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Excerpt from Barron's Weekly Magazine. Receive all our excerpts by signing up here:

The Trader: Abitibi by Vito J. Racanelli

Summary: Over the last nine months Abitibi-Consolidated Inc. (ABY-OLD) shares are down over 40% to $2.64. The reasons: A strong Looney, a weak housing market, ongoing concerns about the newspaper industry, and the company hasn't turned a profit in three years. Fifty percent of analysts are presently bearish, another 35% are neutral, and it carries a sizeable short position. But John Schneider of the Touchstone Large Cap Value Fund says the Street is missing its turnaround potential: 1) The Looney is now down from highs above $0.90 to $0.85 - every penny change amounts to $0.08 Cdn./share in earnings, a substantial amount considering forecasts call for a loss of $0.30/share. 2) Newspaper worries are overdone; global newsprint demand is still growing, and demand for magazine-grade paper should overtake newsprint volumes by 2010. If the currency bias continues to blow its way, and the housing market firms, Schneider sees $0.50/share earnings within a few years, which with a P/E multiple of 10, would make shares worth double their current prices. Downside seems limited, and "given how unloved the stock is, it likely wouldn't take much in the way of good news to push it up significantly."
Related Links: Abitibi: Ugly Paper Duckling Can Become a Swan, Abitibi Consolidated: A Peter Lynch Play?, Trees and Paper: The Rodney Dangerfield of Commodity Stocks

Abitibi 28 01 2007

Source: Abitibi's Better Than It Looks on Paper - Barron's