Wednesday, August 02, 2006

Notablecalls - Paperstand

The Wall Street Journal "Heard on the Street" column discusses SprintNextel (S), saying that it might be time for investors grit their teeth and dial into shares of the co. The co hasn't gotten a great response lately, with its share price falling about 19% since a high in April. Investors have soured on above-avg subs turnover, clumsy mgmt of investor expectations and the daunting chore of wading through the meshed financial statements of two big co's. Amid a slide this week, even fans of the stock aren't predicting a jolt tomorrow when the co reports its 2Q results. But hold the phone. Now that the US wireless business is dominated by 3 giants, Cingular Wireless, Verizon Wireless and Sprint Nextel, these co's costs quietly have been dropping faster than the prices the co's charge customers. With Sprint Nextel expecting $41bn in sales this year, even modest cost control can boost free cash flows in a big way. After surveying this triumvirate, a growing herd of bulls see a decent case for Sprint Nextel ringing up ample profits over the next few years for investors who have the gumption to buy the stock now. "The things that are keeping ppl out of the shares today are short-term issues," says Michael Hodel, of Morningstar who gives the co his highest rating in the sector and has a $28 fair-value est on its shares. "It's a co that's cheap today, but will also likely have a lot of cash flow and be a dominant player for a long time in the wireless business."

According to The WSJ's "Tracking the Numbers" column, some execs are reaching for an odd tactic in an expanding battle against short sellers. The execs, at smaller co's that often don't trade on big exchanges, are pushing shareholders to lock away their physical stock certificates so the short sellers can't get their hands on the shares. Stock trading rarely involves the actual exchange of physical stock certificates anymore, because Wall St. trades and tracks most stocks electronically. But in a perhaps quixotic effort, the execs hope they can short-circuit the short sellers by rounding up stock certificates and taking them out of the electronic loop. The activity is legal, and many investors and scholars argue it helps share prices to adjust to changes in a co's outlook. But a number of execs, at co's like Fairfax Financial Holdings (FFH) and (OSTK) argue short sellers are manipulating their shares. They are challenging the shorts with lawsuits, private investigations and publicity campaigns. Few co's have been able to prove improper trading, but the stock-certificate effort is a sign the battle between short sellers and aggrieved execs is widening. By getting shareholders to take physical possession of their stock, the execs hope, brokers won't be able to lend the shares out to short sellers. "The problem is shorting has gotten to be so popular that there's no accountability," says Wes Christian, of Christian, Smith & Jewell.

The NY Times reports that Kohlberg Kravis Roberts & Co and Silver Lake Partners appeared close to a deal last night to acquire the semiconductor unit of Philips Electronics. People involved in the deal said the two firms would pay about €8bn, or more than $10.2bn, for the unit, surpassing bidders that included the Texas Pacific Group and the Blackstone Group, and a group that included Bain Capital.

Barron's Online discusses Tiffany (TIF), saying that the co's little blue boxes have inspired generations of consumers in search of luxury, romance and elegance. But investors have been singing the blues as of late. Though the luxury retailer has been registering double-digit growth rates in international sales in Asia and Europe, the stock underperformed the mkt because of concern over the health of consumer spending that pressured Q1 sales in the US. Tiffany shares are down 18% so far this year. But the stock is attractively valued for long-term investors given Tiffany's global brand power and improving fundamentals. More innovative, modern jewelry sold at higher prices, remodeled flagship stores and aggressive advertising should help drive sales in the 2H06, particularly in the US with easier same-store sales comparisons. The co also continues to buy back shares. "For a couple years Japan was an albatross," but Tiffany has taken advantage of the improving economy by offering more gold and colored gems to trend-conscious Japanese women, says Larry Babin, of Victory Capital Mgmt. While the US retail mkt has shown cracks recently, Babin says "we think [Tiffany] is a brand that's going to survive and prosper."

Barron's Online reports that Technology Crossover Ventures, a technology venture capital firm, has bought 2.45m shares for $50m, or $19.99 each, on the open mkt, adding to its burgeoning trove of Netflix (NFLX) stock. The purchases boosted TCV's Netflix holdings to 13.2m shares, a 19.7% stake.

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