Gamestop (GME) has been a big winner ever since we recommended it to our members and our blog readers. We’ve seen gains of 55% in less then 6 months.

But can these sales last? Yes, and we believe earnings are going to start looking even better. Used games and accessories from the PS3 and Wii are now flowing into Gamestop. These used products are sold with a much higher margin then new game, which will increase earnings quite a bit. Gamestop should continue to do very well through the rest of 2007 and into 2008.

Google has finally reached a stable P/E (price to earnings ratio)! We have written about Google’s declining P/E and how we expected it to stabilize soon. The P/E has stabilized and is even slightly increasing. This should mean strong price appreciation for Google's stock. Google's earnings are expected to keep growing at over 20% through the rest of the year. With a stable P/E this means Google’s stock price should grow by at least 20%.

Below is a 1 year chart that shows the declining P/E and how it has recently stabilized.

By now we all know that the Apple iPhone will probably revolutionize the mobile phone market. So instead of talking about how great we think this phone will be, we wanted to take a closer look at the two stocks involved in this launch, Apple (AAPL) and AT&T (T).

Apple’s stock is somewhat expensive right now with a P/E ratio of 40 and a 1.5 PEG ratio. Sure if the iPhone does blow the market away, like we expect it to, then Apple could easily trade at $160. However, a lot of the current stock price is the anticipation of the iPhone being the next iPod like product. If the iPhone fails to be a big success the stock price will suffer. That puts a lot of risk on an expensive stock.

We pitched AT&T a while ago mainly due to the completed acquisition of Cingular, which is now the new AT&T wireless. AT&T has everything to benefit from the iPhone and almost nothing to lose. New subscribers are flocking in from other wireless carriers to get a hold of this exclusive product. These new subscribers will not only buy the phone but also sign up for data plans, which are high margin accounts for AT&T. Say the iPhone flops; AT&T is still a strong company and growing at a nice pace without the iPhone.

Our prediction is that the iPhone will be a big success. Apple (AAPL) is a great stock to own but more risky then AT&T (T). Both should do very well with the launch of the iPhone, but we recommend sticking with AT&T to provide upside with minimal downside risk. For the risk takers out there you should also be in Apple, even at these high levels.

About a month ago we made our case for Google and how we think it will be a big winner in 2007. Here are some interesting valuations on what Google's stock price could be trading at when compared to it's competitors. Today Google closed at $498.60.

Google's stock price at the same P/E ratio as...
$625 - Yahoo (YHOO)
$1315 - Amazon (AMZN)
$250 - Microsoft (MSFT)
$416 - Ebay (EBAY)
$1138 - Baidu (BIDU)

Using the P/E ratio for valuation doesn't work well because it doesn't account for expected earnings growth. So lets look at some PEG ratios. We are using a PEG of 1.3 for Google that we calculated from a growth rate of 35%. Yahoo Finance places the PEG for Google at 1.03, which gives Google a growth rate of 42.5%. Read more about the PEG ratio.

Google's stock price at the same PEG ratio as...
$977 - Yahoo.
$1125 - Amazon.
$578 - Microsoft.
$473 - EBAY.
$578 - Baidu.

We are showing you these valuations for fun and in no way are stating that Google will trade at these levels anytime soon. But we will say that our "low end" price target on Google for the end of 2007 is $550.

Finding a winning stock is pretty easy if you can see something that Wall Street might not realize. This was the case when we picked Gamestop (GME) , and now we bring you Google (GOOG) as our next stock to surprise Wall Street. We added Google to the Market Flavor Portfolio before earnings this quarter and now we want to share this great stock pick with our readers.

Google is incredibly undervalued compared to its peers and it’s own P/E chart. Google is trading at a P/E ratio of 42 compared to a P/E of 65 for Yahoo, 39 for eBay, and a staggering 106 for Amazon. Also we can see the value in Google by looking at the PEG ratio, which is an incredibly low 1.04 compared to a 2.65 PEG ratio for Yahoo. Google does trade at a higher price to sales ratio then these stocks, but we value the bottom line more then the top line. The top line (sales and P/S) tells us part of the story, but operations tell us the rest of the story. In this case Google has a much higher net profit margin of 29% compared to 9.5% for Yahoo. Wall Street obviously doesn’t get it, Yahoo is trading at a high multiple while they are losing search traffic and experiencing slowing growth. Yahoo might get taken over by Microsoft, which would provide more competition for Google, but Microsoft and Yahoo combined are still 10% short of Google’s search traffic. Even before the potential takeover Yahoo was trading at a P/E ratio of 55!

