Sunday, March 18, 2007

Barron's Summary

According to the Barron’s, Textron (TXT) has doubled in the past 5 years, to around 90. If it can deliver efficiently on its backlog of orders for jets and helicopters, another doubling is likely in the next 5 years.

At around 19.40, Saks' (SKS) shares are now 37% higher than they were last August. They could keep climbing to the mid-20s as margins and earnings grow.

Ryder (R) trades around 49, or an inexpensive 10 times analysts' 2008 estimates. It could rally into the 60s if the company bests its conservative earnings guidance.

”The Trader” section out saying that shockwaves from the epicenter of the quaking mortgage world will shake homebuilders. Although subprime loans make up just a fraction of all mortgages, any tightening of lending standards could crimp home demand and prices, and delay the already-slow convalescence of the ailing housing mkt. At some point, slip-sliding homebuilders may be worth buying again. A number of these stocks are trading just 10-20% above their tangible book value, historically a turning point for slipping shares. Not all homebuilders will fare equally as lending constricts. Toll Brothers (TOL) and KB Homes (KBH) are highly correlated stocks that have traded in sync 86% of the time over the past year. But Michael Benhamou, of Louis Capital, sees a possible divergence ahead. For one thing, tightening credit will hit the lower end of the housing spectrum harder, and KB Homes serves a wider swath of first-time home owners. The avg price of homes sold by KB is $277K, compared with $690K for Toll. As lending tightens for new buyers, Benhamou reckons
"Toll will outperform KB Homes by 15% over the next 3 months."

“Technology Trader” column wondering, why is ST Micro (STM) trading at such high multiples, compared those of rivals. At a recent $19, ST enjoys about twice the earnings multiple of the better-positioned Texas Instruments (TXN). ST has won Buy ratings from analysts like Mark Lipacis of Prudential. In his notes, Lipacis reports that ST has the industry's best cash-flow yields, given that its free cash flow should be better than 7% of his forecast for ‘07 revs. TI ranks 3rd, with about 5.2%. The Pru analyst says that such free cash-flow percentages were strong predictors of stock performance last year. But ST's cost controls will only go so far, if its sales don't keep growing. Although full-year sales rose 11% in ‘06, on a sequential basis sales flattened and then turned downward after the JunQ06. In Jan07, ST told investors to expect sales to slide 3-11% sequentially in the MarQ07. ST bulls are banking on a sharp rebound in sales in the 2H. The visibility's not great, therefore, on an ST sales revival. So why does it trade for 23x trailing earnings, while TI trades for 11x? Well, both ST and Infineon (IFX) have been flagged as potential buyout candidates that private equity buyers could load up with debt, like Freescale. So much private equity money is looking for work these days that you can't rule out any deal, but ST's challenges look kind of difficult to this yokel.

Fund manager picks include BBG, SWN, XOM, PBR, NOV, GRP, SLB, LNG, NRG and CBI. Another fund top holdings include: TEX, DHI, NVR, KBH, BRKB, GS, JOYG, AIG, CTX and UNH.

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