Sunday, November 26, 2006

Barron's Summary

Investors appear to be overvaluing the long-term benefit Vertex (VRTX) will get by being the first to mkt an effective hepatitis C drug. Its shares are worth closer to $30 than $50.

Notablecalls: Actionable!

Fund manager top holdings include DOX, CSE, ERTS, STZ, DVA, GHCI, DOV, OSK, TPX and COH.

Schwab Equity Ratings top 20 includes: HAS, JWN, CAG, NTY, PKD, GRP, AMP, MET, BAX, MCK, CAL, TFX, BMC, HPQ, GEF, SEH, AT, Q, AES and PCG.

Cash-rich co’s in the consumer, energy, home-building and tech sectors all could be tgts of leveraged-buyout firms. LBO tgts mentioned include: GPS, MU, BBBY, NKE, LIZ, EMC, COST, APA, VLO, HES, RIG, AVP, KMB, EL, KBH, DHI, LEN, TOL, MDC, HOV, LLTC, MXIM, ADI, ALTR and XLNX.

ASM Intl. (ASMI) shareholders should do well, regardless of how the dispute with Mellon (MEL) ends. But Mellon investors could suffer unless it makes changes. One bear has a 37 target on Mellon, recently selling close to 41.

“The Trader” column discusses Freeport (FCX) and Phelps Dodge (PD) merger. Stripping out cash on Phelps' balance sheet, the Freeport bid values Phelps at roughly 6x forward earnings, compared with the 25y avg of about 8.3. John Tumazos, of Prudential, sees "plenty of room" for Phelps to rise 15 to 30 a share above Freeport's bid, and has a $170 price tgt on Phelps.

“The Trader” highlights Yum Brands (YUM), saying that for Yum’s shares to climb anew, the co first must improve its bedrock US operation. The fast-growing China business supports valuing that segment at 25-35x forward earnings, but China still drives only 24% of Yum's projected ‘07 operating income, with international accounting for 28% and the US accounting for 48%. Blending the 3 segments, JPMorgan's John Ivankoe reckoned that Yum ought to trade between 16.7x and 20.5x forward earnings. At about 19.7x today, it is already straining the top of that range. Given the diminished odds for a short-term surge, and how rich Yum option prices look compared with those for, say, McDonald's, Goldman Sachs strategist John Marshall has suggested selling OTM calls against the stock as a way to pad yield.

Barron’s recommends to invest in Chinese mobile telecom. China Mobile (CHL), the dominant provider, is still a strong, long-term prospect, though its weaker rival, China Unicom (CHU), could be worth a side bet. China Mobile, with its strong mgmt team, enjoys most of the spoils of a rapidly expanding mkt, which also offers big economies of scale. Meanwhile a politically motivated decision several years ago saddled China Unicom with the task of running two networks: GSM and CDMA. "China Unicom is suffering self-cannibalization," says Marvin Lo, of BNP Paribas. China Mobile, on the other hand, is a "growth co," says Steven Liu, of DBS Vickers. The likely restructuring of the sector is the key reason to buy Unicom. "With Unicom, it's more a story of how it's going to be broken up," says Khiem Do, of Baring Asset Mgmt.


Ragin' Cajun said...

Great blog! you made my top 5 blog list!

notablecalls said...

thanks :)