Here's a one-page summary of this weekend's (April 1) Barron's (paid sub. req.), 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: Pointing Up -- Microsoft's New Vistas by Eric J. Savitz
- Highlighted companies: Microsoft (MSFT)
- Thesis: Microsoft's stagnant stock market performance doesn't reflect the company's bright outlook for 2007
- Quick comment: Eric J. Savitz interviews Michael Sievert, VP of Windows product management and marketing, on Microsoft's plans for increasing profits. Sievert lays out a three pronged strategy of: (1) further unit growth in PCs, (2) reducing piracy of Microsoft products and (3) increasing sales volume for premium editions of core software such as MS Office and Windows Vista
- Highlighted Companies: Aspect Medical Systems (Nasdaq: ASPM), Boston Scientific Corp. (BSX)
- Thesis: Aspect Medical Systems develops devices for monitoring brain activity in patients under anesthesia. The company's operations are structured using a 'razors and blades' model, with most of the profits coming from the sale of disposable electrodes for brain wave machines. Alpert believes that the ASPM has huge upside based on the potential for the use of these machines in diagnosing and providing accurate treatment for clinical depression.
Depression is remarkably tricky to medicate effectively, as individual brain chemistry affects response to anti-depressants and most AD drugs take several weeks to start working. Patients often bounce around from drug to drug until an effective combination is found. Recent research suggests that an increase in brain activity as detected by ASPM's brain analyzers can predict if an AD will be effective within a week of starting therapy.
These possibilities have attracted the interest of Boston Scientific (BSX) which has taken a 29% stake in Aspect Medical Systems
Barrons's feature: Power by the Bushel by Kopin Tan
- Highlighted companies: Archer Daniels Midland Company (ADM)
- Thesis: Archer Daniels Midland is extending its dominance in agricultural commodities, with growing corn ethanol operations.
- Quick comment: On Feb 03, 2006 the board of directors increased ADM's dividend to 40 cents a share. This quarter's increased dividend will be ADM's 317th cash dividend and 297th consecutive quarterly payment, a record of 74 years of uninterrupted dividends. ADM is well positioned to become the Exxon Mobil (XOM) of ethanol, but that may already be priced into the stock.
Barrons's feature: Trouble in Motor City by Jay Palmer
- Highlighted companies: General Motors Corp. (GM), Ford (F)
- Thesis: If GM emerges from Chapter 11 unencumbered by discharged pension and health-care obligations, pension and health-care obligations it will be very competitive with other US automakers with worse cost structures, especially Ford (F).
- Quick comment: The UAW seems to be trying very hard efforts to force GM into bankruptcy which could result in labor contracts being discharged.
Commodities Corner: Copper, The Heat is on by Alison Guerriere Ciaccio
- Highlighted companies: Phelps Dodge Corp. (PD), Commercial Metals Company (NYSE: CMC), Falconbridge Ltd. (FAL)
- Thesis: The world is facing a copper shortage fueled by capital expenditures in the developing world (China, India), most easily available copper has already been mined which is forcing companies like PD to explore in central Africa and Asia. Large reserves of copper in North America are unlikely to be mined because of issue of pollution and environmental nuisance from strip mines. The global shortage of copper should benefit companies like Commercial Metals (CMC) and Falconbridge (FAL) which engage in metal recycling.
- Quick Comment: Record high prices for scrap copper have led to massive increase in the theft of copper piping, gutters and electrical cables. In some areas of the US builders and utilities have been forced to switch to aluminum wire because of constant theft of copper cables.
Barron's feature: Battered Bargain? by Harlan Byrne
- Highlighted companies: Hospira Inc. (HSP)
Thesis: The beaten-down hospital supply company is worth a look for long-term investors, given the growing demand for its products and sound balance sheet.
Barron's feature: Tupperware Party! It's not your mother's Tupperware anymore by Robin Goldwyn Blumenthal
- Highlighted companies: Tupperware Brands Corporation (TUP)
- Thesis: Tupperware is growing and profiting from a new sense of "coolness" associated with reusable storage containers while, expanding newly purchase beauty products franchise in North America and the world. The stock is trading at historically low multiples of P/E and Price to Cash Flow, while coughing out a dividend of $0.88 a share.
- Quick Comment: TUP has a 9.63% operating cash flow return on assets ratio.
Book Review: For Wal-Mart, It's War on Two Fronts by Jay Palmer
- Highlighted companies: Wal-Mart Stores, Inc. (WMT)
- Book review: A review of The Bully of Bentonville: How the high cost of Walmart's low prices in hurting America by Anthony Bianco. Jay Palmer describes how this book covers the history and business operations of Wal*mart, while taking a perspective similar to other books critiquing the actions and very existence of large corporations.
Interview: Steve Leuthold, Chairman and Investment Strategist, Leuthold Group
- Thesis: Leuthold believes that the markets are not moving in any direction, and that increases in the prime rate will/are hurting consumer spending by increasing the cost of consumer debt service. Leuthold's analysis of corporate capital expenditures suggests that most CapEx is happening overseas and that the bulk of domestic CapEx is in technology hardware infrastructure. Leuthold's take on the growth/value split is that large cap growth is undervalued, while large value is at a premium relative to historical norms. Because he believes that long term interest rates will rise, he is underweight on longer bonds.
Current Yield: The Rush To More by Jennifer Ablan
- Thesis: Rising interest rates are leading to a flood of corporate bond issues as companies try to lock in low rates. Improved performance and liquidity of companies in the junk heavy airline, forest and paper, and automobile sectors has raised prices for bonds of those industries.
- Quick Comment: Higher interest rates will probably lead more companies with poor credit ratings to issue convertible bonds, which are intended to be converted. These bonds could be very dilutive to existing shareholders.
The Ground Floor: Commercial-Property Loans Soar by John B. Levy
- Thesis: Investors seeking higher yields have increased capital available for lending on income producing commercial real estate
- Quick Comment: Rising interest rates will benefit many commercial lenders who have portfolios of variable rate loans made on capital that was and is being borrowed at low interest rates during the early part of an interest rate cycle.
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