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BARRON'S COVER: Big Bargain by Andrew Bary
Highlighted companies: ConocoPhillips (COP), ExxonMobil Corp. (XOM), Chevron Corp. (CVX), Berkshire Hathaway Inc. (BRK.A), E.I. DuPont de Nemours (DD), EnCana Corp. (ECA)
Summary: Through shrewd acquisitions, ConocoPhillips (COP) is now the third-biggest U.S. energy company behind ExxonMobil Corp. (XOM) and Chevron Corp. (CVX). COP shares were punished after its Dec. '05 $35b acquisition of Burlington Resources, which it acquired when natural-gas prices were double their current level. Barron's likes the company:
ConocoPhillips assets have an estimated value of $95/share, $20 above current prices, making it "one of the biggest bargains in the energy sector and, indeed, among all of the world's largest publicly traded corporations, even though some analysts haven't yet awoken to the fact."
- Its 7x P/E ratio is the lowest among all the DJ Global Titans (the 50 largest companies worldwide), making it "too cheap to ignore" according to Robert Marcin of Defiance Asset Management. Put in another way, investors currently pay only $9/barrel for each of the company's 10b barrels of reserves.
- Respected shareholders include Berkshire Hathaway Inc. (BRK.A) -- "one of the company's biggest fans," owning 18m shares and doubling its holding this year -- Davis Selected Advisers, Wellington Management, Dodge & Cox and Barrow Hanley.
- Its rock-bottom P/E ratio and global asset base make it an attractive buyout target despite its massive $120b market cap.
- The company recently announced it will exercise restraint with acquisitions and beef-up share repurchases.
- Spun off from E.I. DuPont de Nemours (DD) in 1998, COP was worth only $12b just seven years ago -- now it is North America's largest natural-gas producer and its second largest refiner. It built itself on purchases such as a 19% stake in Lukoil and buying Tosco, a major U.S. refiner. Morgan Stanley's Doug Terreson: "The record speaks for itself; [CEO Jim] Mulva has made a lot of out-of-consensus purchases that have substantially rewarded shareholders."
- It received little credit for its Canadian oil sands position, which it strengthened in October reaching a deal with EnCana Corp. (ECA) that gives COP half of ECA's enormous oil-sands reserves, which could yield 5-6 billion barrels of crude. Production, now 50k barrels daily, could hit 400,000-500,000 by 2015.
- While some bears don't like that a high-percentage of its reserves are in mature fields, Mulva says critics are underestimating the technology available to extend the lives of older fields.
Related: 3 Reasons Why I Bought ConocoPhillips, Fuel For Thought: Which Integrated Oil Company Should You Own?, Oil: Prices and Producers -- Where They're Headed, ConocoPhillips Poised for Long Term Aggressive Growth, ConocoPhillips Plays Russian Roulette, Refines Profits, ConocoPhillips Q2 2006 Earnings Conference Call Transcript, Jim Cramer's Take on COP
BARRON'S INTERVIEW: Dropping Great Expectations by Neil A. Martin
Highlighted companies: Franklin Resources Inc. (BEN), BHP Billiton Limited (BHP), News Corp. (NWS), Suez (SZE), GlaxoSmithKline plc (GSK), sanofi-aventis (SNY), DirecTV Group Inc. (DTV), Comcast Corp. (CMCSA), Merrill Lynch & Co. Inc. (MER), JPMorgan & Chase Co. (JPM), France Telecom (FTE), Mobile TeleSystems OJSC (MBT). Telenor ASA (TELN)
Summary: Interview of Jeff Everett (pictured), chief investment officer of the Templeton Global Equity Group, a Franklin Resources (BEN) unit that oversees the $152 billion Templeton fund family. His investment strategy: He looks for unnoticed, undervalued stocks: "We like to go where expectations are the lowest." Some key points:
Related: And the Top Media Company of 2006 Is..., Eye On GlaxoSmithKline, The Risks of Investing in Telenor
- Risk management: Risk means owning stock for which expectations are difficult to meet/beat; he replaces such stocks with companies for which expectations are very low that have good prospects for outperformance. Examples: (1) He replaced BHP Billiton Limited (BHP) with News Corp. (NWS). (2) He has been switching Chinese banks with Taiwanese ones for their lower valuations. (3) He purged Suez (SZE) from his portfolio based on the market's "overly optimistic" expectations, but likes GlaxoSmithKline plc (GSK) because of its low valuation, vast resources that enable it to unearth new revenue sources, and because shares have gone nowhere giving it upside potential.
