What to Buy and Why: Barron's 2009 Roundtable, Part III 19 comments
January 25, 2009
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This week, Barron's concludes its 2009 Roundtable.
Two weeks ago, we got the Roundtablers' overall outlook, along with the picks of Meryl Witmer and Fred Hickey.
Week two gave us the ideas of Bill Gross, Archie MacAllaster, Felix Zulauf and Abby Cohen.
The final episode includes the stock picks of Scott Black, Marc Faber, Mario Gabelli and Oscar Schafer. Bear in mind that Barron's convened its roundtable on January 5, on the tails of "that lovely little rally that ushered in the new year." Much has changed since then, and not for the better.
Scott Black
The market is a random walk. I can't tell you if it's going up, down or sideways, only that the economy hasn't bottomed.
- Oracle (ORCL) - has earned 30% on equity, with no net debt, for 10 years. "It is a money machine, and it makes money on software-maintenance revenue." Black likes tough CEO Larry Ellison.
- General Dynamics (GD) - government spending on defense should increase. Healthy backlog. Great cash generation. Trades at a substantial discount to peers Lockheed Martin (LMT) and Raytheon (RTN).
- XTO Energy (XTO) - hedged natural gas production at much higher than current prices. Production has been growing dramatically, through a combo of drill-bit growth and acquisitions. Committed to reducing debt.
- Endo Pharmaceuticals (ENDP) - has earned 22%+ on equity every year since 2002. Has tons of cash and access to even more money - will probably be looking to make good acquisitions.
- Ameron International (AMN) - makes fiberglass-composite pipe, used in shipyards and oil platforms. Business is holding up well, especially in Asia, but would get a real boost from an Obama infrastructure stimulus.
- StealthGas (GASS) - on a scrap-value basis, its ships are worth $335M net of debt; its current market cap is $105M.
Marc Faber
I'm not optimistic about the global economy. The next Madoff case - the next Ponzi scheme - is the U.S. government. It will go bust. It is only a question of time.
- ICICI Bank (IBN) and Infosys Technologies (INFY) - Asians might go to casinos and gamble, but in their businesses they are ultra-conservative.
- Alcoa (AA), Rio Tinto (RTP), BHP Billiton (BHP), Vale (RIO), Xstrata (XSRAF.PK), Freeport-McMoRan (FCX) - when volatility diminishes, you want to be in cyclical industries. The financial crisis and collapse in commodities prices will keep supplies out of the market, setting up an explosion at some point.
- Morgan Stanley India Investment Fund (IIF), iShares MSCI Brazil Index ETF (EWZ), Templeton Russia & Eastern Europe Fund CEF (TRF), Greater China Fund (GCH) iShares Trust FTSE-Xinhua China 25 Index Fund (FXI), and Turkish Investment Fund (TKF) - "in a recovery driven by easy money, zero interest rates and fiscal deficits, emerging markets - the most cyclical part of the global economy - can rebound." Sees 50% upside.
- ProShares UltraShort Lehman 20+ Year Treasury ETF (TBT) - the U.S. Treasury market is the short of the century. Could take two years to work out.
- Nicholas-Applegate Convertible & Income Fund (NCV) - junk and convertible bonds could rally substantially, led by government buys and copycat private investors.
- Intel (INTC), Cisco Systems (CSCO), Yahoo (YHOO), Oracle (ORCL) and Microsoft (MSFT) - will double and even triple before going to zero. You'll do much better with them than with Treasurys.
Oscar Schafer
I'm not sure what the market will do in the next six to 12 months, but my picks will do well in the next 12 to 24 months.
- Shire (SHPGY) - despite expiration of ADHD drug Adderall, Shire probably has the best pipeline in the industry, including Adderall replacement Vyvanse. The market doesn't appreciate its acquisition of Transkaryotic Therapies, which has one of the strongest pipelines in the rare-disease sector. Shares ($41.50) could be worth $60.
- Wyeth (WYE) - diversified pharmaceutical company with underappreciated assets. Wyeth is a potential industry takeover target because of its attractive valuation, strong balance sheet and biotech franchise (this was written before Friday's story that Pfizer (PFE) is in talks to acquire WYE).
- Lender Processing Services (LPS) - develops software for banks that helps them service and/or foreclose on mortgages; should benefit from rising defaults, and the home-equity crisis.
- Time Warner "entertainment tub" - short 0.25 Time Warner Cable (TWC) shares for every Time Warner (TWX) share - TWX is focused on shareholder returns, and its best-in-class franchise - including Turner Broadcasting, HBO and Warner Bros. - is dramatically undervalued.
Mario Gabelli
Barack Obama will be president in two weeks... Infrastructure spending will mean not only bridges but broadband and a smart grid.
- O'Reilly Automotive (ORLY) - 250M cars with an average age of 9.5 years should be a boon for this do-it-for-me wholesaler.
- Telephone and Data Systems (TDS) - sells for $32, but it's believed it got a fully financed bid at a 50% premium to $65 from either AT&T (T) or Verizon (VZ). Its 70M shares of United States Cellular (USM) alone are worth $26. It's a double - maybe a triple.
- Cadbury (CBY) - has 10% of the non-U.S. chocolate market and 27% of the global gum market. Sells at a modest multiple. Earnings could grow by 15% as it focuses on revenue and margin expansion.
- Dr Pepper Snapple (DPN) - could get bought out, and even if it doesn't, it generates cash.
- Ascent Media (ASCMA) - sells at a discount to its cash.
- Liberty Media (LMDIA) - trades at $18 but you're getting $22 in net assets, $10 from a spinoff, and indirect control of DirecTV (DTV).
