Beating Wall Street Discovering Inefficiency in an Efficient Market
	BWS Financial		Daily Market Commentary The market averages are indicated to open lower this morning after a series of earnings news has triggered investors to take some profits. The trading action yesterday reflected a market that was in need of some profit taking. The weekly initial claims number increased to 406 thousand from the prior week of 372 thousand. The number was above expectations and should provoke some selling of stocks after a week of solid gains. The earnings season has been positive compared to estimates, but the numbers themselves have not been too impressive. The decline in the market averages would allow for some stabilization in the market and digesting of economic data. There are many more companies reporting earnings after the close today with implications on where stocks would trade tomorrow. The larger picture is on the economy and how low oil goes to give consumer sentiment a boost. Without oil prices declining further stocks could remain in a trading range waiting for another catalyst. We would expect stocks to end the session in negative territory, but only by a slight margin. NETGEAR (NTGR- Buy Rating) reported second quarter results ahead of consensus estimates with revenue growing to $204.5 million. Non-GAAP EPS was $0.41, which was also ahead of the consensus and above our $0.40 forecast. More importantly, NTGR had operating margin of 11.5 percent for the quarter and guided for 9.5 percent to 10.5 percent for the third quarter. There had been concern NTGR would report operating margin below 9 percent for the second quarter. NTGR provided guidance for the third quarter reflecting a conservative approach to what is usually a strong quarter for the Company. The Company dealt with multiple price cuts in retail segment, but has been able to obtain better component pricing to offset the price declines. The bears are likely to raise eyebrows with NTGR increasing channel inventory, but the precautionary move should relieve the Company of potential shipping costs in the third quarter. In previous quarters channel inventory was too low and either hurt the Company by not having product on the market, or increased costs due to air freight being more expensive than by sea. We continue to be positive on NTGR and view the stock to be value investment with $5.21 per share in cash and 2008 non-GAAP EPS estimate of $1.65. Our target remains $22. Western Digital (WDC- No Rating) is one of the many technology companies set to report quarterly results after the close today. We are anticipating WDC to report better than expected results due to continued gains in market share. The Company has been able to grow its presence in desktop and notebook hard disks over the past year. The 2.5 inch drives remain in high demand and should be the driving factor for the quarterly results. WDC is the biggest customer at Marvell Technology (St. Buy Rating). Any positive news would be reflected in MRVL shares. In recent weeks MRVL shares have decline in value on expectations of the quarter not being as great as fiscal first quarter. We would have to disagree with such an assessment and forecast MRVL to have another strong quarter. The mobile segment’s operating results are improving, switches are doing well, and WLAN remains in demand. The stock trading near the $15 level makes for attractive buying opportunity for investment and for trading around the WDC news. This report will be updated again July 25, 2008 before 7:00am Pacific Time.
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