Barron's Roundtable member Oscar Schafer of O.S.S. Capital Management foresees a lengthy credit-market unwinding in 2008, as more homeowners are hit with "mortgage margin calls." He predicts a year of mild equity market growth due to investor cautiousness. Overall, he expects to make more money on longs than shorts, but warns "the first half will be tough."
If 2007 was the year of the private-equity LBO, Schafer says that 2008 may be the year of the SWF [sovereign wealth fund]. Thus far they channeled about $60B into financials. In 2008, he says, their liquidity will lend support to industrials.
- Experian Group Ltd. ADR (EXPGY.PK) -- the largest credit bureau in the U.S., U.K. and Western Europe. In tough times, its customers place a greater emphasis on risk management. Shares fell sharply on overblown concerns of slowing lending and spending.
- Medivation (MDVN) -- Phase II data on its Alzheimer treatment (Dimebon) are spectacular. The current market for Alzheimer treatments is about $4B, and the four primary treatments (from Pfizer (PFE), Forest Laboratories (FRX), Novartis (NVS) and Johnson & Johnson (JNJ)) go off patent in the next few years, and have limited efficacy. Trial results from a once-daily oral treatment for prostate cancer are encouraging. Shares ($14) could be 5-6 times that in the next 2-3 years.
- Ocean Rig (OCNRF.PK) -- a Norwegian ultra-deep-water-driller, its rigs drill 7,500 to 10,000 feet in water, while the bits reach to 30,000 feet. There are only three active rigs available to satisfy demand over the next two years, and the company owns two of them.
- TransAlta Corp. (TAC) -- a Canadian power company, investors underestimate its exposure to rising power prices. A recent move by an activist shareholder could signal strategic changes that could boost equity returns to 40% over the next four years.
- Wyndham Worldwide (WYN) -- its lodging business has remained resilient in the face of a slowing economy. The company is also the leading hotel franchiser in China and India. Its time-share business is usually a smart investment during recessionary times. Shares ($22) could be worth $40.