6 Risky-But-Worth-It Bets - Barron's

Barron's cover story this week looks at levered equities -- debt-heavy companies whose shares have been pummeled amid a recent credit-market crunch. While highly risky, the time may be right to invest in debt-laden stocks who stand to post above-average gains when the credit markets return to normal. "The best time to buy these is when credit spreads peak," one money manager says. "Since you don't know when that will happen, you may want to start buying them now. Many stocks are pricing in very negative outlooks."

Following are Barron's levered equity "winners":

• FelCor Lodging Trust (FCH) -- despite solid results, shares are down to $13 from $29 as investors fret a possible lodging downturn. But FCH should benefit from recent extensive renovations, and its dividend yield is a whopping 11%, all paid out of free cash flow.
• Bon-Ton Stores (BONT) -- shares are down to $6 from $57, yet Barron's sees no serious short-term risks to the company's survival. With a hefty short-seller base, shares could rocket on any good news.
• Libbey (LBY) -- once credit markets thaw, LBY should be able to cut its debt expenses by three percentage points. If the co. hits 2008 numbers, shares could climb 50%.
• McClatchy (MNI) -- down to $10 from $50 on a disastrous debt-based purchase of Knight Ridder. Shares trade at just 8x earnings and 6x cash flow.
• Gray Television (GTN) -- shares trade at $6, down from $11, after hopes of a leveraged buyout faded. President Bob Prather says TV properties are in far better shape than newspapers and radio. Political ads should make 2008 strong.
• Carmike Cinemas (CKEC) -- despite weak movie theater attendance, the company looks like a safe bet. Shares, $7 down from $27, could double.

Leveraged companies Barron's doesn't suggest: Charter Communications (CHTR) [still expensive despite $1 shares]; Revlon (REV) [still shedding market share]; and Six Flags (SIX).

Comments

[granger:]

My only question is on SIX. It is misunderstood. No longer just theme parks, has media exposure through Dick Clark poductions. I have been buying, Just my opinion, please do your on research.

2008 Mar 03 12:36 PM

[helplessobs...:]

On SIX I have and dumped it at 5.75 as it continued to disappoint. Right now Dan Synder has two losers, the Redskins and his theme parks.

2008 Mar 05 02:22 AM

[HarMegiddo:]

SIX is trash. way, way too much debt. the interest they are paying is going through the roof.

2008 Mar 05 08:08 AM

[Foust:]

Better bet, just buy FLVCX and let a professional do this for you.

2008 Mar 05 09:18 AM

[Stever530:]

If I was going to do something risky, I would short gold. The economy will eventually improve and gold will go down in price.

2008 Mar 05 03:58 PM

[TCMoney:]

Two Comments:
1. BONT is an awful company with little reason to exist. It has a large possibility of filing Chapter 11 as well due to the $1.2 billion in debt. Late in the 3rd quarter, I predict that it will face significant liquidity issues as it attempts to gear up for the holiday season coupled with poor performance throughout 2008.

2. Gold will not collapse, even if corporate earnings are strong. The reason for Glds accent and further upside is that the fiscal and monetary policies of the US (and most other countries as well) is inflationary. The harder the central bank pushes to prop up the economy, the higher gold will go. Fiat currency (printed dollars) is growing at alarming rates and the money multipliers are growing exponentially. With the dip in GLD over March 19th and 20th (at least this morning) Gold is a buy.

2008 Mar 20 11:54 AM

[investorslive:]

Border line breakout on BONT

www.investorslive.com/.../

2008 Apr 30 10:20 PM

[cranky old ...:]

if i were a betting man, i'd say that the safer bet on felcor - fch - is the preferred shares; if the common is solid, then the preferred, yielding in excess of 9.5 percent and selling at a whopping discount to call or par, is a safer way to earn above-average returns with below average risk

2008 May 01 10:15 AM