Treasury Secretary Paulson Optimistic on Economy
Treasury Secretary Henry Paulson, interviewed by ABC for a TV broadcast, echoed the reassuring tone of Fed Chair Ben Bernanke before the House Budget Committee last week by stressing the health of the U.S. economy. The DJIA had its worst week in over four years following sharp declines in China and elsewhere and comments from former Fed Chair Alan Greenspan suggesting the economy might slip into recession. Paulson emphasized that the Dow is up almost 11% and the S&P 500 9%. "The consumer's strong," he said. "Exports have been greater than imports for quarters running, and they're adding to our growth...We've got a very healthy labor market. ... Inflation seems to be contained. And what really makes a difference to me is the average worker is now beginning to feel the benefits. Real income is up 2.1% for the average American worker over the last year. So I'm feeling good about the U.S. economy." Paulson, who will be traveling to China this week, said that country will have to accelerate its process of currency reform, which some U.S. manufacturers claim is undervalued by 40%. He continues to resist demands by U.S. legislators for protectionist barriers that could temper the trade deficit with China, which is at a record $232.5 billion.
Sources: Reuters, International Herald Tribune, Washington Post
Commentary: Bernanke Remains Sanguine After Selloff • The Market Decline: Keeping The Big Picture in Focus • Fourth Quarter GDP, Core Inflation Revised Downward • Greenspan: Recession Possible by End of 2007
ETFs to watch: S&P 500 Index (NYSEARCA:SPY), Diamonds Trust Series 1 ETF (NYSEARCA:DIA), iShares Lehman Aggregate Bond (NYSEARCA:AGG)
U.S. Equities Suffer Worst Weekly Decline in Four Years, Leading Bonds Higher
The U.S. equity market experienced its largest weekly decline since January of 2003 wiping out $837 billion in market value, spurred by a global selloff. The heavy declines also meant the S&P 500 index closed lower for the month of February - the first monthly decline in eight months. The declines were led by the Nasdaq which registered a loss of 5.9% for the week; the S&P 500 and Dow Jones Industrial Average also closed the week sharply lower - by 4.4% and 4.2% respectively. The widespread declines spurred 10-Year Treasury Notes, which rang up their biggest gain in five months, as investors moved holdings into the safety of government debt. According to Castleton Partners fixed income manager Henley Smith, "People woke up and thought about risks they've been taking." The bearish action contributed to a lower Reuters/University of Michigan consumer-sentiment index reading than economists were expecting. February's index dropped to 91.3 from January's 96.9.
• Sources: Bloomberg(i), (ii), AP, Reuters, Wall Street Journal
• Commentary: Correction's Impact on Market Sentiment • Thinking About a Crash • How to Cash In on Last Week's Selloff - Barron's • The Day After: U.S. Overbought/Oversold ETFs
• Stocks and ETFs to watch: S&P 500 Index (SPY), Diamonds Trust Series 1 ETF (DIA), NASDAQ 100 Trust Shares ETF (QQQQ), iShares Lehman 7-10 YR Treasury Bond (NYSEARCA:IEF), iShares Lehman Aggregate Bond (AGG)
Palm's Share Price Rises as Takeover Talk Gets Louder
Shares of Palm Inc., manufacturer of the Treo smartphone, rose 11% on Friday to over $18 on speculation that Nokia is considering buying the company. The share price has soared over 25% this year on persistent takeover rumors. Palm's market cap is now about $1.7 billion, slightly more than its total revenue during the last fiscal year. In addition to Nokia or a private equity firm, Motorola has been suggested as a possible purchaser; other analysts believe Hewlett-Packard or Dell are more likely candidates as they could use an entry into the wireless services market. Taiwanese phone maker High Tech Computer Corp. has also been mentioned as a possibility. Palm has engaged the services of Morgan Stanley to help it evaluate its options. Though Palm's famous name retains some value, some analysts believe the now-expensive company has irretrievably lost the "coolness" high ground to rivals like Apple's iPhone and the Motorola Q smartphone. "If you were to take the Treo and put it next to some [of] the devices that have been launched, it looks like a brick," said Gartner analyst Ken Dulaney.
