Tuesday, July 18, 2006

Notablecalls - Paperstand

The Wall Street Journal discusses UnitedHealth (UNH), saying that a cloud hangs over the co as several probes look into its past options-granting practices. But some investors say it is a high-quality co at a depressed stock price, and they have been buying. The co's shares have lost 25% of their value since Dec. Much of the tumble occurred after questions first surfaced in March about whether the timing of some stock options granted to CEO William McGuire and other execs in previous years allowed them to profit unfairly. "We've always thought it was a great co, but we never thought we'd get it back at these prices," says Glenn Greenberg, of Chieftain Capital Mgmt, which now owns more than 14m UnitedHealth shares. Before April, Chieftain held 1% of its $4.5bn portfolio in UnitedHealth shares. Since then, Chieftain has channeled 15% of its assets into the stock, buying a total of 1% of UnitedHealth's stock.

The WSJ's "Heard on the Street" column discusses favorably Source Interlink (SORC), which fills retailers shelves with magazines, DVDs and CDs. After a spate of acquisitions, Source Interlink has seen its modest profit margins slip in recent quarters. That hurt the company's stock price and drew scads of short-sellers betting on a further stock drop. But, the stock at $11, some spy an opportunity. The business, currently being shopped, could be bought in coming months at a 20% or greater premium by deep-pocketed private-equity funds. Even without a sale, cost cutting alone at recently acquired units could boost profits over the next year or two. With expected sales of nearly $2bn this year, modest margin improvement can make a big difference to the bottom line of a small co (mkt cap stands at $573m). "They generate a lot of free cash flow already, and we think margin improvement will create a lot of upside," says Derek Anguilm, of Westcore Small-Cap Opportunity Fund. Mr. Anguilm has a per-share tgt in the "high teens."

According to the Barron's Online, Harold C. Simmons, the Chmn and CEO of Titanium Metals (TIE), shelled out a total of $7.1m for 275K shares in purchases on July 13 and 14. "Simmons is an investor and a stakeholder. He wants to control as much of the stock as possible," says Ben Silverman, director of research at InsiderScore.com. "Obviously, with the stock pulling back so much since its last split [on May 17th], Simmons felt this was a good opportunity to be buying again at value."

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