NII Holdings (NIHD – Nasdaq)

Dear Bottarelli Research Member,

I don’t want anyone to get fooled about this market’s ability to run up 200 points – and then drop that same 200 points the very next day. The volatility is certainly not over, and that’s why I’d like everyone to add to your protective DIA put position. If you recall, Bryan recommended the DIA March 116 Puts (DIA OL) as a way to protect your small-cap portfolio against any severe market drops, and I’d like you to add to this position next week. That way, we’re further strengthening our level of protection while these put prices remain nice and cheap. And if the market falls back down, we’ll be able to lock in gains on these DIA puts and off-set any declines in our small-cap ledger.

Don’t get me wrong. If the Fed continues flexing their muscle, we could emerge from the ashes and move higher sooner than anyone thought possible. For example, the recent talk about freezing foreclosures and raising FHA limits will prove to be incredible steps in correcting our credit problems. Already, many of the people I know in the building business are starting to see a glimpse of sunshine again – and I sincerely hope these up-ticks continue. Our economy certainly needs the help!

Now, for our newest small-cap pick, we’re going to dip our toe into a powerful sector before Wall Street uncovers its true value. And in the process, we’ll continue our strategy of adding small-cap companies with strong international exposure. So this week, we’ll step into Latin America for a stock poised for continued upside growth.

The company itself is headquartered in Reston, Virginia, but they’re the leading provider of mobile communication services in Latin America. Specifically, they have operations in Mexico, Brazil, Argentina, Peru, and Chile. They offer these customers a fully integrated wireless communications package that includes digital cellular voice, data, and wireless Internet services. As you can imagine, this company has unlocked the telecommunication revolution throughout the entire South America region – and their strength is growing.

This company is also in bed with America Movil (AMX – NYSE) to provide communication services in Mexico. They’ve also teamed up with TeleNav to provide voice and on-screen turn-by-turn directions in Spanish, Portuguese, and English. Bryan will fill you in on all the details below, but this week’s stock is called NII Holdings (NIHD – NASDAQ).As you’ll see, the stock is down 50% off its highs, and with the Brazilian market bouncing back off the lows, this pick gives us great exposure into another powerful market that can recover very quickly. Let’s go ahead and establish a new position in NIHD under $45.00 per share.

UPDATES

Accuray Incorporated (ARAY – NASDAQ): This is one of our newest picks that we bought on a big earnings-related dip. Since entering the stock, shares have indeed moved up, but they’re still not setting the world on fire. But that’ll soon change. After all, there’s a lot of positive news coming out of their annual customer and user meeting in Scottsdale, Arizona. Most impressive was their prostate cancer treatment results, which presented studies with two and three year follow-up data. This data demonstrated sustainable reduction in prostate specific antigen levels with no significant side-effects in men treated for prostate cancer using CyberKnife surgery. After hearing these results, I can’t help but be very bullish on ARAY going forward. As I mentioned, we got one heck of an entry price, so continue to hold ARAY.

Puda Coal (PUDC.OB): Coal stocks are on the move, yet PUDC cannot share in the upside momentum. Trust me, this is getting on my every last nerve. The leash on this play is now as tight as possible, and if the shares cannot move higher in a great bull market for coal, then we have no choice but to close it out. Let’s give it one more week.

SiRF Technology Holdings (SIRF): After last Friday’s alert, we learned the following Monday that certain SIRF officers and directors could have violated federal securities laws. Several class action lawsuits are circulating, saying that officials at the company mislead their investors. Why anyone, in this day and age, would subject themselves to any sort of corporate fraud is beyond me. If these officers are indeed found guilty, I hope they are prosecuted to the fullest extent of the law. This type of action cannot be tolerated. But as far as current shareholders like you and me are concerned, the smartest thing we can do now is hold on. Many of you may want to cut bait and run, but don’t let the fear (brought on by the media) make up your mind. Even if the charges are true, the shares have already paid the price. In my view, the upside potential versus the downside risk at these levels is now in our favor, so continue holding shares of SIRF for a coming bounce-back. (Note: I’ve seen this type of reaction before – when a stock aggressively sells off on market fear, and then makes a strong bounce-back as investors realize that these fears are overblown. I think that will prove to be the situation we have here with SIRF.)

Echelon Corporation (ELON – NASDAQ): Here is another great company making dramatic strides in energy conservation, but the stock has been taken down alongside the rest of the major market averages. By year’s end, I have no doubt that we’ll see this one trading back above its old highs, so continue to hold shares of ELON.

E-House Holdings (EJ – NYSE): I’ve been asked about EJ several times, as they’ve decided to sell more shares to raise more expansion money. In my experience, this is not always the best move, but EJ is still a great company in the right sector. People in China are on a major quest to own homes, and they appropriately save their monies to buy a home the old fashioned way. Therefore, owning EJ anywhere under $20.00 still seems like a great bargain to me.

