NOOF-Ah! The Wages of Sin Have Had a Growing Problem

One of the themes we like when consumer spending drops dramatically comes from the observation that "sex sells". Sex is one of the major legs of a group I consider to be "consumer super staples", or things consumers will not give up, even when they are broke for big ticket items and services. Adult Entertainment is part of the group known as Vice Stocks, which includes gaming, booze, smoking, defense and sex, things that never go out of style. I'd include video games in the group, just to capture all the things people tend to do (with their children) to create little "busman's holiday's" for themselves when ends don't meet as well as they once did, and they either have too much time on their hands, or not enough. Then again, you might also want to include coffee in the group of nasty business, if you can find one with a sold yield, since crack, meth and cocaine are not legal.

The company we've picked out for your review today, New Frontier Media, Inc, symbol: NOOF. NOOF is in the pay per view porno business, both online (Ten.com) and on television, and while business has slipped a bit, management assures that it's as good as ever according to the November 8th conference call. The demand for smut appear as brisk as ever, and going forward, NOOF appears to be there to harvest it with content under the "Penthouse" name going forward.

We say, why should the strip club owners with green cards make all the money off smut in America when NOOF is there to split the pot with public investors?

What has changed is it's stock price on the news that revenues dropped, which makes it's yield more than 9%, and appearing just a little TGTBT, sort of like waking up to find your favorite movie star thanking you for a wonderful time last night in the sack. To be sure, it's a yield that's worth a double take, and should make your eyes pop out of your head, considering the sold line of business they are in, and so few other choices investors have in this sector (if you don't count other entertainment sector companies).

These Vice Stocks could hold up well, assuming that ends may not meet up as well as they did when real estate was flying high for most consumers, before the sub-prime meltdown, and the cooked labor statistics propping up economic estimates.

So when you are looking at your booze stocks (DEO) and butts (MO, CG,), and gambling (IGT), and weapons (BA), and video games (MSFT, Gamestop) be sure not to leave the nasty bits out of your consideration, and try not to get caught staring and gawking at that yield on NOOF(conference call).

Harvesting Harvest Energy Trust, Biovail and Those Loonies

Harvest Energy Trust, HTE, has dropped like a subprime mortgage lender, and there's not a lot of news about it, bringing its yield in the TGTBT neighborhood of over 16.80 percent.

While Canadian politics have made dividend payouts on a whole group of energy trust securities taxible, then not taxable, and now maybe taxible again by 2011, there does not seem to be a great reason for the HTE wild ride, apart from the drop in the price of oil, and perhaps the related issue-- the dollar are historic lows against every currency, including the Canadian Loonie. At such great yields, HTE could be a place to store cash for yields while markets transition, but perhaps not without trailing stop loss orders so you'd get your marbles back in case the Loonie move against you.

Biovail Corporation, BVF, is another Canadian company that kicks off Loonies. BVF is a maker of medications that focus on "central nervous system disorders, pain management, and cardiovascular diseases," including several household name brand drugs, such as Wellbutron for depression, Vasotec for hypertension, and Zovirax for Herpes (73% market share). The recent conference call was positive, and promising on balance, offering a bright outlook for the company's activites for 2008.

While Wellbutron has slipped by nearly half ($168m vs. $302m for 2006), and still faces generic competition, the balance of the company's portfolio of drugs appears to be mixed to up, and it's efforts to create new medications sound sustainable (I know, this an a metrocard get you a ride if the card is charged). R and D is up, and includes efforts to bring about another drug to treat sexual malfunction drug, which sounds profitable if not life saving, given the demand for those other purple solutions. The Loonie issues was raised, and the company responded that building plants is a long term planning issue, not so much a currency trader. When asked if they have any promising projects, the company did not want to suggest there were any dramatic events on the horizon, but there were deals on the calendar.

All in all, it yields better than 8 percent, it trades below it's 200 day moving average, and it's PEG ratio is 1.28, which beats a poke in the eye. BVF also has no debt.

Will the company trade up, and will this outsized dividend remain high and dry so I won't have to watch it (with a trailing stop loss order)? As the actor Jon Favreau told wise-cracking partner Vince Vaughn in one of their films: "I don't know, I'm not Columbo...", but it's looking sustainable.

Jim Cramer panned BVF a few days ago in his shout out "Lightening Round", stating that he's not thrilled by the market for generics, but at greater than 8% with a modest PEG ratio, no debt and a consumer who may be more and more price concerned for '08 and '09, he could be a bit to flip (it happens) about Biovail as a place to park while markets works through the worldwide fallout from subprime decline and ongoing American real estate market woes.