Google is still dominating the search market and has added numerous new tools to become more of an internet destination. Products such as Gmail, Google Finance, Google News, Google Blog Search, Google Maps, Google Spreadsheets, and the new customizable Google homepage (iGoogle) should help Google overtake Yahoo as the number one visited website (Stats according to Alexa). These new services are only a sample of the great products Google has been producing, each of which has added a new revolutionary aspect to its purpose.

Not only is Google revolutionizing the internet but they are adding new ways to increase revenue. This has been done through partnerships in traditional media. Two of these deals are with EchoStar and Clear Channel Radio. These partnerships allow the potential for Google to implement tracking models to make ad serving through traditional media more efficient.

Google has already become a behemoth but they are going to continue to grow and be successful. Below is a P/E chart for Google. Notice the dropping P/E ratio over time. With the growth at Google we can't imaging the P/E ratio going much lower. That makes now a great time to start a position in Google!

GameStop Corp (GME) just had an amazing quarter with net income rising 53% and revenue rising 38%. At Market Flavor we recommended GME to our members before the numbers were released, with confidence in strong sales.

This strong quarter was attributed to the release of the video game World of WarCraft and the new Nintendo Wii and Sony PS3 gaming consoles. The release of these two video game systems was highly anticipated with people saving and waiting until they came out. People waited in line for days to get these video game systems. Now that these new systems are out, owners are going to be purchasing games and accessories to go with them. Microsoft has also announced a new XBOX 360 (Xbox 360 Elite) with all the bells and whistles to compete with the Sony PS3. Xbox 360 is still the highest seller out of all the recent console releases. The XBOX 360 Elite will just continue to add to the growing sales at GameStop.

So we know sales are increasing and should continue to look good, but what about the financial condition of the company? GME trades at a 31.5 P/E ratio which is fairly low compared to their P/E chart. Read more about P/E ratios and P/E charts. Estimates for next years earnings reflect a 36.75% increase. The Market Flavor financial analysis shows that GameStop (GME) is strong with above average growth potential. The current P/E is high but supported by increasing strong growth.

At Market Flavor we have had GME as a buy and continue to keep is at a buy with strong forward earnings estimates and strong estimated sales.

It’s all about Cingular. Cingular is the largest wireless carrier in the US and has extraordinary growth potential. The entire wireless market is still growing as mobile phones are overtaking landlines and providing email and internet right in our hand. Wireless carriers have great growth rates with less risk due to our dependency on mobile phones.

In the fourth quarter of 2006 Cingular almost quadrupled their earnings and added 2.36 million subscribers. They also lowered their turnover rate (churn) from 2.1% to 1.8% according to the Financial Times. Data Plans have been a large contributer to earnings growth. Data plan revenue among cell phone carriers jumped 84% in 2006 according to a report by Chetan Sharma. Merrill Lynch recently upgraded AT&T siting growth from mobile subscribers adding on data plans along with other increasing sources of revenue.

As the mobile phone market eventually moves toward saturation, growth will come from pulling subscribers in from other wireless carriers. Although the wireless carriers are still growing, Cingular is in the best position to steal customers for a couple reasons.

1) The iPhone – Providing a much anticipated phone exclusively through Cingular will bring people from all other wireless carriers to Cingular. View some of the Buzz
2) Superior Service – Cingular has been shown, through a study by Telephia, to have the fewest dropped calls across the nation. They also offer inexpensive plans that allow you to call other Cingular and AT&T customers as much as you want. Other great features include roll-over minutes and push-to-talk.
3) International Presence – The next frontier for wireless carriers will be the global market and Cingular is already moving in this direction by partnering with wireless carriers around the world. Today AT&T made a bid for Telecom Italia as they push to expand around the globe.

On top of all these great growth and acquisition stories, the Market Flavor theory is that if the stock market continues to slide, AT&T is a great safety play. It's well know that AT&T pays almost a 4% dividend. To add to that we are arguing that with our continued reliance on cell phones, Cingular will hold strong in a market downturn. This Australian study shows us how reliant people have become to their cell phones. But to be honest we are pretty much all addicted to cell phones according to this cell phone addiction checklist. With our addiction to our cell phones, Cingular should stay strong in a weak market.