Canadian Solar Inc. (CSIQ – NASDAQ) & Evergreen Solar (ESLR – NASDAQ): A tremendous upside move from First Solar (FSLR – NASDAQ) sparked a mid-week rally across the entire solar sector. And as a result, shares of CSIQ and ESLR each jumped 13% on Wednesday. Bryan and I have been talking a lot about these solar plays in our weekly strategy discussions, and we each believe that the bottom is very close. In fact, there’s a very good chance that the bottom has already been established. Solar is here to stay, so we remain bullish on both ESLR and CSIQ. Maintain each position for further upside.

Beacon Power (BCON – NASDAQ): Sometime very soon, BCON will begin hooking up their Flywheel technology to our very old and out-dated power grids, and that’s when shares of BCON will blast higher. I find it interesting how quickly everyone forgets about the blackouts that happened just last summer. Therefore, let’s use this “slow period” to buy shares of BCON. Then, we’ll plan to unload these shares as everyone else piles into this little gem this summer.

Aixtron AG (AIXG – NASDAQ): After a pullback, AIXG is once again gaining ground. Theyjust announced a fourth order from Epistar, one of the world’s leading manufacturers of Ultra-High-Brightness LEDs. I fully expect AIXG to make new highs a lot sooner than you might think, so be sure to maintain your position.

E*TRADE Financial (ETFC – NASDAQ): Although we have already closed out a really nice winner on ETFC, I’ve received some questions about re-entering the position to capitalize on my 2008 price target of $7.00 to $9.00. With the stock currently trading for $5.00, I’d like to see it pull back just a little before re-entering. If the time is right, I’ll let you know in an upcoming alert.

Have great week.

Sincerely,

“I think it’s the best way to get exposure to the consumer, internationally.”

- Tim Seymour, Fast Money Recap (in reference to NIHD)

I received a question from a potential small-cap subscriber this week who asked, “why do I need to own any small-cap stocks?”

In my response to this question, I referenced a research report from NYU professor Aswath Damodaran. His report concluded that small-cap stocks consistently “earn higher returns than larger firms of equivalent risk."

For example, using a study period from 1927 to 2001, small-cap stocks outperformed their large-cap brethren by a wide margin. Specifically, small caps averaged an annual return of 20% compared to a 12% annual return in the large-cap sector.

Playing devil’s advocate, one would argue that the difference is only 8%. And that’s true. But when you consider that this 8% difference is being earned each year – for over 74 years – it’s clear that the wealth-generating differential is quite substantial.

The reason small-cap stocks always carry a better risk versus reward proposition is that small companies have much more room to grow. For example, take a company like Proctor & Gamble (PG – NYSE).How much more Tide laundry detergent or Crest toothpaste can they realistically sell? If they’re lucky, a 3% up-tick in any retail segment is enough to send PG shareholders jumping for joy. But a small-cap stock, on the other hand, could increase sales 2x, 3x, even 4x per quarter – and that’s where you see tremendous increases in share prices. This differential becomes crystal clear when you compare the top-performing large-cap stocks with the top-performing small-cap stocks over the last five years. In the large-cap space (with “large-cap” defined as stocks with a market cap over $50 billion), Chevron (CVX – NYSE) was the top performer with a 159% gain. ExxonMobil (XOM – NYSE) was next with a 153% gain, followed by Nokia (NOK – NYSE) with an 86% gain. Now don’t get me wrong, those are fine results. But remember, that’s the top three large-cap stock gainers over the last five years.

Let’s now compare those results to the top-performing small-cap stocks over the last five years. In the small-cap space (with “small-cap” defined as stocks with a market cap between $200 million and $2 billion), Research In Motion (RIMM – NASDAQ) was the top performer with a 4,314% return. McDermott International (MDR – NYSE) was next with a 3,398% gain, followed by NII Holdings (NIHD – NASDAQ) with a 1,573% gain.

Everyone has heard of RIMM. And MDR is an oil engineering play that I’ve successfully played calls on in my Bottarelli Research Options service. But within this list of top small-cap winners, NIHD is still a relative secret. And despite their remarkable gains, their business sector is just beginning to heat up.

But let’s take a step back and start from the top…

As Mark mentioned, NII Holdings provides digital wireless communication services for both businesses and individuals. Founded in 1995, the company was originally known as Nextel International but they changed their name to NII Holdings in 2001.

