

Harmonic (HLIT) is the leading independent producer of video broadcast and distribution equipment. The company had a history of lumpy quarters and missing guidance until Patrick Harshman took over as CEO in the June 2006 quarter. Since then, trailing four quarter revenues have grown from $234 million to $347 million after the quarter reported yesterday. The company has rationalized their operations, slightly increased head count, and made a big push for international business. They are about to open a European service center.

So why is the stock down almost $2 today, after pretty much hitting the consensus expectations for the June quarter? Two reasons. First, September quarter guidance was on the low side. Harshman has a history of guiding low and then beating even the high end of the range, but Wall Street takes the bait almost every time. In this case, the company said that second half revenues would come in between $175 million and $185 million. At the $180 million midpoint, the year-over-year gain would be only 5.4% and the gain over the first half would be a measly 1.9%. That also indicates that full year revenues would be $5 million to $6 million less than the consensus.

But on the conference call, the CFO said satellite revenues in the second half would be greater than the first half. Later he said satellite would be about 20% of revenues, or $37 million based on the midpoint of guidance. First half revenues for satellite was $33.5 million. Then, later in the call, CEO Harshman said Video Processing revenues would definitely be larger in the second half than in the first half. A bit later he said that Edge & Access would be a little larger in the second half. So the only way revenues could be as low as the midpoint of their guidance is if Software & Services revenue declines--but Software & Services is one of their fastest-growing segments! Wall Street responded to the written guidance in the press release, without listening to the conference call. Sadly, that happens all the time.

The second reason Harmonic is under pressure is because they are reporting earnings almost untaxed this year due to net operating loss carry forwards, but will report 2009 results using a 25% to 33% tax rate. The company should earn about 65 cents to 67 cents this year after minimal taxes, and then 60 cents to 65 cents next year fully taxed. But comparing fully taxed earnings to untaxed earnings is like comparing apples to oranges. Harmonic will grow revenues about 20% in 2009 to $435 million or so, and then continue to grow 20% per year for several years. Putting a 20X to 30X multiple on the fully-taxed earnings and adding back their $3 a share in cash seems like a reasonable valuation range for the leading independent video company--assuming they aren't taken over. Today's $2 decline in the stock's price makes one wonder just how short-term Wall Street analysts and hedge fund gunslingers can be.

Under my guidance, many of my New World Investor subscribers sold their Chinese stocks last year. Good thing since China is down about 46% this year. It is one of the two worst performers among the world's two largest stock markets (India is the worst).

Though I'm certainly not ready to go back in just yet things are starting to look up a little for China. The U.S. recession is biting into Chinese exports. At the same time, Beijing just began a massive shutdown to clear their polluted air before the Olympics. Half of the vehicles are off the roads under odd day/even day driving rules. About 300,000 heavy polluting, aging industrial trucks, many of which operate only at night, were completely banned for the duration. Many highly polluting factories have been shut, and the chemical plants, foundries and power plants left open have to cut emissions by 30%. The only practical way to do that is to shut down for 30% of the time. All dust-creating construction in Beijing itself has been shut down.

I still think we'll see some pea-soup air during the Olympics. I remember landing in Xian at about 11 a.m. on my last trip and it looked like dusk. The pilot advised us to hold a handkerchief over our mouths and noses while we walked across the tarmac from the plane to the terminal. More important, these extraordinary, drastic measures are sure to hurt GDP and corporate earnings in the current quarter. The central government may or may not implement the rumored crackdown after the Olympics are over, but I think we can wait for a while before jumping back into.

Friday and Monday's small movement days are common at the start of a major new trend in either direction, right after the initial move. We saw a bit of weakness this morning after the disappointing Apple guidance, but as long as the S&P stays above its last breakout level at 1240, the developing uptrend is intact. I would not be surprised to see an intraday drop into the 1240 to 1245 range in the next couple of days that is quickly rejected, with a close back over 1258. The next move up should carry all the way to the major breakdown level at 1326--perhaps in one day.

