Sunday, January 28, 2007

Barron's Summary

Barron’s Roundtable members like NAV, KALU, TXI, MYY, FLML, SHPGY, CAR, SBH, TESOF, RIMM, AAPL, LRCX, HLYS, SLV, GLD, CVC, DA, GIS, BFA, IFF, WMI, GMT, SQAA, LCAPA. Another fund manager holds HPQ, ASH, TAP, PBG and VZ. Shorts include IPG, ADI, MRK, MEDI and UST.

If Altria (MO) spins off Kraft (KFT) and then divvies up its big tobacco businesses, its shares have the potential to return 20% over the next 18 months. "I'm very optimistic about the stock, particularly on a risk-reward basis," says David Adelman, tobacco analyst at Morgan Stanley.

Earnings gains and momentum trading have pushed the shares of BMC Software (BMC) to a recent 34. But based on the company's cash-flow trends, the stock should probably be in the high 20s. In addition, article suggests that BMC was a better takeover candidate at $17 a share than it is at $34.

The Euro Dogs Investment theory isn't foolproof, but it's produced nice results in most of the past 15 years. It's worth a look by anyone interested in adding large European stocks to a portfolio. FTE, E, ABN, BT, HBC, VOD, BCS, ING and RDSA.

According to the Barron’s, the Avis Budget (CAR) auto-rental unit has garnered scant attention. Therein lay an opportunity, a neglected turnaround story with freshly motivated mgmt. The co's brands have held stable mkt share, yet fleet-cost and pricing mismatches have knocked margins toward historical trough levels. But rental-car pricing is firming as newly independent Hertz (HTZ) and Avis Budget no longer serve corporate masters with other priorities. And fleet-car cost increases should moderate this year. Getting margins up to their 5-year avg would mean a doubling of earnings to more than $2 a share in ‘08, from 99c last year. That would make the Avis stock a bargain at today's 24, also the price at which mgmt's long-term equity incentives are struck.

“The Trader” section discusses Abitibi (ABY), saying that the Street is solidly bearish, with 50% of the analysts who follow it rating it a Sell and 35% a Neutral. The firm hasn't produced black ink since ‘03, and annual rev has been stuck at about C$5.3bn for a few years. There's also a decent-sized short position. One of the few Abitibi bulls around is John Schneider, of Touchstone Large Cap Value Fund. Schneider ests that in a few years, with a currency tailwind and stabilized newspaper and housing mkts, Abitibi could earn about US50c per share. Apply a 10 or 11x P/E multiple, and the stock could be worth roughly double today's price. The shares appear washed out, and probably have limited downside. That doesn't mean they're about to rise, but given how unloved the stock is, it likely wouldn't take much in the way of good news to push it up significantly.

“International Trader” section discusses Alcatel-Lucent (ALU), whose shares fell about 12% last week, following warning of slack sales and crumbling profitability. Still, the article suggests that investors should be reassured to some degree that the co plans to cut 200M euros in extra costs in ‘07. That's in addition to the 400M euros it planned to achieve in merger-related savings that it forecasts will be worth 1.4bn euros by ‘09. And Alcatel-Lucent's sales should pick up through ‘07 as US operators start spending again. The co's stronger positioning across fixed-line, wireless and Internet segments should start to have an impact. Last week's disappointing trading isn't an indication that won't happen. It's just a reminder of how difficult it will be.

“Technology Trader” section out saying that CommVault (CVLT) and Acme Packet (APKT) are both pricey, but could be worth a bet by growth investors. CommVault trades at 44x the expected earnings for its current fiscal year, and Acme trades at 55x current fiscal-year earnings. The big difference between these 2 co’s and many dot-com-era darlings: They're profitable, and they may reward investors handsomely over 3-5 years, says Christopher McHugh, of Turner Investment. "Acme's device routes Internet phone calls between different networks, and Cisco doesn't have a product for that, Juniper doesn't have a product for that," says McHugh. "They're addressing a real need the marketplace has." And CommVault has "some interesting new backup software that really seems to be taking mkt share," making the co a takeout tgt for EMC or IBM or another storage vendor, says Rich Parower, of J&W Seligman. The risks are high with these co’s, but as long as stock-fund managers are trimming their cash piles and looking to get in on the building of Internet 2.0, there should be ample demand for young stocks.

“Plugged In” column out with a piece discussing Motorola (MOT) vs. Nokia (NOK).
Read here.

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