Sources: Wall Street Journal, Reuters, CNNMoney.com
Commentary: Palm: Takeover Rumors Drive Stock Higher • Why Palm Takeover Talk Isn't Far Fetched • Palm As a Buyout Target: Suitors Abound
Stocks/ETFs to watch: Palm, Inc. (PALM), Nokia Corp. (NYSE:NOK), Motorola Corp. (MOT). Competitors: Apple Inc. (NASDAQ:AAPL), Hewlett-Packard Co. (NYSE:HPQ)
Alltell Courting Potential Buyers
Little Rock-based Alltell Corp., the country's fifth-largest wireless operator by subscribers, is accelerating its effort to sell itself to another carrier. AT&T has responded to Alltell's overtures with interest, but also with concern over possible antitrust problems and worries over technology integration. Alltel's $22 billion market capitalization, which continues to rise on takeover speculation, is also a concern to potential buyers. Sprint Nextel has held talks with Alltell, but a transaction is not considered likely before Sprint completes the integration of its own 2005 merger. Alltell CEO Scott Ford says the company is reviewing "a wide span of options" about "all aspects of potential value creation from balance sheet restructuring to strategic alternatives to operations opportunities." Those options might include payment of a hefty one-time dividend, a stock buyback, or a redraft of network-sharing agreements with other companies. Alltell's attempts to initiate talks might be attributable to a pending U.S. government auction for radio spectrum, the terms of which preclude participating carriers from communicating with one another. Alltell recently posted better-than-expected Q4 results, adding 228,000 subscribers and generating earnings of $216 million.
Sources: Wall Street Journal, Reuters
Commentary: Verizon Wireless To Swallow Alltel Corp? • Alltel Still A Pricey Buy. Conference call transcript: Q4 2006
Stocks/ETFs to watch: Alltel Corp. (NYSE:AT), AT&T Inc. (NYSE:T), Sprint Nextel Corp. (NYSE:S), Verizon Communications Inc. (NYSE:VZ). ETFs: Vanguard Telecom Services ETF (NYSEARCA:VOX), Telecom HOLDRs (NYSEARCA:TTH)
Microsoft Takes Next Round in Battle with Alcatel-Lucent
A week after Microsoft lost a court battle with Alcatel-Lucent over two MP3 digital music technology patents to the tune of $1.5 billion, a judge in the same California court decided in Microsoft's favor regarding a speech-coding patent. Alcatel-Lucent will appeal the decision. The judge dismissed Alcatel's claim that Microsoft's Windows Media Player, NetMeeting and Messenger programs infringe its speech pattern analysis technology patent. These two suits are among six to be tried in the same court. They derive from claims made by Alcatel in 2003 against PC manufacturers Gateway and Dell over technology patents developed at Bell Labs, Alcatel's research unit. Cases yet to be tried involve video coding in Microsoft's Xbox console and Windows user interface.
Sources: The Mercury News, Reuters, Forbes, MarketWatch
Commentary: Alcatel-Lucent Wins $1.52 Billion Patent Judgment Against Microsoft • Patent Fights Are a Legacy of MP3’s Tangled Origins [New York Times] • Rob Black's Technology Stock Report
Stocks/ETFs to watch: Alcatel-Lucent (ALU), Microsoft Corp. (NASDAQ:MSFT), Gateway Inc. (GTW), Dell Inc. (NASDAQ:DELL). Broadband HOLDRs (NYSE:BDH), iShares Goldman Sachs Technology Indx (NYSEARCA:IGM), iShares Goldman Sachs Software Index (NYSEARCA:IGV)
Tribune Sells Two Papers to Gannett
Media group The Tribune Company will sell its two smallest newspapers, Greenwich Time and the Stamford Advocate, to Gannett Co. for a combined total of over $65 million, as part of its plan to sell $500 million in assets. Tribune is also fielding offers for its nine other papers and 25 TV stations as well as for the Chicago Cubs baseball team. The company continues to evaluate a "self-help" plan that would spin off the broadcast properties into a single company against three bids it has received: one from Sam Zell, who recently sold his Equity Office Property Trust REIT to the Blackstone Group in one of the biggest LBOs in history; one from billionaires Eli Broad and Ronald Burkle, and one from the Chandler Trusts, the company's largest shareholder. The company has said it will make a final decision at the end of this month. Gannett shares fell 1.29% to $60.42; Tribune shares fell less than 1% to $30.