- Other picks: (1) Sanofi-aventis (SNY) -- management is very focused and the company has exciting new products such as Rimonabant, a promising weight-loss drug. He thinks the market is caught up on data points and not looking at the company's long-term potential. (2) Media: News Corp, DirecTV Group Inc. (DTV) and Comcast Corp. (CMCSA) -- previous uncertainty in the sector created a buying opportunity. He's comfortable with cash flows, management, and long-term prospects. (3) Financial: Merrill Lynch & Co. Inc. (MER), JPMorgan & Chase Co. (JPM). (4) Telecom: France Telecom (FTE) -- it has 40% of its fixed-line business moved over to VOIP, and the wherewithal to withstand significant competition. It owns half of the Polish incumbent, and are the leading mobile providers in Spain in Holland, with smaller stakes in other countries. Mobile Telesystems OJSC (MBT) -- very large, very fast-growing Russian wireless company. He visited MBT this fall and found it exceeding expectations in every metric. Telenor ASA (TELN) -- Norway's major telecom provider.
Cooking at Warp Speed by Jay Palmer
Highlighted companies: TurboChef Technologies (OVEN), Starbucks (SBUX), Middleby (MIDD), General Electric (GE), Walt Disney Co. (DIS)
Summary: TurboChef's super-fast ovens are garnering rave reviews for the high-quality cooking and enhanced taste they produce in a fraction of the time conventional ovens take. That's perfect for its growing client roster including Subway, Disney theme park restaurants and Starbucks -- currently installing ovens at a rate of 1,000 per quarter in their branches. However, despite increasing revenues almost 18-fold from 2001-2005 the stock continues to be the fodder of short sellers: TurboChef 's only annual profit in 15 years was in 2004, and it's expected to lose up to 80 cents a share this year; better than last year's $1/share loss. Profit should come in 2007, at 1-5 cents a share. Yet short sellers overlook TurboChef's potential: (1) Its small market cap cap ($418 million) is just half that of profitable rival Middleby's. (2) Despite an 85% run-up since the summer, the stock still has upside potential of 40% as more commercial food retailers like Dunkin (Donut) Brands buy more of what they really need -- speed. (3) A pricey residential model coming out in March could potentially contribute 10% of all sales, which bulls project could reach $100 million in '07 and $145 million in '08. (4) Assuming all goes well, TurboChef could be a tasty dish for big companies like GE or Miele to gobble up. Bottom Line: Even with their recent sharp rise, shares could climb another 40% this year.
Related: TurboChef Technologies- What's Cooking? (OVEN)
TECHNOLOGY TRADER: A Loss Of Direction by Bill Alpert
Highlighted companies: SiRF Technology (SIRF), Garmin (GRMN)
Summary: GPS chipmaker SiRF took a dive in trading last week after a Jeffries analyst found that SiRF has lost its near monopoly over supplying the two dominant GPS makers worldwide, Garmin and TomTom. TomTom will use another chipmaker, Global Locate, for the next generation of its biggest selling unit, to be unveiled at CES next month. But with this market growing 50% annually, even amidst falling unit prices, SiRF bulls have a good case ongoing. Cellular operators will soon begin integrating location-based services that will require GPS chips, which should boost SiRF revenues. But Alpert notes that should the analyst's claim prove correct, "Wall Street might not be willing to pay 34-times earnings for a chipmaker that's lost a de facto monopoly in its market." Should Global Locate become larger, the GPS chip market may become price-competitive a la Intel/AMD -- and there goes the justification for SIRF's high multiple.
Related: SiRF Technology Holdings Experiences Wipeout, SiRFs Up, Dude - The GPS Wave Is Just Starting To Roll In, SiRF Technology Aims to Beat Back Competition in Wireless GPS Chips, GPS Player SIRF Has Lost Its Way • Garmin Q3 2006 Earnings Call Transcript
Emboldened Explorer by Robin Goldwyn Blumenthal
Highlighted companies: Newfield Exploration (NFX)
Summary: Wall Street seems to have missed the fact that gas and oil E&P company Newfield has diversified its operations away from the Gulf of Mexico and into the American heartland, in the process boosting its expected production 20-25% in the coming year. Hurricanes Katrina and Rita damaged Newfield's offshore infrastructure in 2005, causing the company to miss production targets for two quarters, but successful horizontal drilling in the promising Woodford Shale area of southeast Oklahoma should ensure more stable onshore growth for years to come. Trading at a 15% discount to its peers and at a multiple of 4.5 times expected 2007 cash flow, "this is a cheap stock."
Related: The Long Case for Newfield Energy, all Seeking Alpha coverage of Exploration & Production stocks
Don't Bank On It by Neil A. Martin
Highlighted companies: New York Community Bancorp (NYB)
Summary: Like many regional banks, NYCB has been struggling in the current unfavorable interest rate environment (inverted yield curve), and amidst the housing slowdown. Its approach has been to acquire a number of small banks that can help steer its activity toward higher-margin commercial lending. The nation's fifth largest thrift and second largest mortgage lender to multifamily dwellings in the northeast, NYCB's strategy may not work for income investors, as its $1 dividend may need to be cut in the near future. Though Barron's notes that "for speculators, the shares may be worth a bet on the chance of a takeover," given the consolidation that has been occurring among smaller commercial banks.
Related: Seeking Alpha coverage of Regional & Commercial banks
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