Here's a one page summary of leading stories from this weekend's (July 22) 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.). You can get this summary emailed to you every week by signing up here.
Time To Buy: Ten Cheap Stocks By Andrew Bary
Highlighted companies: General Electric (NYSE:GE), Cisco Systems (NASDAQ:CSCO), Nestlé (OTCPK:NSRGY) News Corp. (NASDAQ:NWS), Dow Chemical (NYSE:DOW), Chevron (NYSE:CVX), Lehman Brothers (LEH), Home Depot (NYSE:HD), Vodafone (NASDAQ:VOD), Wal-Mart (NYSE:WMT); Louisiana-Pacific (NYSE:LPX), Brunswick (NYSE:BC), Ashland (NYSE:ASH), Cleveland-Cliffs (NYSE:CLF)
Summary: Fed chief Bernake's hint of ending the tightening cycle and shrinking domestic and international P/E multiples are two good reasons to believe that both global equity markets may spring back strongly from recent weakness. The last two times the S&P 500's multiple broke under 15, as it now has on remarkably strong earnings growth, were 2002 and 1995 -- and both proved great buying opportunities. The P/E multiple contraction has been most pronounced among large-caps: Dow, Chevron and Lehman trade for an under 10 multiple, while the homebuilders hold the lowest industry P/E. Higher interest rates, inflation and earnings concerns are to blame, but the M&A boom, largely financed by hard cash, is a positive sign. Barron's names its top ten value picks (in bold above) and four good buyout prospects (final four above).
Quick comment: Barron's is the latest among many observers who believe large-caps will reassert themselves -- Roger Nusbaum noted that if this scenario plays out, holding the Rydex Russel Mega Cap ETF (NYSEARCA:XLG) may be a smart way to play it; Jeffrey Saut's been onboard since January, but is less enthusiastic about the mega-caps. Yet Birinyi's TickerSense raise a warning sign, illustrating the 'giant sucking sound' of global movement out of U.S. large caps.
Does the House Always Win? By Robin Goldwyn Blumenthal
Highlighted companies: Station Casinos (NYSE:STN)
Summary: Station Casinos has taken advantage of the red-hot Las Vegas real-estate market to drive record cash flow and earnings; its stock is up 45% in the past two years to $62. Yet Station, which operates 12 casinos off the Strip and has states in 3 others, is positively 'slave to the housing market and local economy,' and should that cool, Station could be hit hard. Short-sellers are building positions, seeing Station as a particularly efficient way to profit from the national housing slowdown and outright bubble in the Las Vegas area. On a P/E and price to cash-flow basis, Station looks expensive as well. Station bulls maintain that since the company receives 87% of its cash flow from slot machines and very little from hotels, it's less vulnerable than the big Strip casinos. Bottom line: The Vegas housing market is overpriced, and when it tumbles, Station stock could be halved as pinched locals stop playing the slots.
Quick comment: Look for Station to drop Monday morning on this article. Interesting that just last week Barron's published a bullish take on Station from Larry Haverty, who sees no Vegas slowdown on the horizon.
Awash in a Sea of Debt: Interview with Dean LeBaron By Sandra Ward
Highlighted companies: Gold ETF (NYSEARCA:GLD)
Summary: Dean LeBaron, chairman of Virtualquest and publisher of Complexity Digest, is a pioneer in applying technology and complex systems to investing. His current outlook: Globalization is taking on a decidedly less American flavor, but the networking effects allow investors unprecedented intelligence - he's looking for international bargains, defined as 'two or three times earnings or three times cash.' Central Africa 'might well be the last place' to find this, as today's financial services pros have scoured everything else. In international markets, he sees the center of gravity moving south and toward Asia, though most Americans' portfolios have not followed suit. He's very concerned about rising U.S. governmental and corporate debt, and currently has most of his money in cash and gold/silver.
Quick comment: Remarkable that LeBaron has nothing in U.S. equities, as 'they don't seem cheap enough to make it compelling'; this, in the same issue whose cover announces that stocks are remarkably cheap...