- Time Warner (TWX) - cable dividend will help TWX reduce debt. Generates great cash. In three years it will have no debt, $1.5B in cash, and earnings of about $1.20/share.
- Maine & Maritimes (MAM) - a partnership with Central Maine Power will connect its wind power to the New England grid, doubling earnings.
- Alberto-Culver (ACV) - owns Noxema, part of Sally Beauty (SBH), has $438M in cash and no debt. The product line fits with a larger company.
- Energizer (ENR) - customers are running down inventories for its batteries, razors and bras for now, but from a lower base, earnings will start growing 20%/year for the next five years. Shares could more than double.
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This article has 19 comments:
Lender Processing Services (LPS) - develops software for banks that helps them service and/or foreclose on mortgages; should benefit from rising defaults, and the home-equity crisis.
Time Warner "entertainment tub" - short 0.25 Time Warner Cable (TWC) shares for every Time Warner (TWX) share - TWX is focused on shareholder returns, and its best-in-class franchise - including Turner Broadcasting, HBO and Warner Bros. - is dramatically undervalued.
Mario Gabelli:
Most of your picks: QUESTION - Where do you live? Or should I ask, What planet would that be?
ICICI Bank (IBN) and Infosys Technologies (INFY), you have heard of a company called SATYAM? conservative???? if you were talking Japan I might buy it. But not India.
Morgan Stanley India Investment Fund (IIF), iShares MSCI Brazil Index ETF (EWZ), Templeton Russia & Eastern Europe Fund CEF (TRF), Greater China Fund (GCH) iShares Trust FTSE-Xinhua China 25 Index Fund (FXI), and Turkish Investment Fund (TKF). and just who wants to invest in India now???? when you can't depend on the local constabularity to even make a resonable stab at keeping things on the up and up? Course maybe the trainned the folks at the SEC too!
ProShares UltraShort Lehman 20+ Year Treasury ETF (TBT). You have heard that Lehman's went BANKRUPT right?
and wasn't it Barron's in the last few weeks that finnaly came clean and fessed up that they had their rose colored glasses on?
Help! Help!
Scott Black's XTO recommendation comes right on the heals of significant supply surge and low consumption. XTO hedging aside, the priced cash flow will be short lived. In my opinion (and I own the stock), we're looking at 4-5 years stock wise.
That said, where does one park money other than under the matress? Natural Gas [XTO, EP, etc.] for the long haul and electric utilities for the short income in the mean time.
On Jan 25 04:21 PM dw57 wrote:
> Oracle (seekingalpha.com/symbo...) - no debt????? how did
> they pay for all of those companies they bought in the last few years?
> and how many of their customers have major problems?
>
> ICICI Bank (seekingalpha.com/symbo...) and Infosys Technologies
> (seekingalpha.com/symbo...), you have heard of a company
> called SATYAM? conservative???? if you were talking Japan I might
> buy it. But not India.
>
> Morgan Stanley India Investment Fund (seekingalpha.com/symbo...),
> iShares MSCI Brazil Index ETF (seekingalpha.com/symbo...),
> Templeton Russia & Eastern Europe Fund CEF (seekingalpha.com/symbo...),
> Greater China Fund (seekingalpha.com/symbo...) iShares Trust
> FTSE-Xinhua China 25 Index Fund (seekingalpha.com/symbo...),
> and Turkish Investment Fund (seekingalpha.com/symbo...).
> and just who wants to invest in India now???? when you can't depend
> on the local constabularity to even make a resonable stab at keeping
> things on the up and up? Course maybe the trainned the folks at the
> SEC too!
>
> ProShares UltraShort Lehman 20+ Year Treasury ETF (seekingalpha.com/symbo...).
> You have heard that Lehman's went BANKRUPT right?
>
>
>
> and wasn't it Barron's in the last few weeks that finnaly came clean
> and fessed up that they had their rose colored glasses on?
finance.yahoo.com/echa...;range=1m;indicator=vo...
This may or may not be a good buy but it's not "an asset play"!
MSFT and INTC remain dominant, and the main question isn't who will unseat them, but rather how much they'll profit from their dominance. It may take years for them to earn returns, but they'll survive the downturn and pay a dividend that beats treasuries (and many bonds) in the interim - sounds like a good deal to me.
Intel is a better example and I can't argue with that. AMD is just vastly inferior.
On Jan 26 06:47 AM donzelion wrote:
> Faber's tech picks look a lot like several recent buys.
>
> MSFT and INTC remain dominant, and the main question isn't who will
> unseat them, but rather how much they'll profit from their dominance.
> It may take years for them to earn returns, but they'll survive the
> downturn and pay a dividend that beats treasuries (and many bonds)
> in the interim - sounds like a good deal to me.
>
Thanks!
On Jan 26 08:43 PM sr9web wrote:
> Regarding TBT - don't short the Treasurys until AFTER the next HUGE
> market sell-off.
>
you short treasuries after the next big selloff because you look for rate deterioration. Basically if you bought a treasury now and we had a big selloff that will most likely increase the par value of that T. Basically you want to short when the yield and par are at their absolute lowest, because some day along with inflation and market appreciation you will also get higher interest rates. Higher interest rates are the bain of people who do "safe haven" buying of bonds. That paltry rate they settle for basically guarantees no one will buy that issue from them at par therefore they sell at a loss or keep it to maturity and get their crappy rate. Buying treasuries now is the equivalent of buying stocks high. It's dangerous to buy fixed debt here unless you're dealing in very short term issues. If you're conservative you might want to wait for the next crap day on the markets and get yourself a few treasury TIPS.