Wednesday, November 08, 2006

Paperstand

According to the WSJ’s „Heard on the Street” column, building-materials co’s that sought bankruptcy-court protection under the weight of massive asbestos claims are emerging in trimmer, fighting form. Their timing could scarcely be worse. Makers of wallboard and insulation are putting the issue behind them, only to be greeted by one of the sharpest downturns in the US housing mkt in decades. Shares of USG (USG) are off nearly 60% from their highs in April. Armstrong World Industries (AWI) is down 11.5% since it started trading. And last week, shares of Owens Corning (OC) resumed trading after the co spent 6 years in bankruptcy protection, and promptly sank. Yet some investors, including Warren Buffett and the hedge fund D.E. Shaw Group, are betting that a few of the co’s in the building-materials business have attractive growth potential at current prices. One thing they like: these co’s battle-tested mgmt teams, which whipped the co’s into fighting form while dealing with scores of asbestos lawyers. All 3 co’s have set up their own trusts into which they each put billions of dollars to settle past, present and future asbestos claims. "USG's shares are undervalued, whether one is considering its potential earnings power as it emerges from the industry downturn now in progress, or whether one values the co on a sum-of-the-parts basis," says Jim Barrett of CL King. He has a Strong Buy rating on USG and a 12-month price tgt of $67.

“Inside Track” section reports that even as Texas Industries (TXI) maintains its silence regarding buyout talks instigated by a major shareholder, insiders are selling co shares, suggesting a deal isn't on the horizon. Egyptian investor Nassef Sawiris disclosed last month that he had accumulated a 2.3% stake in the co and controlled options that, if exercised, would boost the stake to 9.1%. Mr. Sawiris said he may push for the co to be sold and may attempt to seek control of the co himself "through a negotiated transaction or otherwise." But recent stock sales by Chmn Robert D. Rogers and 2 co VPs suggest the insiders don't expect the co to be sold for a premium price any time soon, said Ben Silverman, of InsiderScore.com.

According to the Barron’s Online, Activision (ATVI) is a game that investors may want to play. Game makers' stocks are cyclical, and the expected arrival this month of new game machines from Sony (SNE) and Nintendo is giving investors confidence a new round of game sales will boost profits for years to come. Activision stock is cheaper than that of rival Electronic Arts (ERTS), and the co offers higher growth based on the next installments of proven game franchises, such as "SpiderMan 3" and "Shrek 3," due next year. But if CEO Bobby Kotick, who investors describe as synonymous with the co's success, departs, the shares could fall 15% or more, say investors. If he stays, Activision could surge as investors breath a sigh of relief. One way to handle that uncertainty is to buy May 15 calls of Activision. "They've got some huge blockbuster movie [tie-ins] coming out, and they haven't been getting a lot of credit for blowing away ests," says Jason Schrotberger, of Turner Investment Partners. "If Kotick is cleared, then the stock will rally pretty hard," says Schrotberger. "I like the slate of games they've got, but I'd like to see them get the options stuff behind them," before buying Activision stock, adds Kenneth Turek, of Neuberger Berman.

1 comment:

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