Annotated article summary from this weekend's Barron's. Receive all our Barron's summaries by signing up here:
Room to Run by Lauren R. Rublin
Summary: Barron's 2007 mid-year roundtable survey of influential fund managers. Their picks:
- Pimco's Bill Gross: (1) iShares MSCI EAFE Index Fund ETF (NYSEARCA:EFA) -- a play on undervalued foreign valuations; it's denominated in non-U.S. currency. (2) Pimco Floating Rate Strategy Fund (NYSE:PFN) -- yields 8.9%, which will rise together with interest rates. China and others seem to be shifting from bonds to equities, which means continued pressure on bond prices.
- Gamco's Mario Gabelli: (1) Cablevision (NYSE:CVC) -- trades at $35.60, with a $36.26 offer on the table -- but it's worth $50-plus. (2) Cadbury Schweppes (CSG) -- its confectionery business is a great fit for Hershey Foods Corp. (NYSE:HSY) and Kraft Foods Inc. (KFT). (3) Hilton Hotels (HLT-OLD) -- global growth in demand for hotel rooms. (4) Midas Inc. (NYSE:MDS) -- 15-20% growth. (5) Sequa (SQA.A) -- splitting the company could release 50% more value. (6) United States Cellular (NYSE:USM) -- it's worth $130/share, and trades at $89. Could be bought by Verizon Communications Inc. (NYSE:VZ).
- Eagle Capital's Meryl Witmer: (1) Heineken N.V. ADR (HINKY.PK) -- aggressive CEO is driving growth and innovation. Many projects are still early-on. Imported beer sales are a growth vehicle.
- The High Tech Strategist's Fred Hickey suggests shorting (using puts): (1) Apple Computer (NASDAQ:AAPL) -- short it once iPhone comes out. (2) Research In Motion (RIMM) -- a $31B company with a 1% handset market share. (3) NetLogic Microsystems (NASDAQ:NETL) -- U.S. enterprise revenue is softening and competitors are beginning to undercut it. Hickey is 3% short the stock market, and recommends buying two-year notes.
- Pequot Capital's Art Samberg: (1) Apollo Group (NASDAQ:APOL) -- shares ($48) could double. (2) Research In Motion (RIMM) -- enterprise-geared 8800 and Curve 8300 will sell like hotcakes. It should ignore iPhone and focus on enterprise solutions, its specialty. (3) Baidu.com (NASDAQ:BIDU) -- fundamentals are great.
- Zulauf's Felix Zulauf: He likes China stocks (at 40x earnings, they could easily go to 100x), natural gas, volatility [VIX], and European companies (especially France) at only 14x trailing earnings.
- MacAllaster, Pitfield MacKay's Archie MacAllaster: (1) Wells Fargo & Company (NYSE:WFC) -- consistently earns 19-22% on equity, and trades at 12x 2008e earnings vs. 16-17x for the S&P. (2) Valero Energy (NYSE:VLO) -- it will beat estimates. At $76.50, it will hit $100 within the year. (3) Lyondell Chemical (LYO) -- a Russian billionaire might make a run at it for $44-45 vs. a current $37/share.
- Delphi's Scott Black: (1) American Eagle Outfitters (NYSE:AEO) -- its stellar numbers deserve more respect. At current levels, it's ridiculously cheap. (2) ChipMOS Technologies (NASDAQ:IMOS) -- could go up 34-40%.
- John Neff: Citigroup (NYSE:C) -- a 10-12% grower, 4%, at 10x forward earnings makes it a steal.
- The Gloom Boom & Doom Report's Marc Faber: Suggests shorting retailers (except Wal-Mart (NYSE:WMT)), perhaps using Consumer Discretionary SPDR ETF (NYSEARCA:XLY). He calls for a 10% correction by year-end, with emerging markets down 20%.
- O.S.S. Capital Management's Oscar Schafer: (1) Endo Pharmaceuticals (NASDAQ:ENDP) -- concerns over generic challengers to its Lidoderm are unfounded, and its pipeline includes some late-stage potentials. (2) ULURU Inc. (OTCQB:ULUR) -- with three FDA-approved products, the $4.50 company could be a 5-10 bagger.
- Goldman Sachs' Abby Joseph Cohen: (1) Valero Energy (VLO) -- earnings should exceed consensus estimates. (2) Hewlett-Packard (NYSE:HPQ) -- margins will improve as earnings grow. Good international exposure. (3) Pier 1 Imports (NYSE:PIR) -- while likely to remain in the red for some time, Goldman's earnings numbers are well above consensus. Management is turning the company around.