Time to Bid! by Sandra Ward
Highlighted companies: Sotheby's Holdings Inc. (BID), Realogy Corp. (H), Tiffany & Co. (TIF), Ritchie Bros. Auctioneers Inc. (RBA)
Summary: A boom in the international art market has lead to spectacular growth in auctioneer Sotheby's Holdings Inc. (BID) this year (shares are up over 85%), and it could still rise another 20%. New wealthy collectors from Russia, China, and India, along with domestic hedge-fund managers and private-equity investors are driving the current art-market bull. Historically upturns in the art-market last six years -- meaning the present boom still has another three to go. Key figures: (1) Revenues are up 36% from last year. (2) Net income for '06 already exceeds '05, and the major art auctions of November are still-to-come. (3) Impressionist sales could more than double last year's ($380M vs. $180M). (4) At 17 P/E, it is still at a discount to other luxury-goods companies. (5) Last month it paid its first dividend ($0.10) in six years. (6) Profit margin: 31% vs. 2% in '01. (7) Cash flow: $210M up 45% from '05. Sotheby's key competitor is privately-owned Christie's International; the two dominate the market, run more-or-less even in market share, and tend to play follow-the-leader in price increases. Besides art BID collects licensing fees on their brand-name, Sotheby's International Realty, now owned by Realogy Corp. (H); Sotheby Diamonds, a retail-joint venture, will design and sell diamonds valued between $50,000 and $5M; it plans to expand its financial services through which it lends money to clients using art as collateral. On the downside, if Sotheby's is unable to match the torrid sales of recent auctions, year-to-year earnings comparisons could disappoint investors expecting never-ending growth.
Quick comment: For those who can't afford Cezanne or Chardin, Sotheby's is an opportunity for proxy investing in art • A recent stamp scandal at collectibles merchant Escala Group Inc. (ESCL) may have pushed their scandal-averse customers in BID's direction • Reuters headlined Barron's Sotheby's pump
Playing Tech's Rise and Fall By Tiernan Ray
Highlighted companies/ETFs: iShares Networking Fund (IGN), PowerShares Dynamic Networking Portfolio (PXQ), PowerShares Dynamic Software Portfolio (PSJ), Software HOLDRs (SWH), Internet HOLDRs (HHH), iShares Dow Jones U.S. Technology Sector Index (IYW), iShares Goldman Sachs Semiconductor Fund (IGW)
Summary: The increasing seasonality of many tech markets may account for the fact that over the past five years the Nasdaq Composite has beaten the S&P 500 in the fourth quarter, and over the past 10 years it has lead the broader index 7 times during the quarter. Strong consumer demand for electronic gadgets and Q4 corporate IT 'budget flush' give reason to believe the trend will continue this year. ETFs may be the best way to play this likelihood: options include the broad-based iShares Goldman Sachs Technology Fund (IGM), or tech sector ETFs capturing the relatively strong Networking or Software sectors, or relatively weak Internet and Semi sectors.
Quick comment: Extensive coverage of sector ETFs • Roger Nusbaum explores capturing sectors such as these with a low-beta strategy • Sector ETFs vs. Sector Mutual Funds • Risk-Return balance across iShares Sector ETFs • Seeking Alpha's ETF Investment Guide
Getting the World Wired By Bill Alpert
Highlighted companies: Cisco (CSCO), Juniper (JNPR), Polycom (PLCM), Radvision (RVSN), Alcatel (ALA), Avaya (AV), Microsoft (MSFT)
Summary: Data-networking giant Cisco has apparently found its desperately-needed new growth horizons in these emerging fields: internet video, cable companies pursuing the 'triple play' market, emerging economies, and corporate IT investment. Cisco stock has risen 40% since early August, yet still trades at 18.8 times next year's projected earnings - lower than its peers. Cisco's CSR-1 router, designed to beat competitor Juniper's high-end telecom product, has taken that market by storm and now offers cable and telecom companies the ability to route 'triple play' (internet, voice, and TV) data over a single network protocol. This, while traditional telecom suppliers like Lucent and Nortel have seen demand for their products wither. Meanwhile, corporations are moving toward Cisco's 'unified communications' solution for e-mail, IM, collaboration, security and telephony, and showing a remarkably high satisfaction rate from Cisco products and service. Microsoft is a looming competitor in this unified enterprise communications market, however, with software-based solutions running on alternate computer-to-computer networking.
Quick comment: Cisco's most recent earnings conference calls • Andrew Schmitt says these trends are the end of telecom as we know it but that Cisco's strong-armed domination of its sector can't last forever • Shlomi Cohen takes a closer look at Cisco partner Radvision • Like the networking sector in general? The iShares Networking ETF (IGN) is the way to play it
Western Union Calling by Michael Santoli
Highlighted companies: The Western Union Co. (WU), First Data Corp. (FDC), Moneygram International Inc. (MGI)
Summary: On Sept. 29, The Western Union Co. (WU) spun off from First Data Corp. (FDC). The company's business focuses on money transfers; its long-term profitability depends on cross-border emigration and immigrants wiring money home. The article looks at WU's strengths and weaknesses: Strengths: (1) Cross-border remittances grew 8%/year from 2003-2005, and WU increased its market share from 10-15%, allowing its revenue to grow 12% annually during the same period. (2) With 270,000 agents in 200 countries, it is more than three-times bigger than Moneygram International Inc. (MGI), its closest competitor. (3) Profit margins are a healthy 25% due to high service charges. (4) Key markets like Asia, India, Africa, and Russia are growing fast. (5) Established businesses that are spun off tend to outperform. (6) In the spinoff process WU management received stock options that are only profitable at levels above current prices (incentive!). Weaknesses: (1) Recent U.S. talk of a crackdown on illegal immigration has already led to reduced U.S.-Mexico transfers (10% of WU's current revenue) as potential customers fear government scrutiny; serious immigration reform could do worse damage. (2) Last month transfer records were subpoenaed; although WU won a stay until Oct. 16, at best the company will need to spend money to allay the fears of immigrant communities. Summary: At current prices, WU trades for about 18 P/E, not cheap, but a good deal for such a steady, low-capital-intensity business; it will be profitable to investors who stick with it through a potentially rocky short-term.
Quick comment: Unlike WU, Corrections Corp. of America (CXW) is a stock with a positive correlation to the Department of Homeland Security's Immigration and Customs Enforcement [ICE] initiative • Wal-Mart Stores Inc. (WMT), through its partnership with MGI, has aggressive plans to expand its financial services business • WU is scheduled to issue its first earnings statement on Tue. Oct. 24. • Reuters headlined the Barron's article, conveying its positive spin.
Latin America Rising By John Edmunds
Summary: Latin American markets deserve investor attention at this time, as the May-June decline in emerging markets showed relative strength in Brazil, Chile, Mexico and Peru and political uncertainly has ebbed. Those four nations have seen welcome financial reforms that invite international inflows; perhaps more importantly, reforms have encouraged middle-class citizens to hold and invest in local currency and stirred a vibrant corporate bond market. In addition, 'the whole region's ratio of external debt to GDP has declined, and its central banks have built up a war chest of foreign-exchange reserves.'
Quick comment: Latin American ETFs include iShares MSCI Brazil (EWZ) and iShares MSCI Mexico (EWW) • Some leading Latin American companies traded in the US are metals giant Companhia Vale Do Rio Doce (RIO), Brazilian Companhia de Bebidas Das Americas (ABV) and others listed here.
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