What news could drive the market up so far and so quickly? I believe an Israeli/Syria peace pact and a U.S./Iran "understanding" will be announced in the next few weeks. The agreements will have significant financial incentives for Syria and Iran, funded by Saudi Arabia. Over the weekend, there was a dramatic, albeit quiet, shift in U.S. policy towards Iran. The Bush Administration sent Bill Burns to Paris to participate in international talks with Iran trying to resolve the impasse over Iran's nuclear program. Previously, President Bush had said we would meet face to face only after Iran suspended its uranium enrichment program, as has been demanded by the U.N. Security Council.

Iran has been taking the position that there can't be any agreement without U.S. involvement, and our State Department said joining the talks sends "a strong signal to the Iranian government that the United States is committed to diplomacy." Of course, they also insisted there has been no change in policy. Right.

We now know that Iran has no intention of building nuclear weapons in the immediate future, and with Saudi Arabia's behind-the-scenes offer of financial incentives, some simple inspection agreements will let the U.S. and Iran stand down. The U.S. is about to alter its stand towards Iran just as radically as it did towards North Korea. Naturally, we will position this dramatic shift as nothing more than the same strategy we have always had of controlling Iran's nuclear activities without resorting to military force. All the U.S. rumormongers of an "October surprise" attack on Iran will be discredited. And in what may be the real driving force behind the change in policy, the issue will be lifted from Senator McCain's shoulders as he pursues his uphill battle for the Presidency.

The crude oil market looks like it is sensing these deals coming, with yesterday's rally nothing more that the typical test up to an important breakdown level, in this case $132 a barrel. I expect $132 to turn oil prices back down unless there is a brief spike because Hurricane Dolly changes course and does some damage in the Gulf. In fact, the next drop from $132 could be a big one, carrying oil prices under $120 towards their ultimate bottom in the $80 to $100 range. A drop in oil prices of that magnitude should drive the S&P through resistance at 1326 and 1440 to new highs over 1555 by the end of the year.

ViroPharma (VPHM) finally announced their next big acquisition: Lev Pharmaceuticals (LEVP), an almost unknown Bulletin Board biotech that treats inflammatory diseases. LEVP has a drug, Cinryze, before the FDA for approval by October 14. On May 2, the Blood Products Advisory Committee voted unanimously that there is sufficient evidence of the safety and efficacy for the approval of Cinryze for the prophylactic treatment of hereditary angioedema (HAE), a rare genetic disorder that leads to episodes of severe swelling in the face and extremities. It can be fatal if it causes swelling in the larynx, and the current treatment is anabolic steroids first, but if that doesn't work they punch a hole in the patient's neck so they can breathe. About 10,000 people in the U.S. have HAE, although only 4,600 have been diagnosed, and Lev holds orphan drug status for Cinryze for both prophylactic (preventing an attack) and acute (treating an attack after it has started) indications.

ViroPharma is paying $442.9 million up front, approximately 82% in cash and 18% in stock. The deal is expected to close before the end of the year. There are two contingent payments of $87.3 million each, one if and when Cinryze is approved later on for acute HAE, and another if it achieves $600 million in sales by 2018.

The HAE market is roughly $250 million to $300 million in sales today, so that $600 million target is very interesting to me. ViroPharma's management is expert at extracting value from drugs by expanding label indications and producing compelling data to convince physicians to use a drug and payers to reimburse for it.

VPHM stock immediately sold off 15%, supposedly because they have committed their cash to a company no one ever heard of. That's ridiculous - they'll still have over $230 million in cash after the deal closes. The only real issue is whether they will extract enough value from the drug to earn a great return on the investment, which brings us back to that $600 million annual sales target. Orphan drug status gives a company exclusive rights to a market for seven years, so even though there are competing drugs in other companies' pipelines, it certainly looks like Cinryze will be first to market for preventive use. CSL Behring's Berinert could be approved on September 6 for acute cases, beating Cinryze to market. But it could as easily be sent back for more data, giving ViroPharma a chance to get the Cinryze label expanded to include acute HAE. Both drugs have orphan status, and they might just split the acute market.

ViroPharma expects Cinryze to have a comparable price to other ultra-orphan drugs, in the $200,000 to $400,000 range. If it's used by 25% of the 4,600 identified HAE patients and is priced at $300,000 annually, then it could bring nearly $350 million in annual sales pretty quickly. The total available market in the U.S. is 10,000 patients times $400,000 or $4 billion. They won't hit that, of course, but the headroom is there for VPHM management to work their magic.

