Jon Markman on Quantum, Unisys and an Economic Recovery

Jon Markman, who isn't known for his stock pumping--or economy pumping, for that matter--in his MSN column is starting to sound a *bit* more optimistic. He focuses on the uptick (although it is still in negative terrority) in the Weekly Leading Index, published by the Economic Cycle Research Institute as a sign that we may be starting the long climb out of a very deep recession.

In addition, he emphasizes that stock behavior and economic conditions do not always closely follow each other and as such, and feels that two stocks in particular could reward investors in the coming months: Quantum Corporation (QTM) and Unisys Corp (UIS). Penny stocks in this climate are risky for my taste and it's a bit surprising MSN allowed Markman to push them in his column, especially to the tune of 5-10x 'potential' returns; look at what his column seemingly did to the share price (up 36%+ on QTM and 69% on UIS). This in itself raises some red flags for me that these stocks should be treated with caution and traded nimbly. Nevertheless, here are some excerpts from his article:

QTM, news, msgs) is a data storage technology company you may remember from the 1980s and '90s as a maker of consumer disk-drive and enterprise tape-drive systems. It once traded above $25 and now, after a few changes in business plan, goes for 69 cents a share. Its market capitalization is $159 million but it has $51 million in cash, or 24 cents a share. It does $870 million per year in revenue, is cash-flow-positive and has the potential to earn as much as 30 cents a share in fiscal 2010, according to my sources. Its primary undervalued asset today is a patent on one of the hottest storage technologies around due to its ability to save companies a ton of money: data deduplication....

Unisys (UIS, news, msgs), one of the oldest companies in technology and the product of the merger of computer pioneers Sperry and Burroughs, has a $290 million market cap despite taking in $5.2 billion in revenue per year and being strongly cash-flow positive. The board recently brought in a turnaround expert fresh off the successful cleanup and sale of Gateway Computer, and by all accounts he's already done a great job of narrowing down debt to less than $1 billion, cutting costs, boosting margins and tossing outdated matrix-management methods that had ossified decision-making. Shares were smashed in the fall and again in March when two sets of hedge fund buyers were forced to liquidate due to heavy redemptions and margin calls.

My sources think Unisys has earnings power next year of up to a dollar, which means that at 75 cents it's trading at a forward price-to-earnings multiple of less than 1. UIS depends on large government contract renewals that pay off like clockwork; hemming shares down now are concerns that one of its biggest customers, the Transportation Safety Administration, won't continue. These fears are probably overblown, as numerous other state and federal agencies have renewed lately. If UIS earns only 50 cents in two years and a 10 PE multiple, it's worth $5, or more than five times the current price."

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Comments

[Bandwagon2009:]

Hmm...if so I wonder why the bond (march 2010) for UIS was trading at a more than 40% discount.
It has a $250M/yr contract coming up for renewal with US Govt - DHS which looks riskly.
The organization is still too complex, and the SG&A and capital expenses are much higher than comparable companies.
And let's not forget the pension obligations (gazzillions of dollars in potential liabilities).
I wish them well - but don't want to ignore the raw numbers.

Apr 17 07:38 AM

[Scott's Inv...:]

Agreed, I think Markman grossly underestimated the risk of the two stocks in his column. I myself am not a buyer after the huge move they made yesterday which looks like it was largely attributed to his column. He tends to have a decent perspective on the overall economy/macro trends in the markets, but I wouldn't follow specific stock recommendations of his blindly.

Apr 17 10:29 AM

[thomas1442:]

so do u think unisys is a smart buy for monday april19,2009?



On Apr 17 10:29 AM Scott's Investments wrote:

> Agreed, I think Markman grossly underestimated the risk of the two
> stocks in his column. I myself am not a buyer after the huge move
> they made yesterday which looks like it was largely attributed to
> his column. He tends to have a decent perspective on the overall
> economy/macro trends in the markets, but I wouldn't follow specific
> stock recommendations of his blindly.

Apr 20 01:19 AM