The market is up from 10 to 15% since July lows, depending on which index you follow. Such a strong move to the upside warrants caution as we approach the end of the year when hedge funds, mutual funds and individual investors try to secure their numbers for the year and adjust their positions for taxation.

The last 3 years have seen intensive selling in the first few months as momentum stocks have been brought down to earth. As such, I recommend you close out positions in any of the stocks that are extended well beyond their support levels.

I am expecting a weak first couple of months in 2007 and believe that the times ahead call for caution.

-- Faisal Laljee

Hilton (HLT) is making a second consecutive move up on high volume. I think its going higher. Too many good things are happening at Hilton to keep this stock from going to $40.

-- Faisal Laljee
Full Disclosure: I own shares of Hilton currently, but my position might change at any time without notice.

This dip sure is an opportunity. Grab it with both hands. This is a best of breed company when it comes to consumer electronics and it won't be down for long.

-- Faisal Laljee

Full Disclosure: I don't own Best Buy for my portfolios and my position can change anytime without notice.

This holiday season is a clash of titans in the Video Game industry - not just in the console market, but also in the software and retail business. So how can investors look to play this hot part of the market?

First, lets look at all the news and buzz of late. Microsoft (MSFT) came out with its new generation console, XBox 360, last year and has successfully taken some market share from Sony (SNE) and Nintendo (NTDOY). Microsoft has also released a video game for XBox 360 called Gears of War, that has in its first two weeks since release, sold a million copies. This is a game that has been crowned by over 45 publications as the best next generation game, with an average rating of 95 on the popular gamerankings.com, giving the game one of the best reviewed games of all time. This game alone has convinced people to switch console loyalties. Additionally, Microsoft has recently announced that it can reduce costs on the production of the XBox 360, which means that price cuts are not too far off. And why not, the software giant has finally made its way into millions of living rooms, allowing it to now sell Video's and other programming to the gamer audience. In other words, they have replicated Apple's iPod/iTunes combo on TV where users can pay for movies, games and more. Amidst all this, Sony released its much anticipated and overly expensive Playstation 3, but it was introduced in short supply, and some bugs. Some of the shine was taken off Sony's release by Nintendo's Wii, which looks to alter the landscape of video gaming with its motion detector controller. Now, Apple (AAPL) is rumored to be looking into creating its own Video game console.

All of the above consoles and the next generation games have seen video game retail sales jumped 34 percent in November, with console sales more than double last year's results, according to data from the NPD Group, a market research company. Total hardware sales soared 69 percent including a 26 percent jump in portable handheld video game consoles and over 100% increase in sales of non-handheld consoles. Following are some of the unit sales numbers for the top selling consoles:

Nintendo DS - 918,000 units
Sony Playstation 2 - 664,000
Microsoft XBox 360 - 511,000
Nintendo Wii - 476,000
Sony Playstation 3 - 197,000

Software sales climbed 15 percent primarily due to Gears of War, followed by Final Fantasy XII, Legend of Zelda by Nintendo for the Wii and Activision's (ATVI) Guitar Hero. .
So who would benefit from all the companies involved in this buzz?

Hardware

Sony (SNE) has been a terrible stock of late. With its business units working in silos, a lot was expected of Howard Stringer, theri British CEO who took the helm some 3 years ago. Alas, he has not really managed to get Sony past its woes. The wide notebook battery recall and the Playstation 3 delays are just two of the few incidents Sony has had to contend with. Not to mention that Sony completely missed the boat on the early adopters of plasma and LCD TV's. However, looking at Sony's expected earnings next year, I believe analysts are selling this company short (no pun intended). After all, this is Sony and sooner or later, it will bounce back. If Playstation 3 supplies pick up, and Sony gains market share in the flat screen market, they are sure to do better than most people expect, considering some big titles including Spiderman 3 are due to be box office hits next year. At around $40, Sony is a buy, but investors will have to be patient, and the stock could yet come in a little more.

Nintendo - While I think the stock has no where but to go up with its successful DS and Wii, the company does not trade in the US, and therefore I can't recommend it.

Microsoft (MSFT) - the stock has aleady moved up over 40% in the last 6 months. For a company the size of Microsoft, this move leaves no more room to the upside. If only they were to spin off their gaming division, I would be a buyer. XBox 360 is blowing estimates out of the water, and the licensed accessories, games, content and downloadable trailers and movies are a home run.

