Here's a one-page summary of this weekend's (March 25th) Barron's (paid sub. req'd), noting stocks to watch for Monday morning when the market opens and brief comments on the Barron's articles. Note: clicking on a stock ticker pulls up opinion and analysis for that stock.
Lead Article: Annual List of Top CEOs
- Highlighted companies: Exxon Mobil (XOM), Toyota (TM), Lexmark International (LXK), Yahoo Inc. (YHOO), Wells Fargo & Co. (WFC), Legg Mason (LM), Procter & Gamble Co. (PG)(PG).
- Quick comment: Seems mainly backward looking; don't expect much impact on stock prices.
- Highlighted stocks: New Zealand Telecom (NZT) "looks like a high-grade investment that pays more than almost any junk bond", despite weakness of NZ dollar. Central Fund of Canada (CEF) trades at an 8% premium to net asset value; once the silver ETF (SLV) starts trading, a pair trade would be to go long SLV and GLD or IAU, short CEF.
- Quick comment: But CEF may not be liquid enough for this sort of trade.
Interview: Art Smith, CEO, John S. Herold Inc., Energy Stocks Research Firm
- Thesis: Energy fundamentals look fine, valuations cheap, companies have strong cash flow.
- Highlighted stocks: Giants -- ExxonMobil (XOM), Chevron (CVX), ConocoPhillips (COP), Repsol (REP), ENI Spa ADR (E); Large-cap exploration and production -- Anadarko (APC), Devon (DVN), Kerr-McGee (KMG), Pogo Producing (PPP), Pioneer National Resources (PXD); Mid-Cap Exploration and Production -- Cimarex Energy (XEC), Houston Exploration (THX), Whiting Petroleum (WLL).
- Quick comment: Bullishness will help the stocks, but impact may be mainly on lesser-know stocks like XEC and REP.
Wendy's Super Value
- Highlighted stocks: Wendy's International (WEN) is better value than recent IPO Tim Hortons (THI). Wendy's still owns 85% of Hortons and will spin off its stake to shareholders by the end of the year. Hortons is expensive at 20x 2006 operating income and 16x cash flow.
- Quick comment: Too much short-term enthusiasm for THI for it to trade down on the article, but WEN could trade up.
- Highlighted stocks: Asset management stocks are now expensive, with the group trading at 21x 2006 earnings vs a forward P/E of 15x a few years ago. Expensive stocks include: Legg Mason (LM), Janus Capital (JNS), BlackRock (BLK). "Remaining bargains" include Nuveen Investments (JNC), Federated Investors (FII), Affilliated Managers (AMG) and Waddell & Reed (WDR).
- Quick comment: "The cheapest of an over-priced sector" isn't much of a pull to buy these stocks. Impact is likely to be largely negative.
Laureate Makes the Grade
- Highlighted stocks: Apollo Group (APOL) and Corinthian Colleges (COCO), the two leaders in the education field, are hit by sagging U.S. enrollment growth. The stock to go for is Laureate Education Inc. (LAUR). "In the next 12-18 months, Laureate's entry into new markets and on-target quarterly results could lift the shares into the mid-60s, rewarding long-term investors with a 20% return." Friday close -- $53.79.
- Quick comment: Should push up stock Monday.
The Little Book's Little Flaw
- Thesis: Review of Joel Greenblatt's The Little Book That Beats the Market argues that the book's methodology would have returned only 10% from 1997 through 2002, using publicly available databases. But the book is a sound investment guide.
- Highlighted stocks: Using the book's approach, attractive stock are: Freeport-McMoRan Copper & Gold (FCX), Ipsco (IPS), Frontier Oil (FTO), King Pharma (KG), Holly (HOC), American Eagle (AEOS), Deluxe (DLX), K-Swiss (KSWS), Kerr-McGee(KMG), Timberland (TBL), UST (UST), Career-Education (CECO), Yankee Candle (YCC), CGI-Group (GIB), CSG Systems International (CSGS).
- Quick comment: Valuation calls tend not to move stocks, but this book is so popular that a screen based on the book's methodology might move the stocks.
Long Live Cable, Phone
- Thesis: Cable stocks have been beaten down on fears of competition from the telcos, WiMax and broadband over power lines, and the risk that telcos and cable companies won't be allowed to charge more to carry video (so-called Net Neutrality). But the Senate Committee on Commerce, Science and Transportation has heard evidence that Net Neutrality might reduce investment in infrastructure and damage consumers. Pessimism on the cable companies is now too great.
- Highlighted stocks: Comcast Corp. (CMCSA) trades at 6x 2006 cash flow, according to Sanford Bernstein, and is a buy.
- Quick comment: Interesting argument, but probably not enough to really move the stock.
Freescale Could Feel the Heat As Motorola Seeks Second Chip Supplier
- Thesis: Motorola Inc. (MOT) will diversify its supply of chips for its 3G phones. It currently uses chips from Freescale Semiconductor (FSL), but will soon begin using chips from Qualcom (QCOM) as well.
- Highlighted stocks: Bad news for Freescale, which trades at 16.2x 2006 consensus EPS.
- Quick comment: Negative for the stock, but hard to see how this risk wasn't at least partly priced-in once MOT spun off Freescale.
Can the Lucent Deal Fly?
- Thesis: Lucent Technologies (LU) and Alcatel (ALA) had no choice but to merge, given the consolidation in their customer base, particularly the merger of AT&T and SBC (T). But the merger if fraught with risks.
- Highlighted stocks: Negative for Lucent and Alcatel.
- Quick comment: Probably correct, but won't have much impact on the market's perception that a merger like this creates a more profitable company by reducing costs on the same revenue base.
Fund Profile: Steven Tananbaum, GoldenTree Asset Management
- Highlighted stocks: His stock picks include long Liberty Global (LBTYA) due to good organic growth, and Clear Channel Communications (CCU) because of under-appreciated innovation. Short XM Satellite Radio (XMSR) and Sirius Satellite Radio (SIRI) becuase subscriber acquisition costs and capex are too high. Short NutriSystem (NTRI) because it lacks differentiation or product value. Long Anadarko Petroleum (APC) because he believes it's an acquisition candidate.
- Quick comment: More evidence that value managers are finding value in "old media"?
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