Sources: Reuters, Hartford Courant
Commentary: Tribune Mulls Offer from Sam Zell • WSJ: Tribune Co. Now Leaning Away From Selling Itself • Chandler Family Threatens Tribune With Proxy Fight
Stocks/ETFs to watch: Tribune Company (TRB), Gannett Co., Inc. (NYSE:GCI). Competitors: Dow Jones & Co. Inc. (DJ), The Washington Post Co. (WPO), The McClatchy Company (NYSE:MNI), New York Times Co. (NYSE:NYT)
JVC Shares Rise on Buyout Speculation
Shares of consumer electronics company JVC (Victor Company of Japan) gained 5% in Tokyo and settled up 1.5% after the Nikkei Index newspaper reported that two private equity firms are planning to bid for the company. Matsushita Electric Industrial Co. holds a majority stake in JVC worth $716 million as of Friday's close. The newspaper, which did not disclose its sources, said Texas Pacific Group and Cerberus Partners LP will each submit a bid for JVC this week. JVC, which is attempting to cut costs to keep pace with the rapid slide in prices for flat-panel TVs and DVD players, has posted losses the past two years. JVC manufactured Japan's first television set in 1939 and invented the VHS home video recorder in 1976, which ended the reign of Sony's Betamax. Matsushita, Texas Pacific and Cerberus declined to comment on the report.
Sources: Bloomberg, MarketWatch
Commentary: Matsushita's Predicament: What to Do with JVC? • Don't Expect LCD Prices To Recover Anytime Soon • Following the LCD Panel Price Plunge
Stocks/ETFs to watch: Matsushita Electric Ind. [ADR] (NYSE:MC), Victor Co. of Japan (JP: 6792). Competitors: Philips Electronics NV (NYSE:PHG), Sony Corp. (NYSE:SNE). ETFs: BLDRS Asia 50 ADR Index (NASDAQ:ADRA)
TRANSPORT AND AEROSPACE
Blackstone Group Eyeing Chrysler
Private equity firm The Blackstone Group is the leading contender to purchase DaimlerChrysler's ailing Chrysler group. The Detroit News reported this weekend that the private equity firm, which -- along with several other suitors -- was recently shown Chrysler's private financial data, is considered the leader by virtue of its $125 billion war chest and experience in the auto industry. Blackstone is the majority owner of TRW Automotive Holdings and was a main investor in American Axle and Manufacturing. On February 14, DaimlerChrysler CEO Dieter Zetsche announced that "all options" were being considered with regard to Chrysler, which posted a $1.5 billion loss in Q3 2006. Other contenders include Cerberus Capital Management, which is attempting to purchase bankrupt auto-parts manufacturer Delphi Corp., and General Motors. Chrysler is considered by analysts to be a tough buy: it brings with it an estimated $18 billion in healthcare liabilities. Blackstone recently closed the biggest LBO in history: the $39 billion purchase of real-estate company Equity Office Partners.