Apple (AAPL) - This is not a video game pureplay, but the strength behind the iPod makes it intimidating in the eyes of competition, and for good reason. If it is indeed going to have its own gaming console, I would buy it now and more of it, every 2 points that it goes down. I last recommended it at $80 back on Oct 20th and had mentioned that it could hit $120 and even $160 by end of next year. I still maintain that.


Software

Activision (ATVI) - This stock has moved up almost 80% in the last few months, but that is due to the strong video game sales projected by analysts. With Guitar Hero and Call of Duty 3, it has a great portfolio of titles to look forward to and is a winner. The stock is a buy in my opinion.

Take Two (TTWO) - Here is a stock that I recommended back on Sept 29th, less 3 months ago, when it was under $15. The stock hit $20 last week, and I would be taking some profits here as the year comes to an end. Its other franchises like the 2K Sports have not done as well as expected and the stock is a little ahead of itself here. Next year, they plan to release a new version of GTA, but I am giving up on this one-trick pony for now. One of the reasons it has gone up is because the entire sector has run up.

Electronic Arts (ERTS) - Too loved, too predictable and no creativity. I am tired of the same old games appearing with new titles. They are a big company and need to do bigger things than what they have lined up. I would pass on this one.

Retail

Best Buy (BBY) - With electronic gadgets being the hottest purchase this holiday season, Best Buy stands to gain everything and lose nothing. Ipods, Blackberrys, Flat Panel TVs, Video Game Consoles, Software, Accessories - all these expensive toys help this company sell more extended warranties, a highly profitable business considering the declining margins on the actual product sales. I recommended this stock back on Nov 26th, and I maintain that this is a great stock to buy.

Gamestop (GME) - This stock has seen a 60% gain since the summer lows and again reflects the gains seen sector wide. It is certainly not my favorite stock of the ones mentioned here, but I would not bet against it. At 21 times 2007 earnings, it can go higher still, specially considering that people would be anxious to trade/buy/sell used's video games with the new generation ones going for almost $60 per game.

Make no mistake, the entire sector is on fire with most of the software and retail stocks up huge since summer. However, the likes of Sony and Best Buy present value opportunities for those afraid to chase the already inflated names.

-- Faisal Laljee
Full Disclosure: At the time of this post, I do not own any positions in any of the names mentioned above, but this can change anytime, without notice.

Since everyone on and off Wall Street has an opinion of Walmart (WMT) and the recent controversy that surrounds it, I figured it is my turn to sing the song that is Walmart.

First, I want to lay out the controversies that surround this behemoth:

Walmart is accused of unjust labor practices - this includes giving their workers minimum wage and not providing health insurance. My take on this - minimum wages are set by the federal and state governments. There are many companies, both small and large, that give only minimum wage to their employees. Now on the positive side, Walmart saves an average of over $2000 per year for those who shop there regularly. These shoppers who save so much, include the same demographic that works at Walmart. As for health care, Walmart is disadvantaged only by the fact that it is the largest retailer in the world. If that were not the case, this would not be an issue. Aside from Starbucks, no large employer I know of gives health insurance to part time employees, and this is due to the high cost of health care, which in turn is due to the high cost of insurance that doctors/hospitals must purchase to fend off lawsuits, which in turn .... I could go on and on. There are CEO's that make millions, yet are often caught golfing in the afternoon - and thats fine by me - but then I ask those who accuse Walmart of unfair labor practices, why they don't ask United Health or Aetna to cut down their executive salaries by 75%? They can then afford to cut down insurance premiums, which would then bring down the cost of healthcare.

Walmart is also accused of harming smaller "mom and pop" businesses through pricing power. Yes - I believe it is called free market capitalism. People accused Microsoft of pricing power through monopoly too. Has anyone ever really done a detailed analysis of how much Walmart has hurt these small businesses and compared it against how much money it has saved shoppers? I bet the latter number is heavier. Most small shops that offer good products and service at reasonable prices should be able to survive the Walmart threat.

It is said that Walmart brings down property values in surrounding areas by its sheer presence. That is ridiculous. Whats next? Should we shut down the Salvation Army drop offices because they attract low income shoppers? Should we also discriminate against Denny's and IHop's? On the flip side, golf courses and high rises drive up the price of surrounding properties, making those areas unaffordable for middle America. Why not lobby against those too?