Cinryze sales will make up for any decline in Vancocin sales due to generic competition in 2009 and 2010. ViroPharma then has another drug, Camvia, coming to market in late 2010 or early 2011. Camvia treats cytomegalovirus in stem cell and liver transplant patients. ViroPharma management estimates peak sales of $400 million to $500 million for Camvia, but I think that is a very conservative estimate. It could easily be a $1 billion drug.

I'm recommending specific action on this stock to my New World Investor subscribers, you definitely don't want to miss out on what it is.

Mark Twain once said, "Whenever you find yourself on the side of the majority, it's time to pause and reflect."

He made a good point.

Currently we're finding that the majority of the market is bearish. Perhaps we should all follow Twain's lead and take a minute to pause and reflect on how the market got to this point and then determine where it's headed from here. Also, shouldn't we take the time to consider whether majority does rule?

That's exactly what I plan on doing in this week's New World Investor Radar Report, in order to provide my subscribers with my opinions on not only what the market is doing today, but where it's headed in the coming days. I'll also update them on my portfolio recommendations, and answer a few of the questions they've been e-mailing in to me.

Enough chatting for me, I've got an issue to write!

I hope you're enjoying this up day as much as I am. Take care everybody.

At the bottom of bear markets, we often see these historic bailouts–Penn Central, Continental Illinois, Chrysler. Now you can add the Bear Stearns bailout, which created the first bottom in March, and the Fannie/Freddie bailout, which will create the second bottom today. This morning, Freddie Mac did a $3 billion short-term debt offering that was "surprisingly" well received. You can bet that over the weekend a lot of arms were twisted to bid in this auction to make sure it was "surprisingly" well received to calm the markets.

Where do we go from here? I expect my bank, Washington Mutual, to be taken over by the FDIC, along with National City and maybe one more. Bank of America, Wells Fargo and Citibank are too big to fail, but not Washington Mutual and National City. They may even let Lehman Brothers go under instead of finding a buyer, but that depends on how big their derivatives exposure is. Yet those will just be ripples on the pond, like IndyMac Bancorp last Friday after Senator Chuck Schumer brought it down almost single-handedly. Western civilization will not go into decline if Washington Mutual goes away.

The financial sector will report terrible earnings, but that is already in the market. So I don't think earnings reports can derail a rally, and with over $4 trillion in cash on the sidelines, the VIX Fear & Greed Index well over 20 and sentiment indicators about as negative as they get, the market rally should begin. When the S&P gets up to 1440, we'll find out if it can break through into a parabolic rally to new highs through next April, which is still my expectation, or if it will fail and spend many more months in the toilet.

iRobot (IRBT) recently filed an 84-page patent for a robot lawnmower. The "Lawnba" filing covers an all-electric or a hybrid gas/electric mower in various configurations, from the Roomba disc shape to a pentagon, with two to five cutting heads. It uses optical and acoustic sensors to stay away from hard surfaces, water or barriers, and can sense uncut grass. The barrier methods include perimeter wires, solar-powered spikes GPS navigation as well as a radio beacon. RFID tags or proximity sensors keep it from running into pets and kids. Very cool!

I'm far from being the only blogger and tech guy who finds great interest in iRobot's new product. Daniel at The Ridiculously Mundane is also a big fan. Who wouldn't be with a product that's bound to make our lives a bit easier?

Recently Plug Power (PLUG) and Ballard Power Systems (BLDP) extended their supply agreement into 2010. With this Ballard will continue to be the exclusive supplier of fuel cell stocks for Plug Power's GenDrive product line.

Not only are both fuel cell developers benefiting from this continued partnership, so are my New World Investor subscribers. The stronger PLUG is as a company, the stronger they are as a stock in our portfolio.

To add icing to the cake Jon Sheridan, president and CEO of Ballard, stated, "Plug Power is leading the charge by putting product in the field and successfully demonstrating the benefits of fuel cell technology with key customers throughout North America."

I have to say, I agree with Jon.