Here's a one page summary of leading stories from this weekend's (May 10) 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, analysis and a quote for that stock; clicking on a headline takes you to the full Barron's article (paid sub. req'd.).
Top 100 Women Advisers by Suzanne McGee
Thesis: Suzanne McGee interviews a number of the Barron's top 100 female financial advisors. The top 100 as a group are managing $104 billion. Many of the profiled advisors talk about how their relationship-based approach once conflicted with the traditional (male) world of high pressure full service brokerages, but that the entire industry has come to adopt this client-centered orientation.
Legg Mason's Allure by Lawrence C. Strauss
Highlighted companies: Legg Mason (NYSE:LM), T. Rowe Price (NASDAQ:TROW), Janus Capital (NYSE:JNS), Blackrock (NYSE:BLK)
Thesis: Legg Mason shares have fallen more than 30% since February 2006 on concerns about how well LM is integrating the $400 billion of fund assets it acquired from Citigroup in exchange for its retail brokerage services. According to LM management, the integration has not gone as quickly as planned because LM is focused on doing the integration as smoothly as possible. Mr. Strauss believes that the recent decline in LM's price represents a strong buying opportunity, noting that at 18.3 times its current fiscal year earnings, it is less expensive than T. Rowe Price (TROW), at 20.67; Janus Capital (JNS); at 25.68, or Blackrock (BLK), at 26.26.
Quick comment: As a whole, the asset management sector has been highly valued. Funds covering this sector include iShares Dow Jones U.S. Broker-Dealers Index Fund (NYSEARCA:IAI) (based on the Dow Jones investment services index) and KBW Capital Markets ETF (NYSEARCA:KCE).
Bigger Looks Better by Andrew Bary
Highlighted companies: ExxonMobil (NYSE:XOM), General Electric (NYSE:GE), Pfizer (NYSE:PFE), Citigroup (NYSE:C), Tyco (TYC), Wal-Mart (NYSE:WMT)
Thesis: Andrew Bary discusses the recent interest in large and megacap stocks. David King, manager of the Putnam New Value fund, says that 'Value is intersecting with large, liquid, high-quality companies.' Larger companies tend to be less exposed to interest rate risks and often benefit from favorable currency translation on their large overseas sales. Mr Kong observes that large stocks could provide double-barreled price appreciation from both intrinsic profit growth and expansion of P/E to historic norms.
Quick comment: Notable ETFs focusing on mega cap stocks include Dow Jones Global Titans (NYSEARCA:DGT) which invests in the fifty largest companies in the global market, and the Rydex Russell Top 50 (NYSE:XLG), which owns the 50 largest companies of the Russell 3000.
Focusing on the Small Fry by Harlan S. Byrne
Highlighted companies: ACCO Brands (NYSE:ABD), Callaway Golf (NYSE:ELY), CyberOptics (NASDAQ:CYBE), CyberSource (CYBS), Gentex (NASDAQ:GNTX), GP Strategies (NYSE:GPX), Lincoln Educational (NASDAQ:LINC), Patterson Cos (NASDAQ:PDCO), RBC Bearings (NASDAQ:ROLL), Rewards Network (IRN)
Thesis: Harlan S. Byrne interviews father and son team Alexander and Alex Paris of Barrington Research Associates. Barrington focuses on under-followed stocks, which mostly exist in the small and mid-cap segments. The Parises continue to believe that well-chosen small and micro -caps will beat the market. They focus on five sectors: business services, consumer, health care, industrial and media. Their ten picks are above.
Quick comment: Though the managers focus on small caps, they are notably bullish on mega caps as represented by the S&P 100 (OEX): they like follow a "barbell" strategy. Did you know that Seeking Alpha has an entire Small Cap Stock section?
Doomed June? by Jacqueline Doherty
Highlighted companies: Jos. A. Bank Clothiers (NASDAQ:JOSB), Men's Wearhouse (MW)
Thesis: Jacqueline Doherty reviews the very choppy markets of early June 2006. The damage especially deep in the NASDAQ and small-cap segments of the US market. Trouble with riskier assets lead to flight to quality. One especially notable point is that debit balances in margin accounts at the NYSE added up to $241.5 billion in April 2006, up from a low of $130.2 billion in September 2002. Margin debt is now at level not seen since March 2000, when leverage peaked at $278.5 billion. Jos. A Bank (JOSB), as a result of lower than expected profits (even as sales grew 11% QoQ) and a heinous build up in unsold inventory, is now standing at 377 days of sales -- more than twice the 155 days held by The Men's Wearhouse (MW).
Quick comment: The flight to quality can be seen in the growing divergence between SPDR Dividend Aristocrats (NYSEARCA:SDY) and the S&P 500 (NYSEARCA:SPY) since early May 2006.
Just Starting to Glow: Why WebEx Will Shine by Mark Vaverka
Highlighted companies: WebEx (WEBX), Microsoft (NASDAQ:MSFT)
Thesis: WebEx's online conferencing and enterprise collaboration products were gaining broader appeal even before oil prices jumped and gave companies more reason to limit business travel. The company is trading at 15 times free cash flow (operating cash flow minus capital expenses), which is roughly half its estimated growth rate according to one analyst quoted. The company has over 23,000 customers, including many S&P 500 corporations. Microsoft's Live Meeting conferencing program is a direct competitor to WebEx, but its software-sales focus, as opposed to WebEx's service focus, is a disadvantage. WebEx has jumped 30% this year, but may see more upside.
Storing Up Value by Bill Alpert
Highlighted companies: EMC (EMC)
Thesis: EMC's smart acquisition choices have created shareholder value that's currently not recognized by the market. EMC's CEO believes that the company has five new businesses that should each reach $1 billion in annual revenues within the next few years: server virtualization, content management, data center management, storage virtualization and data security. The VMware server virtualization software brings mainframe level hardware virtualization to the middle market. Based on current adoption trends, EMC's VMware has at least a year's worth of first mover advantage over its competitors.
Bonds' Bud by Randall W. Forsyth
Highlighted funds: iShares Lehman 1-3 TSY (NYSEARCA:SHY), iShares Lehman TIPS fund (NYSEARCA:TIP)
Thesis: Randall W. Forsyth notes the excitement that Ben Bernanke has injected into the bond markets via tough talk on inflation combined with higher interest rates. The resounding clash of positive and negative forces has further inverted the yield curve. TSY30 yields (5.10%) that are lower than Fed Funds (priced at 5.25%) is a classic sign that the bond market does not fear inflation. David Goldman, chief fixed-income strategist at treasury bond shop Cantor Fitzgerald notes that the narrowing spread between T-notes and the real yield on Treasury Inflation Protected Securities confirms declining concern about inflation among market participants. According to Goldman Sachs economist Andrew Tilton, the recent sharp decline in the equity markets is nearly equal to two quarter-point Fed Funds hikes.
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