Sources: The Detroit News, MarketWatch, International Herald Tribune
Commentary: Financial Times: Chrysler Considering An All-Equity Deal With GM • Large Private Equity Firms Approached About Buying Chrysler • DaimlerChrysler Is Disclosing Chrysler's Financial Information to Suitors
Stocks/ETFs to watch: DaimlerChrysler AG (DCX). Competitors: Ford Motor Company (NYSE:F), General Motors Corp. (NYSE:GM), Toyota Motor Corp. (NYSE:TM). ETF: iShares MSCI Germany Index (NYSEARCA:EWG)
And Then There Were None: UPS Cancels Last Remaining Airbus Order
Airbus has lost its last open contract for the superjumbo A380F cargo freighter. UPS Inc. has canceled its order for 10 of the aircraft, citing Airbus's halt in development of the much-delayed freighter in order to meet delivery deadlines on the passenger version. Only last week, UPS signed an agreement with Airbus to postpone delivery of the first A380 by three years until 2012, but the shipping company learned after the fact about the development halt. UPS "now understands Airbus is diverting employees from the A380 freighter...to...the passenger version of the plane," UPS COO David Abney said. UPS spokesman Norman Black: "We just have no confidence that they can deliver the freighter version of this plane by 2012." The cancellation of the UPS order, which would have been worth up to $3 billion list, follows a cancellation by FedEx Corp. four months ago for another 10 planes and leaves Airbus with no customers for the freighter. UPS has not yet stated whether it will turn to Airbus rival Boeing to supply its cargo plane needs, though there is speculation that the company is evaluating Boeing's 747-8 jumbo jet.
Sources: Wall Street Journal, Herald Sun, Reuters, Forbes, Business Week
Commentary: UPS Orders 27 Cargo Planes from Boeing • Airbus Should Get Cracking On a Regional Jet Program • Boeing Continues To Succeed at Airbus' Expense • Boeing One-Ups Airbus Yet Again With FedEx Contract
Stocks/ETFs to watch: The Boeing Company (NYSE:BA), Lockheed Martin Corp. (NYSE:LMT), Northrop Grumman Corp. (NYSE:NOC). ETFs: iShares Dow Jones US Aerospace & Defense (NYSEARCA:ITA), PowerShares Aerospace & Defense (NYSEARCA:PPA), DIAMONDS Trust, Series 1 (DIA)
ENERGY AND MATERIALS
SEC Alleges Insider Trading of TXU Call Options
The SEC has issued a temporary restraining order on several as-yet unidentified accounts for trading in TXU Corp. call options that started on February 21 -- two days before word reached the Street that the Texan electrical utility was going to be sold to private equity firms, and five days before the deal was officially announced. The SEC alleges the traders bought 8,020 TXU call option contracts between February 21 and February 23 on "material, nonpublic information" that earned them $5.4 million in profits. The court order freezes those assets, orders the investors to identify themselves and forbids them from destroying any financial records. The unidentified purchasers bought the options through foreign brokerages Credit Suisse, Fimat Banque Frankfurt Zweigniederlassung and UBS AG. Trading in TXU call options septupled on Feb. 23; options trader Jon Najarian classifies the purchases ahead of the official announcement "textbook insider trading." TXU shares gained almost 14% on February 26, the day the deal was made public. If the transaction is completed, TXU will be bought for $45 billion, making it the biggest LBO in history. The intended purchasers are a group led by Kohlberg Kravis Roberts and the Texas Pacific Group.