Walmart is hiring illegal immigrants. Again, its sheer size gets in the way of Walmart. Every car wash I know of in Southern California, and believe me there are plenty of them, hire illegal immigrants. I think we need to be fair here. Most American's complain about minimum wages being too low, so really the only people willing to work for such low wages are illegal immigrants. On one hand we complain about low wages, but we also complain about those who are willing to work for these low wages.

The affect of Walmart on our economy is significant. From employing hundreds of thousands of people to saving customers a lot of money to ensuring that competitors like Target (TGT) and KMart (SHLD) keep their prices in check (thereby inadvertently also saving money for those who don't shop Walmart), this giant retailer needs to focus on its core business to make money for its shareholders and to save money for their customers rather than fight off controversy. I say let them do their job. Perhaps they might have provided their employees with health insurance if they didn't have to dish out the legal fees for these battles. Hey lets go after those lawyers for charging so much!!! ..... Sigh

In conclusion, I'd just like to say that Walmart, in my opinion, is good for the economy. It is good for the people that shop there and those that shop at competitor's. It is good for those that it employs because otherwise they might not have a job at all. Now if they pay below minimum wage, they need to be brought to justice, otherwise, ff people have a problem with their practices, I have a simple suggestion - don't shop there.

-- Faisal Laljee
Full Disclosure: I don't own any shares of Walmart. I don't shop at Walmart primarily because they have been blocked out of Los Angeles. But that is not to say I have never shopped there, although I must say I prefer shopping at Costco, Best Buy, Target, Trader Joe's and specialty retailers for their products, service and atmosphere.

Headquartered in Shanghai, The9 Ltd. (NCTY) develops and operates online games in China. While many analysts and commentators shy away from China, a look back at some Chinese stocks over the last 12 months shows how wrong these analysts were to stay away:

Petro China (PTR) - up 62.5%
Net Ease (NTES) - 28%
51 Job, Inc. (JOBS) - 30%
Bidu (BIDU) - 61.5%
China Unicom (CHU) - 27.5%
China Life Insurance (LFC) - 206%
China Petroleum (SNP) - 73%
China Southern Airlines (ZNH) - 33%

There are hardly any China plays that have not outperformed its American peers. China Yuchai (CYD) is one exception that I came across and it too is down a mere 12.5%. Others like SOHU, SINA, Yanzhou Coal (YZC) and China Brilliance Auto (CBA) just squeezed out double digit gains.

Even China funds made huge moves:

GCH - 67%
FXI - 58%
JFC - 43%

So while money managers and to some extent the Cramer's of the market shy away from China, I think China is a great market to be in - specially since China will only attract more capital from investors as they warm up to the idea of investing in the land of capitalistic communists.

In comes NCTY. This company is relatively unknown compared to the likes of NTES. It has a great subscription based model, but the stock has seen a wild roller coaster ride over the last 2 years. Such volatility is not uncommon to foreign ADR's, but lately the stock is seeing some strong volume thanks to a picture perfect earnings report, and is close to its all time high of 32.

Lets look at some key statistics for this company. It currently has a PEG ratio of 0.8, while earnings are growing at 70% based on the recent report. The company has beat analyst estimates for at least 4 quarters in a row and that too, quite handily, sometimes as much as 45%. Even then, the stock trades at a mere 16 times next years earnings.

I believe that while $32 is a level of resistance for the stock, it is headed for much higher ground once it breaks that $32 mark. Meanwhile, I recommend buying into lower volume pull-backs.

-- Faisal Laljee
Disclosure: I own shares of NCTY, but my position might change at any time without any notice.

Walgreens (WAG) and Genentech (DNA) are both highly followed large-cap stocks that have acted quite differently this year.

Lets look at Walgreens first. This is a stock that started the year at $45, glided down to $40, stormed to $52 in 4 months, and dropped back down to $40 towards the end of last month, primarily due to concerns that Walmart would start selling prescriptions at a discount. While it is difficult to predict external circumstances, political and competitive, and their effects on Walgreens, the giant drugstore chain announced bullish same store sales exceeding 9% yesterday, clearing a nice double bottom on high turnover. I am bullish on Walgreens and I believe the stock can hit 48 without blinking - therefore I recommend buying it. In fact, I bought Jan 2008 $50 calls today.

