Here's a one page summary of leading stories from this weekend's (May 27) 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; clicking on a headline takes you to the full Barron's article (paid sub. req'd.).
Flippers, Start Swimming by Robin Goldwyn Blumenthal
Highlighted companies: Toll Brothers (TOL)
Thesis: There's a 'reverse land rush' unfolding, as speculators seek to unload investment properties onto a cooling housing market. The effect is especially bad in areas of the US with many vacation and second homes. Some in the residential real estate industry see this as a sign of coming collapse in markets for primary homes. Second homes now account for a full 40% of all homes sold in America. Alan Skrainka, chief market strategist at Edward Jones says "We're not saying it's a bubble, but we're saying prices are overstated and will likely correct 20% to 25% over four or five years." The scrubbing of the housing bubble may hit the most affluent -- people with investable assets of $100,000 to $1 million, especially hard.
Quick comment: The Homebuilders SPDR ETF (XHB) is a popular vehicle for speculation on the housing bubble.
Gold Mine by Sandra Ward
Highlighted companies: Market Vectors Gold Miners ETF (GDX), streetTracks Gold Shares ETF (GLD)
Thesis: Sandra Ward interviews goldbug Jim Turk. Mr. Turk sees the recent run up in gold prices as mainly driven by a weakening dollar, because the gold/oil ratio has remained relatively constant over the past few years. Mr. Turk believes the Federal Reserve's motivation ending the collection of data on M3 money supply was to hide the extent of inflation. The blocking of the Dubai Ports Deal and CNOOC's attempted purchase of Unocal may cause raise concern among foreign USD holders about their ability to convert dollars into hard assets. According to Turk, the boom in commodities to a large extent is the result of people exiting dollars. Turk believes that the global carry trade in gold (leasing gold from bullion banks, selling it, and then investing the proceeds) is winding down, causing a steady covering of long term short positions in gold. Based on his predictions of the possibility of $2000 gold, Turk believes that gold stocks are cheap. As an investment (as opposed to speculation), Turk recommends buying physical gold, rather than gold ETF (GLD) or (IAU), since 'There are too many parties between you and the gold in the ETF. And they don't audit the gold to prove it really exists.'
Quick comment: Jim Turk is the author of The Coming Collapse of the Dollar and How to Profit from It : Make a Fortune by Investing in Gold and Other Hard Assets
Philips' Bright Ideas by Jay Palmer
Highlighted companies: Philips (PHG)
Thesis: Philips is like a European General Electric (GE). Unlike GE, and just like Rodney Dangerfield, Phillips gets no respect. A spinout of Phillips's semiconductor division could unlock shareholder value via share buybacks and special dividends. Phillips' flat-screen business is set to grow nicely as CRTs fade into the sunset.
Quick comment: Earlier this year, Philips launched BodyGroom, a wet/dry electric razor for men to "trim and shave all body zones," including the "groin area." Philips has been told that it is the best-selling health-related appliance on Amazon.com.
Options for Insurance by Kopin Tan
Thesis: Kopin Tan discusses increased interest in portfolio hedging strategies. Higher S&P500 volatility is leading more portfolio managers to consider hedging strategies that provide downside protection at a lower all around cost than purely buying puts. A popular strategy is a put-spread collar in which an investor sells a call option and uses it to purchase a put option. If done properly the hedge is 'free', requiring no outlay to set up the positions.
Quick comment: Free... except for the commissions on buying and selling options along with the cost of getting exercised on the calls in the event of a rally.
Pulling Out of a Dive by Jacqueline Doherty
Highlighted companies: Mastercard (MA), New York Stock Exchange (NYX), Vonage (VG), Chipotle Mexican Grill (CMG), Ryland Group (RYL), Toll Brothers' (TOL)
Thesis: Jacqueline Doherty reviews last week's exciting market action, in which the major indexes cautiously rebounded after two weeks of heavy selling. Shares of New York Stock Exchange (NYX) fell by 5%, as result of its attempts at buying the Euronext stock exchange. Doherty also reviews the differing fates of Mastercard (MA) and Vonage (VG) IPOs
Quick comment: No one seems to remember the disastrous IPO of Sealy Corp. (ZZ) a few weeks ago, which like Vonage fell from an IPO at $17 to settle at $13.
Farewell to the 'Nineties by Michael Santoli
Thesis: Six years later, Santoli declares the 1990s are finally over, with Enron Execs going to jail and the SEC moping up after the last bits of stock options malfeasance. Santoli notes the general sense among traders and chart watchers is that the recent bounce is one worth selling into. Santoli also talks with several market participants who share differing perspectives on if there is indeed a commodities bubble.
Quick comment: On the whole, market sentiment seems to favor a movement towards less market exposure.
Oversized Load by Bill Alpert
Highlighted companies: First Avenue Networks (FRNS), XO Holdings (OTC:XOHO), IDT (IDT), Hughes Communications (HGCM)
Thesis: Point to Point microwave networks are being built out to handle heavier data traffic from mobile phone data services. Many new mobile applications such as video and music downloads onto cell phones consume huge amounts of bandwidth relative to voice traffic. This has created an opening for companies to build "back haul" networks to carry data from the telecom networks edge towards its core. First Avenue is trading at a considerable premium to XO and IDT, all of which are exposed to this market.
Quick comment: Global Signal (GSL) is a REIT that owns and rents cell phone towers and radio masts.
Finally Ready To Roll by Andrew Bary
Highlighted companies: IDT (IDT)
Thesis: The telecom conglomerate run by Howard Jonas recently sold its animated film and entertainment unit to Liberty Media (L) for $400. With shares beaten down to $12.70, its cash position of $1 billion now outstrips its market value of just under that. So it's trading for its cash per share, and investors are paying nothing for IDT's telecom units (calling-card product, spectrum, Net2Phone and other businesses), which generated $2.3 billion in revenue last fiscal year. But the company lost $115 million from operations during that year. Value columnist Bary says IDT 'could support a stock price of $25'.
Quick comment: See further recent analysis of IDT on Seeking Alpha -- Value Investor Insight and GroovyStocks concur with Barron's that the company is undervalued, while Douglas McIntyre calls it 'one of the worst managed tech companies.'
Hold the Taps by Rhonda Brammer
Highlighted companies: Lam Research (LRCX)
Thesis: Brammer reviews the ongoing outperformance of small caps, even during the current downturn. She then turns to chip equipment maker Lam Research, which remains within 20% of its alltime stock price peak, even while its larger rivals such as Applied Materials (AMAT) have fallen much harder. Earnings growth is strong at Lam, but with such heavy exposure to the NAND flash memory production market (60% of Lam's revenues), Brammer believes the recent softness in that end market may spell trouble for Lam, which is trading at four times sales and five times book.
Quick comment: Brammer quotes Fred Hickey as a Lam bear (he owns put options on LRCX) -- Hickey correctly predicted the downturn in SanDisk shares earlier this year.
Drat! Death Takes a Holiday by Jim McTague
Highlighted companies: Service Corp. International (SCI), Stewart Enterprises (STEI)
Thesis: The funeral industry is in a slump amidst lower death rates and competition from the likes of Costco (COST). Industry giant SCI, which operates over 1700 funeral homes and 490 cemeteries, is absorbing a large and expensive acquisition and according to McTague, 'could fall more than 30% below the current level.'
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