Sources: Business Week, Forbes, Bloomberg, Reuters, MarketWatch, Wall Street Journal
Commentary: TXU Smoothes Path for Biggest-Ever Buyout • TXU Acquisition: Are Investors Succumbing To Short-Term Thinking? • TXU Soaring: Largest Leveraged Buyout in U.S. Corporate History At Hand
Stocks/ETFs to watch: TXU Corp. (TXU). Competitors: American Electric Power Co. Inc. (NYSE:AEP), Centerpoint Energy Inc. (NYSE:CNP), Reliant Energy Inc. (RRI). ETFs: Utilities HOLDRs (NYSEARCA:UTH), Vanguard Utilities ETF (NYSEARCA:VPU), Utilities Select Sector SPDR (NYSEARCA:XLU)
Royal Bank of Canada Beats Estimates, Raises Dividend; Shares Higher
Royal Bank of Canada reported a 27.6% increase in its 1Q07 profit, beating analyst estimates and sending shares higher by $0.41, or 0.89%, to $46.42 Friday in NYSE trading. By the numbers, Royal Bank pulled in net earnings of C$1.49 billion ($1.27 million), good for EPS of C$1.14 (C$1.16 excluding one-time charges), versus a profit of C$1.17 billion (EPS of C$0.89) during the year earlier period. Consensus estimates were for EPS of just C$0.99 according to both Reuters and Bloomberg estimates. Revenue was higher by 15% to C$5.7 billion, its biggest jump in at least two years. Royal Bank's quarter was powered by especially strong mutual fund sales (up 36%) and investment-banking. The bank raised its dividend 15% as a result - the biggest such raise since at least 1996. Shares rose 1.8% in Toronto on the news, their biggest gain in four months. CEO Gordon Nixon plans to continue to grow Royal Bank's market share in the U.S. and Europe; the bank is the largest Canadian bank by market share.
• Sources: Press Release (i), (ii), Bloomberg, Forbes, Reuters
• Commentary: UBS: Bank of Montreal, Royal Bank of Canada May Pursue U.S. Acquisitions • Cramer's Take on RY
• Stocks and ETFs to watch: Royal Bank of Canada (NYSE:RY). Competitors: Bank of Montreal (NYSE:BMO), Toronto-Dominion Bank (NYSE:TD), Canadian Imperial Bank of Commerce (NYSE:CM), The Bank of Nova Scotia (NYSE:BNS). ETFs: iShares MSCI Canada Index (NYSEARCA:EWC)
New Jersey Jury Offers Split Verdict on Pair of Vioxx-Related Trials
The latest Vioxx-related trial delivered a split verdict to the drug's manufacturer, Merck & co. The drug, predominantly used to treat back pain, was found to cause cardiovascular risks and was subsequently pulled from the market by Merck in Sept. 2004. Thousands of lawsuits followed. A New Jersey jury found Merck liable in one case for not adequately warning doctors of the drug's associated risks, but concluded doctors had been properly warned in a second case. The second case was considered more difficult to prove because by the time the plaintiff had suffered a fatal heart attack, Merck had already been including 'warning' labels on bottles of Vioxx for six months. The company has so far won eight Vioxx-related trials and lost four.
• Sources: Wall Street Journal, AP, Reuters
• Commentary: Ethical Questions Continue to Surround Merck's Vioxx Probe • Good News for Merck's Vioxx • Merck's Vioxx Shown to Pose Heart and Kidney Risks
• Stocks and ETFs to watch: Merck & Co. (NYSE:MRK). Competitors: Pfizer Inc. (NYSE:PFE), Wyeth (WYE), Schering-Plough Corp. (SGP), Novartis AG (NYSE:NVS), Teva (NASDAQ:TEVA), AstraZeneca plc (NYSE:AZN), GlaxoSmithKline plc (NYSE:GSK), Sanofi-Aventis (NYSE:SNY), Eli Lilly & Co. (NYSE:LLY), Abbott Laboratories (NYSE:ABT), Amgen (NASDAQ:AMGN). ETFs: iShares Dow Jones US Pharmaceuticals (NYSEARCA:IHE), Pharmaceutical HOLDRs (NYSEARCA:PPH)
Beijing Targets Slower Growth in '07, Boosts Education and Health Spending
China's Premier Wen Jiabao said in a speech at today's annual meeting of the National People's Congress in Beijing that economic growth in 2007 is forecast to be 8%. This is the same target set last year, but missed as the economy grew 10.7%, its fastest clip in 11 years. Beijing has been trying to slow growth and over-investment but has mostly failed so far. According to Bloomberg, Premier Wen said, 'The government will control excess liquidity and further boost domestic consumption.' Despite two rate hikes last year and raising reserve requirements at banks, the economy is still hot with foreign reserves having topped $1 trillion, its trade surplus at record levels and lending exceeding the People's Bank of China target by 27%. Premier Wen also spoke of the need to control housing prices, reduce the rich-poor gap and reduce pollution, among other things. Separately, 2007 budget plans were announced, with increases of 42% set for education, 87% for medical care, 15% for rural areas and 14% for social security, for a grand total increase of 14.4% to $335 billion.