Last year, Business Week listed NII Holdings among their prestigious “Information Technology 100.” Forbes gave them similar accolades by ranking them in their “Global 2000 Superstars” list, and they also named them among their “25 Fast Growing Tech Companies.” So as you can see, the stock is certainly gaining attention. But despite these honors, the stock still doesn’t receive nearly enough investor attention. And now, with shares down 41% in 2008 (based primarily on broad-based market weakness), the time to establish a new position is now.

Looking at their collection of services, Nextel Direct Connect allows subscribers anywhere on its network to talk to each other on a private one-to-one call or on a group call. International Direct Connect enables subscribers to communicate with subscribers in Mexico, Brazil, Argentina, Peru, the United States, and Canada. And Mobile Internet offers text messaging, e-mail, and location-based services – all with international roaming capabilities.

The proprietary technology that makes this all possible is called iDEN, which stands for Integrated Digital Enhanced Network. Without getting into the details of how it works, iDEN utilizes state-of-the-art, packet-based transmission methods to provide instant access, low latency, high voice quality, and dependable communications. The trick is that it consolidates multiple communications devices all into one unit – which allows NIHD to provide the highest quality push-to-talk functionality in telecommunication’s top emerging markets.

In Latin America, for example, NII delivers iDEN coverage to major cities in Argentina, Brazil, Chile, Mexico, and Peru. iDEN technology is also available in the United States through Sprint Nextel. It’s also available in Canada, Asia, and parts of the Middle East. Despite the remarkable stock price appreciation that I noted above, the stock still enjoysrobust revenue growth, impressive EPS growth, and a reasonable share price valuation. And here’s the thing…

Looking at their customer growth statistics, I have full confidence that the stock gains are still only in the beginning stages.

For example, the networks that NIHD covers consist of 160 million people in major cities and transportation corridors throughout Argentina, Brazil, Chile, Mexico, and Peru. By constructing a new network in key market segments back in 2006, NIHD extended this coverage to 26 additional major cities and 19 million more potential customers.

As of September 30^th 2007, NII’s ending subscriber base was nearly 4.4 million. As the 2007 calendar year came to a close, NII Holdings exceeded their expectations for net subscribers added, gaining a record 1,288,300 new customers in 2007. Those are fantastic growth figures. With statistics like that, the stock’s forward P/E of 13.14 and their current Price/Sales ratio of 2.48 looks quite reasonable. Plus, 89% of NIHD shares are held by institutions and 8.98% of shares are held by insiders, which tells you that 97.98% of available shares are held by investors who plan to hold over the longer term. This gives you comfort that the stock has a nice, concrete base of shareholders supporting the shares.

Plus, when you consider the company’s global breakdown, it’s easy to see why insiders and institutions are expecting further share price appreciation.

• Nextel Argentina, for example, began operations in 1998. That’s only ten years ago! It offers its customers Direct Connect, International Direct Connect, Interconnect, inter-carrier messaging, BlackBerry, and data services.
• Nextel Brazil started operating in 1997. It offers its customers Direct Connect, International Direct Connect, Interconnect, inter-carrier messaging, GPS location, Web Direct Connect, BlackBerry, and data services.
• Nextel Chile began digital operations in 2006. It’s less than two yeas old! It offers customers Direct Connect, International Direct Connect, Interconnect, and messaging services.
• Nextel Mexico started operating in August 1998. It offers its customers Direct Connect, International Direct Connect, Interconnect, inter-carrier messaging, push to mail, BlackBerry, and data services.
• Nextel Peru started operating in 1998. It offers its customers Direct Connect, International Direct Connect, Interconnect, inter-carrier messaging, BlackBerry, and data services.

That’s five powerful emerging markets that’ll continue to fuel powerful subscriber growth. And in terms of earnings, the company is firing on all cylinders. On October 25^th, NII Holdings generated $853 million in consolidated operating revenues. That’s a new quarterly record, representing a 39% increase over the same period last year. They also added 327,000 new subscribers during this period, which is a 38% increase in the ending subscriber base of Q3 2006. And on a cash-basis, they ended the quarter with

consolidated cash (and cash equivalents) of $1.5 billion. All things considered, the company’s internals look very strong.

What’s more, NIHD’s Nextel Mexico subsidiary just signed a mobile-to-mobile agreement with Telcel (who is a subsidiary of America Movil) on December 3^rd 2007. This agreement was an important step for Nextel Mexico to achieve full mobile interconnection, and this should continue to drive strong growth in Mexico during 2008.

In terms of an upside trigger, NII Holdings is scheduled to report earnings the morning of Wednesday, February 27^th. With the stock sitting at such low levels, there’s a good chance that shares could make a strong upside move based on impressive 2008 guidance. As a result, let’s go ahead and add shares of NII Holdings to our small-cap portfolio now!

PLAY: Buy shares of NII Holdings (NIHD – NASDAQ) at or under $45.00, good for the week.

Sincerely,