Sunday, January 14, 2007

Barron's Summary

“Technology Trader” out with a real nasty piece on InnerWorkings (INWK). The article is highly entertaining, so I decided to post it fully. Read here.

Notablecalls: Expect to see big downside.

Barrons’ Roundtable members picks include MON, RIO, APOL, CECO, COCO, BIDU, APA, BRNC, HSOA, AIMC, ARW and SVBI. Another fund manager top holdings include MTW, CELG, AES, FDS, CTL, COH, IM, AKS, ETFC and CHRW.

The TV group looks undervalued. The New York Times (NYT) got a rich price for its TV stations, and that could lift the stocks. A retransmission victory would boost cash flow. There could be more upside this year in the low-profile TV group, which includes Hearst-Argyle (HTV), Sinclair (SBGI), Lin TV (TVL), Gray TV (GTN) and Nexstar (NXST), if Sinclair is successful in its current battle with Mediacom (MCCC) to be paid for providing local stations to Mediacom cable systems.

M&A deals will be bigger, pricier and riskier this year, an indication that the bull mkt in M&A and LBOs in Europe is growing long in the tooth. US listed tgts include BCS, DT, DB, ABN, VLKAY, KPN, SCM and OTE.

The depressed shares of YRC Worldwide (YRCW) could climb above 60. Cash flow is rolling along, and earnings for '07 could come in well above the Street's expectations.

“The Trader” section discusses Kimberly-Clark (KMB), which generally flies under the radar screen, even if 1.3bn ppl use its products every day. But a big upswell in Kimberly call options activity last month caught the attention of B. Craig Hutson, of Gimme Credit. At one point, the trading was almost 20x the normal volume. And the co's bonds have performed poorly, Hutson adds, on unconfirmed whispers of a possible LBO. Since mid-Sept the spread between Kimberly's bond yield and the benchmark 10y Treasury bond yield have widened sharply, by 30bp to some 90bp. That suggests bondholders are getting antsy about the LBO rumors. Despite Kimberly's recent share gains, its EV to EBITDA multiple of about 10.5x ‘06 ests is still significantly below its peers. P&G (PG) currently trades at about 13.5x, Clorox (CLX) at 12x. Hutson figures a 20% premium to the current price.

Escala Group (ESCL.PK) was delisted by the Nasdaq last week after it failed to meet deadlines for filing earnings. The co’s shares plummeted 42%. Traders say the stock will continue to decline as institutional holders are forced to liquidate their positions b/c of internal mandates that prohibit them from holding pink sheet stocks. "It could fall below BV," says one analyst. The analyst ests that after write-downs, Escala's shares have a per-share BV of around $2.30-2.60. "And if you take into account other yet-to-be calculated charges related to fighting shareholder lawsuits, the cost of the recent internal audit, the ongoing SEC investigation, what Spain might do with its shares of Escala, you can very easily get to a number around $1 a share in net asset value," he adds.

At year-end ‘05, Marsh Douthat, of Ockham Research, said General Motors (GM) was the Dow's most attractive. GM’s 58% moon shot in ‘06 came as a shock to just about everyone. Douthat didn't just get GM right. His top 5 Dow picks from last year had an avg total return of 26%, easily besting the benchmark. This year, Douthat gives his No. 1 slot to Wal-Mart (WMT). His other picks, in descending order: HD, MSFT, GE, PFE, JNJ, KO, AIG, INTC and CAT. "Everybody recognizes these stocks are relatively cheap, but they don't have a good handle on why they would get less cheap," he says. He doesn't pretend to know the catalyst, only that "there will eventually be one."

“Preview” section highlights Staples (SPLS), which is poised to roll out 100 “that-was-easy” type products each year. It's also innovating beyond its superstores, opening new copying stores to compete with Kinko's. "It's all about building a national brand and creating a service feel about our co," CEO Ron Sargent told. And the co, which has been boosting margins by increasing direct purchasing from factories, is moving into new mkts like Denver, and expanding its office-products brand in grocery stores around the nation. Sargent also expects the co to improve inventory mgmt at its N-American delivery unit in the next few years. That can only help earnings, which are forecast to grow about 15% in ‘07 and ‘08. Yet at $26, the stock remains at a below-trend 17.7x next year's earnings. By getting back to historic multiples, the shares could move up 14%, easy.

“Follow Up” section reviews Xerox (XRX) story, they ran 8 months ago. The shares are up 21.2%, the co's debt has been upgraded to investment grade, cash-flow growth is strong and the co's been buying back stock and keeping costs down. At 17 a share, there's still room for price appreciation.


stockmaven said...

Thanks for the great blog. Fyi,You erroneusly have YRC Worldwide's symbol as YRKW...correct symbol is YRCW..Keep up the great work !

notablecalls said...

Thanks, fixed it.