Monday, January 01, 2007

Barron's Summary

Barron’s cover discusses the new AT&T/BellSouth (T), sayint that in the next few years, AT&T's earnings growth will depend largely on savings from cost-cutting after several big mergers. Cable competitors are in hot pursuit of the co's retail phone customers, however, and also have their sights on small and midsize businesses. Any or all of these issues could trip up AT&T in ‘07 or ‘08, resulting in lower-than-expected rev, higher expenses and a declining stock price. The co's shares have climbed 46.5% in the past year, to a recent 35, amid investor enthusiasm for the BellSouth deal, and currently trade for 13.6x next year's earnings. If P/E multiple merely retreats to 11, the bottom of its normal range, the stock could fall nearly 15%, to 30. But if the co misses Street's earnings tgts, the downside could be greater.

Fund manager picks include TSM and CHL. Another fund manager remains vary on India, but likes TTM and VSL.

The shares of Safeway (SWY) have surged 48% in the past year, to a recent 35, but investors may be getting carried away. Considering the challenges ahead, the stock is probably worth closer to 30.

Now that Great Plains Energy (GXP) has turned itself around, the shares could return 15% over the next year, thanks in part to a hefty dividend. The stock price is up 17% just since last summer.

“Up and Down Wall Street” section reports that usually, cancellations run only about 15% of orders for publicly owned home builders. However, cancellations have soared this year. According to Doug Kass 3Q rates for each of the leading home builders are: Centex (CTX), 37%; DR Horton (DHI), 40%; KB Homes (KBH), 53%; Lennar (LEN), 31%; Pulte Homes (PHM), 36%; Beazer (BZH), 57%; Hovanian (HOV), 35%; MDC Holdings (MDC), 49%; and Standard Pacific (SPF), 50%.

“Technology Trader” out saying that when Microsoft (MSFT) starts selling consumers the Vista at the end of the month, the co can look forward to a good cycle of upgrade sales. That's why the co’s shares rose 14% last year. Last year, memory-chip press agents told that Vista would spark a surge in demand for DRAM. The flacks told the truth. But the Vista memory boost has already happened, ahead of release of Vista. Since last summer, PC makers have urged PC buyers to get Vista-ready amounts of DRAM when purchasing, increasing avg DRAM per PC to 1Gb. That anticipation spurred a hot summer run in DRAM sales, as well as stock prices, for makers like Micron (MU), Qimonda (QI) and others. That was nice while it lasted. Some memory makers talk vaguely of a Vista demand boost in the 2H07, but that makes no sense when PCs are already selling with enough DRAM for Vista. What is more likely to appear this year is a glut of DRAM supply. Manufacturers are adding a lot of new production capacity this year. And the industry is starting to make chips that have smaller transistors, which would increase the bit-yield per wafer by about 50%. The shares of Micron already have fallen a 1/3 from their summer peak. Investors got the willies as demand softened for NAND flash and as Micron inventories steadily climbed. There's also lots of NAND manufacturing capacity on the way. Given the potential for a ‘07 glut in DRAM and NAND, Micron doesn't look like a fresh-money buy for ’07.

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