Wednesday, September 06, 2006


The WSJ's "Heard on the Street" column discusses Ford (F), General Motors (GM) and Toyota (TMC), saying that right now, common financial yardsticks for the co's are eye-catching, but investors who read too much into them might do so at their peril. At first glance, the 2 biggest US car makers don't look to be too far behind their global competitors. GM grabbed 24.8% of all US light-vehicle sales so far this year, while Ford has 17.7% of the mkt. Toyota has about 15% of the US light-vehicle mkt. Over the past 12 months GM's rev topped $205bn, compared with more than $185bn for Toyota and a little more than $170bn for Ford. But Toyota is way out in front on the scorecard kept by most investors on Wall St., its stock price. And the co seems to be extending its lead, despite all the talk about bold moves by Ford and GM. Ford shares are down about 13% in the past year and the auto maker now has a mkt value of just $15.4bn, even below its more than $23bn in cash and short-term investments. GM shares are down about 3% in the past 12 months and the co's mkt value has shriveled to $17.3bn, despite a rally since April, also below its own $20bn cash stash. Shares of Toyota, by contrast, are up more than 30% this year and have a mkt value of about $197bn. The co had almost $18bn in cash and short-term investments on Jun. 30. That gap in how investors view the co's isn't so shocking, of course, given the co's divergent bottom lines. Toyota generated more than $12.6bn of profit over the past 4 qrtrs. By contrast, GM lost $11.3bn during the past year, while Ford lost nearly $1.6bn. The numbers make it easy to see which co is favored by the mkts. But they don't necessarily tell you which will be the better investment. "In a sense, the best thing to do is separate the 2 questions," says Aswath Damodaran, a professor at NY University's Stern School of Business who focuses on valuation. "Toyota is obviously in much better shape than GM or Ford. But which is a better investment becomes a dicier question. Toyota might be a great co, but it is priced as such. GM and Ford aren't great co's right now, but they are priced as such."

Barron's Online highlights Lyondell Chemical (LYO), which recently acquired the remaining 40% stake in its Texas refinery, which was partly owned by Citgo Petroleum. The move means Lyondell's operating profits from refining should go from roughly 15% to more than a 1/3, nearly mirroring Lyondell's biggest business, ethylene. But Wall St. seems fixated on when the ethylene and propylene chemical businesses, more than 60% of Lyondell profits, will slow. So shares trade at year-ago levels and are 11% below their 52w high. But the stock looks cheap and may deserve more credit for the bold move in refining. True, the acquisition added $2.5bn to an already-significant pile of debt. But the outlook for refining margins is strong, b/c it's hard to build new refineries in the US and b/c Lyondell can process cheaper, "heavy" crude. And new chemical capacity won't come online overnight, signaling this earnings cycle still has a few more years of fun before graduating, one reason Merrill Lynch recently upgraded the stock. "Lyondell is a cheap co and with this acquisition, it's an awful-good deal," says James Barrow, of Barrow, Hanley, Mewhinney & Strauss, the second largest investor in Lyondell after Occidental Petroleum, which has a roughly 12% stake. "Anyone getting into refining will do well, b/c [Americans will] be using more gasoline and heating oil," says Peter Beutel, of Cameron Hanover. "This year we saw some of the largest refining margins in a number of years, and I think that is going to continue."

"Inside Scoop" section reports that Ruth's Chris Steak House (RUTH) 4 insiders sold 1.6m shares for nearly $31.5m in August at prices between $18 and $20. "That's a negative," says Ben Silverman, of of insiders selling just as the stock rebounds from recent lows. "The suggestion is that perhaps the momentum could not be sustained."

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