AT&T now receives all the benefits of Cingular's success due to the recent acquisition of SBC. To add to that, AT&T has their own superior services that add to and compliment Cingular. AT&T has finally realized that long distance service and landlines are a thing of the past. With this realization they have embraced the internet. They are now offering Telephone over the internet (VOIP - Voice Over Internet Protocol) and TV service though the internet in certain markets. This brilliant realization, along with the growth of Cingular, makes AT&T a great stock to own.

The Market Flavor analysis shows that AT&T Inc (T) is a strong company with a lot of potential. The main reason we are so excited about AT&T is the protection is can provide in this uncertain stock market, making it a less risky investment.

As I’m sure you have noticed, the price of gas at your local gas station has been on the rise. Unfortunately it looks like gas prices are going to keep heading up over the next couple months. Recently, low refinery outputs due to fires, outages, and maintenance have been causing high gas prices. Refineries are coming back online but not fast enough for current gasoline demand levels. With the refinery problem slowly clearing up we are seeing new problems emerging. Iran is the biggest problem and any more controversy with them will cause a huge spike in crude prices. Demand should also start steadily increasing as we near the summer driving season. The economy looks strong enough to also keep industrial demand up. Last and worst of all, weather forecasters are calling for a horrible hurricane season.

The only way to protect your pocket book is to invest in oil companies. At Market Flavor we are currently recommending GlobalSantaFe(GSF). GSF is a deep sea driller with rigs spread all over the world. Their stock price is at very attractive levels right now. Other stocks can help offset high gas prices are USO and XLE. The USO is a fund that follows crude prices and XLE is an ETF that follows the energy sector of the S&P 500. These are all good ways to make some money while you pay more at the pump.

With a possible recession looming Market Flavor would like to share an easy hedging strategy to help protect your stock portfolio. Hedging can sound like a scary and complex term, but we are going to show you that hedging can be made simple. Investopedia defines a hedge as “Making an investment to reduce the risk of adverse price movements in an asset.” This means investing in an asset that moves in the opposite direction of your stock portfolio. Often during a stock market crash or an economic recession, investors will protect their portfolios by shifting assets into safer investments to minimize losses. For more protection we suggest buying shares in an Ultra Short ETF.

You might be wondering what an Ultra Short ETF is. First lets define an ETF. An ETF (Exchange Traded Fund) trades on the stock market like an ordinary stock, but actually represents a basket of stocks. It’s very similar to a mutual fund, but easier to buy and sell. An ETF can also cost less then a Mutual Fund. Ultra Short ETFs are comprised of short positions in multiple stocks. A short position in a stock means you make money if the stock goes down. Think of having a short position in a stock as the exact opposite of buying the stock. The Ultra means that the returns are double. Putting this all together, an Ultra Short ETF moves at an inverse relationship to the stocks it represents times two. The Ultra Short ETFs that we are recommending follow major stock market indexes like the Dow Jones 30 or the S&P 500. An example of how one of these ETFs work are if the S&P 500 went down 1% the Ultra Short ETF for the S&P 500 (SDS) would go up about 2%; the inverse times two.

Ultra Short ETFs can provide portfolio protection during an economic recession or a stock market crash. Say you think the stock market is heading down, but you don’t want to sell your stocks or you want extra portfolio protection. Most likely your stock portfolio will lose money during a recession or bear market. An Ultra Short ETF will make money during a market crash or economic recession, thus lowering your total portfolio loss. The more money you invest in an Ultra Short ETF, the more it will offset your losses and protect your portfolio. However, keep in mind that if the market goes up, an Ultra Short ETF will lose money and your portfolio won’t appreciate as much. This is because the Ultra Short ETF will decline in price. This is what a hedge does; it reduces your downside risk but limits your upside gains.

With the possibility of another stock market crash and an economic recession, using an Ultra Short ETF to hedge your portfolio is a smart idea. At Market Flavor our current stock market outlook right now is not very positive and have been recommending an Ultra Short ETF to our members. Sign up for a free trial and view all of the stocks in the Market Flavor portfolio. Let us help you successfully invest in the stock market!

Ticker symbols for Index tracking Ultra Short ETFs
Ultra Short S&P 500 - SDS
Ultra Short Dow Jones 30 - DXD
Ultra Short NASDAQ - QID
Ultra Short Russell 2000 - TWM