Sunday, November 19, 2006

Barron's Summary

Barron’s cover discusses NYSE (NYX), whose investors love its electronic initiative and planned Euronext merger. Trading at more than 40x expected ‘07 earnings, NYX stock already is discounting massive efficiencies from the electronic transition and Euronext merger. It's trading based on hoped-for ‘08 earnings of maybe $3-4 a share, and more farther out. Investors thus are giving the exchange credit for winning battles it hasn't yet fought. They think CEO John Thain is playing a multiyear chess match and is thinking several moves ahead, the Euronext deal, the rollout of US derivatives listings, trading bonds and their derivatives, building a "dark pool" internally, an Asian linkup, maybe even having the Archipelago platform handle most NYSE-listed volume some day. They're convinced he's underpromising and ready to overdeliver. With the stock where it is, a lot needs to break right. And it only will if a better Big Board rises as its trading floor's grip on the mkts fades.

A deal could bring Coca-Cola Enterprises (CCE) $27 a share, a price about a third above its recent stock quote, while helping Coca-Cola to carry out a cohesive growth strategy.

It's generally gotten easier for investors to find, evaluate and trade bonds. Cautious investors should consider munis, and the paper of mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE).

MGIC Investments (MTG) stock, at 61.50, has been climbing as current trends favor mortgage insurers. But some skeptics see a rise in claims that could cut earnings in half, prompting a steep selloff in the shares.

The shares of DuPont (DD), which went nowhere for most of this decade, have begun moving up this year. Recently at 47.48, they could climb 15-20% in the year ahead.

As the dollar fell earlier this decade, some feared a meltdown. Instead, the buck has bottomed, and looks ready to rise in the year ahead by at least 5% against other currencies.

“The Trader” column suggest that the yellow pages business Verizon Comm. (VZ) is spinning off may merit a second glance. Shares of the spinoff, called Idearc (IAR), were distributed as a dividend after the mkt closed Fri, with stockholders receiving one Idearc share for every 20 Verizon shares owned. Idearc stock will begin trading Monday. Idearc shares were trading late last week for about 26.60 on a "when issued" basis. Shawn Collins, of Citigroup, reckons they could be worth about 33 based on various metrics. Idearc shares could fetch between 30-35 in a leveraged buyout, he reckons, or between 28-39 based on a multiple of 8-9x ‘06 EBITDA of about $1.637bn.

“Technology Trader” section discusses Medtronic (MDT), St. Jude (STJ) and Boston Scientific (BSX), whose shares are down 15%, 29% and 33%, respectively, since Dec05. Now, with the stocks trading at historically low multiples of about 20x next year's profits, a fair number of professional health-care investors are looking at quarterly reports for any sign of a demand uptick. Sanford Bernstein analyst Bruce Nudell suspects that if Medtronic's sales of defibrillators (ICD) show any strength, a thrill would run through its shares and those of its rivals. "Ppl are not concerned with the long term," says Nudell of his conversations with the buy side. "So, if it's a positive quarter, these stocks should go up." The valuations of these device stocks reflect low-growth expectations. Any hint of faster sales gains -- in the low teens, say -- should spark investors to pay a little more for them. Others stocksa mentioned include: CAMH, JNJ and CONR.

Manager top holdings highlighted: BRKA, AXP, ENR, JNJ, FDX, BUD, GE, AFL, SU and FAF.

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