Sources: Associated Press, Bloomberg
Commentary: China's Total Market Cap? Don't Ask! • Chinese Markets Take Biggest Drop in 10 Years • China's Trillion Dollar Question
Stocks/ETFs to watch: iShares Trust FTSE-Xinhua China 25 Index Fund (NYSEARCA:FXI), PowerShares Golden Dragon Halter USX China Portfolio (NYSEARCA:PGJ). Bonds: iShares Lehman Aggregate Bond (AGG), iShares Lehman 1-3 Year Treasury Bond (NYSEARCA:SHY), iShares Lehman 7-10 Year Treasury (IEF), iShares Lehman 20+ Year Treas Bond (NYSEARCA:TLT), iShares Lehman TIPS Bond (NYSEARCA:TIP). Currency: PowerShares DB G10 Currency Harvest Fund (NYSEARCA:DBV), Euro Currency Trust (NYSEARCA:FXE)
Japan: Q4 Capital Spending Jumps, GDP Revision Expected, Pressures Yen
Japan's Ministry of Finance reports Q4 (ended Dec.) capital spending increased 16.8%, beating the prior quarter's reading of 12.0% and analysts' estimates of 13.0% to 14.2% (Reuters). Up to a 1.0% revision to Q4 GDP is expected. Jesper Koll, chief economist at Merrill Lynch Japan, says annualized Q4 GDP will be revised to 5.1% from 4.8%, adding that "It is a trigger point for the Bank of Japan to normalize interest rates a little more aggressively." Bloomberg quotes Koll who also says, "The crisis of the 1990s is definitely over. Japan is in the process of building a strong platform for very strong, competitive economic growth." An economist at Nikko Citigroup however, says a revised GDP is not necessarily good due to concerns over rising inventories which "may prompt adjustments in production in coming months." The yen rose 1.7% today to ¥115.6/$1 as of the market's close in Tokyo. Japanese stocks meanwhile fell for a fifth straight day, as the Nikkei 225 lost 3.3% to 16,642.
Sources: Bloomberg, Reuters
Commentary: Unwind The Yen Carry Trade With These Two ETFs • How Will a Stronger Yen Affect Japan ETFs? • Japan: Weekly ETF and CEF Performance
Stocks/ETFs to watch: iShares MSCI Japan Index (NYSEARCA:EWJ), CurrencyShares Japanese Yen Trust (NYSEARCA:FXY)
ACTIONABLE BARRON'S CALLS
Barron's articles likely to move stocks today, culled from our Annotated Barron's Summaries
- Barron's is still bullish on the stock market. In the 38 times since 1979 that the S&P 500 index took a single-session hit of 3% or more, the next 60 days has seen the index up 31 times, with an average gain of 6.9%. Byron Wien of Pequot Capital thinks the S&P could hit 1,600 by year-end, and says equities' 7% earnings yield compares favorably with the 4.5% yield on 10-year T-notes. Barron's suggests investing in high-quality large-caps with diversified earnings streams, such as Citigroup Inc. (NYSE:C) and Bank of America Corp. (NYSE:BAC) [among the lowest P/Es in banking], American International Group Inc. (NYSE:AIG) [arguably the world's best insurance company], Pfizer Inc. (PFE), Proctor & Gamble Co. (NYSE:PG), Coca-Cola Company (The) (NYSE:KO) and Berkshire Hathaway Inc. (NYSE:BRK.A)
- In less than three weeks Clear Channel Communications Inc. (NYSE:CCU) shareholders will vote on a $37.60/share LBO offer. With two-thirds approval needed the deal seems unlikely to clear, considering an estimated 10-15% no-show rate and some big-hitters like 10% shareholder Fidelity who insist on more money. Failure to pass could see shares dip as the buyout premium dissipates, but they could also rise if investors anticipate a spinoff of 90% holding Clear Channel Outdoor Holdings (NYSE:CCO), the likelihood of an increased bid, and the notion that management will feel pressure to boost shareholder value beyond its current or risk losing their positions. Barron's says a publicly traded Clear Channel seems the far better deal for investors, and sees the stock hitting $50 within two years.
