Here's a one page summary of leading stories from this weekend's (May 6) Barron's (paid sub. req.), noting stocks to watch for Monday morning when the market opens and brief comments on the Barron's articles. Note: clicking on a stock ticker pulls up opinion, analysis and a quote for that stock.
Road Hogs by Andrew Bary
- Thesis: Foreign companies are paying billions of dollars to buy U.S. toll roads from some state and local governments. These investors are chasing after the 80% gross margins of operating highways. Local authorities have often been unable to capture these revenues or use them effectively. Some commentators question if major buyers such as Australia's Macquarie Infrastructure Group are paying too much for these assets.
- Quick comment: Macquarie Infrastructure Group Trust (NYSE:MIC) is an NYSE listed publicly listed partnership. MIC participates in several of Macquarie's infrastructure purchases, and pays $2 dividend on each share.
Where Quality Counts by Sandra Ward
- Highlighted companies: NFJ Dividend, Interest and Premium Strategy (NYSE:NFJ), Merck (NYSE:MRK), Pfizer (NYSE:PFE), Companhia Vale do Rio Doce (NYSE:RIO), Cemex (NYSE:CX), Compania de Minas Buenaventura (NYSE:BVN), Yanzhou Coal Mining (NYSE:YZC), ConocoPhillips (NYSE:COP), Diageo (NYSE:DEO), Anheuser Busch (NYSE:BUD)
- Thesis: Ms Ward interviews Ben Fischer and Cliff Hoover, Portfolio Managers at NFJ Investment Group. Messrs Fischer and Hoover [F&H] believe that the current stock market as a whole ranges from fully valued to expensive. Overall, they see more opportunities in high quality large cap value than any other sector. Fischer and Hoover make the case for dividend payouts, using the Agency cost argument: without dividends, management tends to fritter away capital on wasteful projects and perquisites. F&H believe that major tech stocks like Intel and Microsoft are not yet cheap enough to interest deep value managers. Because the dollar is weakening, F&H feel that now is the time to invest in international markets and commodities. Cliff Hoover contemplates silver reaching $20 the end of the year, while gold at $680 is not expensive when compared to the 1981 peak of $2200 [$850 adjusted for inflation].
- Quick comment: S&P's research supports the idea that higher quality stocks (ranked by S&P as having an earnings grade of A- or higher) outperform lower quality stocks
Digital's World by Neil A. Martin
- Highlighted companies: Digital Insight (OTC:DGIN)
- Thesis: Digital Insight has cash cow business model, providing online banking services to smaller local and regional banks. The complete potential of online banking hasn't been reached yet, and DGIN is well positioned. However, that may be priced into the stock at its current level.
A Bird's-Eye View by Jack Ablin
- Thesis: Jack Albin, chief investment officer of Harris Private Bank, analyses the ten sectors of the S&P 500. Mr. Albin believes that economic growth is decelerating, which is consistent with increases in interest rates. Mr. Albin feels that utilities (ETF: XLU) will outperform because they are less affected by economic cycles and can pass higher fuel costs on to consumers. Mr. Albin is bullish on sectors that can pass along price increases. He that that will become a recurring theme in sector selection, that includes the Materials (ETF: XLB) and Consumer Staples (ETF: XLP).Overall, Mr. Albin feels that financials (ETF: XLF), telecom and technology (ETF: XLK) will face hard times, being unable to pass through cost increases or ignore reduced economic demand.
- Quick comment: The financials sector is not monolithic -- some sectors such as insurance (ETF: KIE) are less interest rate sensitive.
Easy Virtue by Randall W. Forsyth
- Thesis: The weakening US dollar is making the US economy more competitive and encouraging more exports. The increasingly strong Canadian dollar is affecting the profitability of non-natural resource Canadian companies. Ultimately the threefold challenges of containing inflation, while dealing with declining real wages and stagnating employment create a challenge for the Fed.
- Quick comment: The weakening dollar has boosted returns from foreign focused ETFs such as (NYSEARCA:PID) and (NYSEARCA:EFV).
Broadband Power Play by Bill Alpert
- Highlighted companies: Verizon (NYSE:VZ), AT&T (NYSE:T), TXU (TXU), Duke Energy (NYSE:DUK), General Electric (NYSE:GE).
- Thesis: Bill Alpert addresses the hidden possibilities of broadband over power lines [BPL], as a challenge to cable and telelphone companies that are battling out the broadband infrastructure turf. Privately owned BPL player Current Communications Group has received strong support and funding from many players, including TXU (TXU), Duke Energy (DUK), and General Electric (GE), and plans to roll out over 5-15 big cities in the near future.
- Quick comment: Enabling data transmission over power lines will be aided by the electric companies' long term capital expenditures to modernize the electric grids in the US.
Beached? by Kopin Tan
- Highlighted companies: NYSE Group (NYSE:NYX), International Securities Exchange (ISE)
- Thesis: Consolidation in the options markets is the talk of the 24th annual Options Industry Conference in Miami. The NYSE Group is flush with cash from its IPO and is looking to expand its options platform.
- Quick comment:The AMEX has also made moves to become a publicly listed company, and could seek to regain its historic role as major options market. One driver of increased options activity on the NYSE was the move of iShares ETF to the NYSE from the AMEX.
EMC to Place Crucial Clariion Call by Mark Veverka
- Highlighted companies: EMC (EMC), IBM (NYSE:IBM), Hewlett-Packard (NYSE:HPQ), Dell (NASDAQ:DELL)
- Thesis: EMC's long-awaited new version of its Clariion line of storage arrays launches Monday. The three new EMC products are in the fastest-growing (mid-level) segment of the enterprise data storage market. A revenue miss from last quarter has taken the stock down, but the company hopes to be more competitive against HP and IBM with its new products. Longtime partner Dell may move toward a deal with EMC competitor Engenio for this mid-level market.
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