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http://www.youtube.com/watch?v=bhcA4Ry65FU

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AES Corp. was Cramer’s focus stock last night on Mad Money. He must have read my blog, he said everything that I wrote about earlier this week.

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AES reported very strong earnings yesterday. I provided a detailed update on AES in April after its year-end conference call in which management provided a tepid outlook for 2006. However, after yesterday’s conference call, management was much more upbeat after a strong first quarter.

• International financial markets are finally willing to open up lending to AES-type of projects which are often located in emerging markets. It has been difficult getting deals financed during the last five or six years.
• Pricing and volume mix are good in many markets.
• AES continues to show it has built itself into a nice free cash flow machine.
• New construction prospects are picking up.

Despite the huge run up in emerging-economy stock markets during the last few years, the available financing for greenfield type of projects that AES normally does is just opening up. I mentioned in the April blog that 2006 earnings would be flat as it reinvests for growth in 2007 and going into 2008, but it appears 2006 might be OK. In addition, it appears management has greater confidence in its ability to complete some large projects during the next few years which will support management’s outlook for double-digit earnings growth.

After the year-end conference call, it appeared that this stock might be dead money until the fall, but with Monday’s earnings release and the announcement of some big projects, investors will have to get back into this stock now.

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Today Mullane Asset Management issued a new newsletter on Revlon Corporation. Executives from Coca Cola joined the company in 2002 and their efforts are about to pay off.

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Going into 2006, our favorite stock idea was Oracle Corporation. Since publishing the newsletter, the stock is up over 20%. While investors continue to focus on commodity and old-time industrial companies, selected-technology stocks are performing pretty well.

As short-term interest rates continue to rise in many parts of the world, cyclical earnings and commodities are the most exposed to a slowdown. Oracle’s business is just beginning to pick up and has a number of years of earnings growth in front of it.

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Level 3 (LVLT) announced another deal to further consolidate the telecom industry yesterday. The stock, once again, was up big. Since I began writing about the stock in September of 2005, it is up about 90%.

As a reminder, Level 3 has acquired WilTel, Progress Telecom, ICG Communications and announced the TelCove deal yesterday. This is a classic consolidation of an industry which came out of a bust period. As I wrote in the September 2005 and November 2005 newsletters, IP traffic is growing 70% per year while the demand for oil grows 2 to 3% per year.

With Level 3 up over 90%, investors are beginning to focus on the real growth industry.

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After six years of earnest restructuring by Newell, it appears that the fruits of their labor is upon them. The company grew organic sales 4.8%, the highest level in quite a long time. This drove the stock up over 8% on the day.

Newell was our favorite newsletter idea going into 2005. As usual, I am often early with our investment ideas. However, what is especially attractive about Newell is that it has a market capitalization of about $8 billion which is small compared to other well-recognized franchise name companies such as Coke ($100 billion) and P&G ($192 billion). While some might argue that the franchise names of Rubbermaid, Graco and Sharpie do not compare with that of Coke’s and P&G’s, however, in the 1980’s, Rubbermaid was viewed by the investment community as the Coke and P&G of its day.

What was interesting about today’s results is that Mark Ketchum, a former P&G executive, was able to so quickly turn sales around. When Ketchem took the job he emphasized the need to focus on what the customer wanted and then target those products with marketing dollars. It appears he is off to a nice start. If Newell can get the diverse group of business going, this could be a $45 to $50 stock in a few years. This run is just starting.

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Newell Rubbermaid reported great results today. Will follow up with comments later on.

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Rumors are circulating that the consolidation of the online travel business is about to begin. The consolidation of the online travel business could prove to be one of the best investment themes for the next five to ten years. The industry has gotten hit pretty hard during the last year as there seems to be too many competitors.

In addition, the industry, at this stage of its life cycle, appears to be counter-cyclical. The online travel business seems to get more inventory when the economy is weak and there is an oversupply of hotel rooms and airplane seats. When things are good, the hotel companies and airlines like to book the customers themselves.

This weakness in the online business may prove the best time for the industry to consolidate. Interactive Corp. laid the foundation for a consolidation by spinning off Expedia and most likely would play the lead role. Henry Silverman, head of Cendant, is breaking his company up which owns online travel distribution businesses with well-known names Orbitz and Cheaptickets in the consumer space, in addition to Galileo which is a leader in the business online travel market.

Expedia, during its existence, has shown great financial metrics with high operating leverage. Combining two industry leaders could create a profit generating machine. The $900 billion world travel business will grow nicely as the global economy booms. Expedia has been growing its online business twenty percent per year. A consolidated online industry will give it more power and more profit potential for shareholders.

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Well-beaten down pharma stocks Merck and Schering-Plough both held their earnings call this morning. One take away from both calls is that management confidence is improving although analysts remain skeptical.

When Merck was pushed on its 10%-plus EPS growth, management indicated some confidence in its pipeline although did not want to discuss it in great detail. However, management did stick to the guidance provided in its December analyst meeting which should translate into EPS of $4.10 by 2010. Guidance appears to be based on modest revenue growth and cost controls.

From listening to a number of calls, virtually all of the old-line pharma companies expressed better confidence. A CNBC interview with Lilly’s head mentioned that a lot of biotech projects initially funded in the 1990s might be coming to fruition.

It has been a tough decade for large pharma. There are hints that the worst is over. It is time to start looking at these companies again.

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