Now Genentech - here is a giant that outperformed the best of drug stocks despite being a mega cap for most of this millenium so far. However, this year has been a depressing story for DNA. The stock has not produced any gain for its investors for much of this year but technical investors are starting to eye this one again due to the long and tight base formation that is now 8 months long. Earnings have been growing at 60% and the stock, although expensive compared to its largest competitor Amgen (AMGN), looks like it is about to breakout. I recommend a buy here with accumulations at every $2 that the stock goes down. If the stock gets to $76, it is a screaming buy. I bought Jan 2008 $100 calls today.

-- Faisal Laljee
Full Disclosure: I currently hold positions in both Walgreen (WAG) and Genentech (DNA), however, my position might change at anytime, without notice.

While you can always access my list of picks and pans by clicking on Stock Check on the right, I am listing below some of the best winners and worst losers that I have recommended over the last 9 months.


-- Faisal Laljee

Fuel Tech Inc. (FTEK) is not a stock most people know of, but it is up almost 100% since October. Fuel Tech makes equipment that helps power plants reduce air pollution and burn fuel more efficiently. With democrats winning the elections last month, the stock has gained added momentum and looks like it will end the year near an all time high.

FTEK is not for the faint hearted. It sports a very high valuation and its price/volume action demonstrates plenty of volatility. However, considering that democrats are against big oil and pro environment, Fuel Tech is poised to stay in favor for a while, although, it is a stock completely levered to market's momentum. Over the next couple of weeks, those who own it will make money, but the stock is up too much too quick (support is at $18) to be a core long term holding. I bought the stock yesterday after I sent the note to readers, but its a small position and is meant to catch the quick move I expect between now and the end of the year. Though the stock grew at 90% this recent quarter, it is one of those small-cap, high growth, momentum plays that can turn on you at anytime.

For those that are shorting it, watch out. You will get burnt.

-- Faisal Laljee
Full Disclosure: I own shares of FTEK, although my position can change anytime, without notice.

Two stocks on my radar that I am going to look into but my first instinct tells me to play these for short term year end rallies - GIFI and FTEK. I don't hold either of these but I am looking to go long.

 

-- Faisal Laljee

The famous Hilton, perhaps made more famous in recent years by heiress Paris Hilton owns over 2,800 hotels in 80 countries. That's 485,000 hotel rooms. The hotel business has been growing as economic globalization spreads its wings deeper and deeper into the remotest parts of the world. Over the last 3-4 years, Starwood (HOT), Marriott (MAR) and Hilton (HLT) stocks have grown about 300% each - and this during a time when the travel industry, particularly airline stocks fell from the skies.

The current outlook for hotels can be explained by the fact that while demand is strong and growing due to the increased travel across the European Union and countries like China, India and Brazil, supply is low and steady since hotel construction takes time and areas that reflect this higher demand do not always have land available to build.

So why is Hilton the one I recommend? In the third quarter of 2006, the rates that Hilton charges for its rooms were up 6% in the U.S. and 12% internationally compared with the year before. Hilton has also spend the last few years selling off some properties and selling franchise licenses to diversify building and market risk, and is finally poised to take advantage of business travel in China and India. They recently got back together with their international sibling Hilton International, and earnings growth has been recently clocked at over 30%. The stock is close to its 52-week high despite a recent downgrade, but based on the its international growth, diversification and the fact that Hilton has plans to raise their rates by up to 10% next year, I think this is a great stock to own for the long term.

While conducting my research for this article, I also came across Wyndham (WYN), a chain that had its IPO over summer, but one that has plans to grow their capacity in China by 30% in 2 years, and one that sports cheaper earnings multiples than its competitors. For those that don't like Hilton or want to spread their risk a little, I recommend Wyndham Hotels as well.

-- Faisal Laljee
Full Disclosure: I do not own any shares of Hilton or Wyndham, but my positions might change without notice.

Its time to unload some of the Knot (KNOT). Readers who bought this one back when I recommended the stock in July are sitting on upto 70% gains and with the stock's recent 10% surge these last couple of weeks, I found myself unloading half of my position on Thursday.

Knot's recent partnership with E!'s Style Network is encouraging for shareholders, and is yet another good move on the part of management considering Comcast owns E!. And the fact that there is Google representation on Knot's board is another reason to own it. But I would hate to give up my superb gains on this stock. I encourage you to at least sell a portion of your KNOT position, and let the rest run.

-- Faisal Laljee
Full Disclosure: I currently own shares of KNOT, but my position might change anytime without notice.