Lights On: ITC Fans See a Power Surge By Jack Willoughby
Highlighted companies: ITC Holdings (ITC), DTE Energy (NYSE:DTE), CMS Energy (NYSE:CMS)
Summary: The nation's power grids are frail and in need of upgrading. ITC Holdings is the only publicly traded pure-play transmission company, and it's likely to benefit from new regulatory incentives that favor such independent firms. ITC was floated as an IPO last year from its private equity owners, and currently trades at 30 times earnings. But profits should surge 45% next year amidst regulatory reform aimed at encouraging new investment in transmission -- precisely ITC's market. To top it off, the company pays a nice 4% dividend yield.
From Ashland to Cashland By Michael Santoli
Highlighted companies: Ashland (ASH), Marathon Oil (NYSE:MRO)
Summary: Ashland may seem to be making all the wrong moves by selling off its gasoline-refining and paving divisions just as those sectors are booming, but if the second of those deals goes through, the company will have a huge cash horde, no debt, and a chemical-distribution/speciality chemicals/motor-oil business that is highly undervalued. Barron's believes the stock could be worth 'at least 20% more than their recent $65 if company spinoffs deliver the promised results.'
Quick comment: Ashland shares should get a pop Monday morning on this positive writeup. Note that this week's cover story includes an opinion that Ashland is an attractive takeover target as well. On Friday, Jim Cramer cited Ashland's roadbuilding business and suggested 'buying a little ASH' before it reports earnings this week.
TECHNOLOGY TRADER: Amgen Fights Rivals, Clock By Bill Alpert
Highlighted companies: Amgen (NASDAQ:AMGN), Novartis (NYSE:NVS), Johnson & Johnson (NYSE:JNJ)
Summary: Biotech leader Amgen has fallen this year alongside a general slump in the sector, but the company has fundamental challenges as well: it's key blood cell treatment for kidney disease and cancer has growing competition from European 'generic-style' drugs (from Novartis, among others) as Amgen's patents expire there. Moreover, in the U.S., Amgen is fighting Roche over that Swiss company's blood treatment that could take a good chunk of its market. The key question is can the company stave off these challenges long enough to allow new pipeline drugs to emerge?
Quick comment: Alpert doesn't express a direct opinion on the matter, but the very question may be disconcerting for Amgen stockholders unaware of the challenges facing the company. Here's a summary of Amgen's earnings report from last week, and the conference call transcript.
SIZING UP SMALLCAPS: Cooking With Gas By Rhonda Brammer
Highlighted companies: Energen Corp. (NYSE:EGN)
Summary: While oil prices reach new highs, natural gas prices actually dropped to an 18-month low in early July of just $5 per BTU -- down from $15 late last year. The issue is high storage plus the inability to easily transport excess gas. But gluts quickly turn to shortages in this market, and the long range picture for demand is strong indeed. Peter Vig of Dallas' RoundRock Capital likes Energen, an Alabama-based oil-and-gas company that's been buying up low-risk gas properties and now sells for just 10 times 2007 earnings as Vig calculates them (more conservatively than Energen's management). A potential windfall in a new Alabama shales lease further enhances the potential payout in owning Energen.
Quick comment: Energen's quarterly earnings growth is 48.6% -- compare that to its peers.
PLUGGED IN: Glitzy Gadgets Earn Their Keep By Mark Veverka
Highlighted companies: Apple (NASDAQ:AAPL), Motorola (MOT), Nokia (NYSE:NOK), CDW (CDWC)
Summary: As feared, last week's tech earnings drove stocks down, with the exception of companies 'catering to the cool kids': Apple and Motorola had blowout quarters, showing that consumer electronics is currently fundamentally stronger than corporate technology. Nokia reported 'somewhat disappointing results,' but gave a positive signal for the cellphone industry, as handsets should grow by at least 15% this year. Google's strong quarter is a further sign that consumer activity remains robust, while enterprise-exposed IBM, Intel, SAP and Microsoft and Dell disappointed. CDW - the reseller of computer components to businesses - reported a 'surprisingly strong quarter'. Softness at Best Buy and Circuit City suggest that it's not retail consumer electronics in general that's booming, but rather the handful of hot products -- like Macs and Motorola RAZRs -- that are 'swimming against the tide'.
Quick comment: Veverka made a great call on Apple in last week's Barron's -- it's worth a read even after Apple's earnings, since he appears to have been nailed the significance of Apple's PC sales to its ongoing strength.
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