- Following a five-year track record of double-digit profit gains, Advance Auto Parts (NYSE:AAP) shares fell 13% from $44 in March after earnings were hit by high gas prices and rising interest rates. The average road-age of vehicles is approaching 10 years, so wear-and-tear should bring an increase in customers. Earnings should rebound 11% within the year, and Citigroup analyst Bill Sims gives it a 25% change of being bought out given its steady cash flow, relatively low debt levels and attractive valuation.
- Barron's interviews Joseph McNay, the "godfather of growth-stock investing." He's currently thinking organic -- growth industries and companies that should grow regardless of economic conditions. He likes energy stocks Schlumberger Ltd. (NYSE:SLB) and Core Laboratories N.V. (NYSE:CLB). Alt-energy stocks MEMC Electronic Materials Inc. (WFR), SunPower Corp. (NASDAQ:SPWR), Suntech Power Holdings Co. Ltd. (NYSE:STP), First Solar Inc. (NASDAQ:FSLR), Canadian Solar Inc. (NASDAQ:CSIQ) and Trina Solar Ltd. (NYSE:TSL). Nanotechnology stocks FEI Company (NASDAQ:FEIC) and Harris & Harris Group Inc. (NASDAQ:TINY). Biotech stocks Gilead Sciences Inc. (NASDAQ:GILD), Genentech Inc. (Private:DNA) and Vertex Pharmaceuticals Inc. (NASDAQ:VRTX). And tech stocks Focus Media Holding (NASDAQ:FMCN), Synchronoss Technologies Inc. (NASDAQ:SNCR), Riverbed Technology Inc. (NASDAQ:RVBD), Google Inc. (NASDAQ:GOOG) and Baidu.com Inc. (NASDAQ:BIDU).
- Large-cap tech companies are slowly but surely taking their seats in the arena of traditional industrial stocks. Techno-phobe investors would be well-served to realize that big-tech can now add predictability to their portfolios. Barron's likes Cisco Systems Inc. (NASDAQ:CSCO) [the network switch and router business is poised for double-digit, long-term growth], Microsoft Corp. (MSFT) [analysts remain optimistic on Vista despite a slow start], Hewlett-Packard Co. (HPQ) [sound performance in almost all its divisions], and Apple Computer Inc. (AAPL) [Mac sales continue to grow].
- AvalonBay (NYSE:AVB), considered one of the best of the popular REIT investments, has a savvy management team and maintains a low debt level of 19% vs. the industry's 36%. But if the slump hits REIT stocks, AVB's 340% ride to $131 in four years may end. At 27x FFO [funds from operations/share], it's almost double its actual FFO growth of 14%; a return to industry average would shave 50% off share prices. Its 2.6% yield trails industry averages (3.3%), and rental rate growth could slow as owners convert condos back into rentals due to the housing slump. Shares could easily drop from $131 to $110.
- Itron's (NASDAQ:ITRI) $1.6 billion buyout of privately-held Actaris might seem like bad timing: Itron's technology to make gas, electric and water meters serve a utility industry facing a possible market top. But of Actaris's over 300 million meters worldwide, just 5% are automatically read (35% in North America). Its share in overseas, deregulated markets position it for growth. And the merger reunites Schlumberger's former metering unit with its management team. Canaccord Adams analyst John Quealy says Itron shares should reach $70 from this week's $61.5.
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