Sunday, May 13, 2007

Barron's Summary

Barron’s cover lines up Top500 co’s based on cash-flow returns on investment. This year top honors go to Goldman Sachs ( GS), Franklin Resources (BEN) ranks 2nd. The bronze went to Apple (AAPL), while Terex (TEX), took fourth place, and Paccar (PCAR) fifth.

Barron’s interviewed analyst likes NUE, RS, STLD and AKS. Another fund manager top10 holdings include PENN, AMT, MKL, KMX, POOL, NDN, PNK, BYI, ACF and GISX.

If the merger of Thomson (TOC) and Reuters (RTRSY) goes through as planned, resulting cash flows could make Thomson shares worth roughly 20% more than Friday's level.

The Dolans, controlling shareholders of Cablevision (CVC), have offered $36-and-change fore share that now tade above 35. Dissenting shareholders say the company is worth $50 to $60 a share. "We'd hang in until [the Dolans] force us out," says Christopher Marangi, of Gamco Investors.

With lower interest rates, Annaly Capital Mgmt (NLY) could earn more than $2 a share, which could propel its stock into the low-20s. Some savvy investors now think the worst is over. "The yield curve will start to steepen in the 2H07 and continue to do so in '08 as the economy begins to slow and the Fed cuts rates," says Arnie Schneider, CIO of Schneider Capital Mgmt.

The shares of Constellation Brands (STZ) are starting to recover after a sharp drop earlier this year. As the company tends to its challenges, the shares could jump more than 25% in a year. Tim Ramey, of DA Davidson, sees profits climbing 20% in F'09, to $1.75 a share. The shares, now trading at just 13.5x that est, could well hit 29 in 12-18 months, he says.

“The Trader” column discusses Virgin Media (VMED), whose shares trade at a big discount to their US counterparts. Virgin's shares have long attracted hedge funds with a keen nose for bargains. To Brad Ruderman, of Ruderman Capital Mgmt, Virgin's selloff last week illustrates the "very, very tight leash granted to mgmt" by Wall St, after predecessor NTL had loaded the co with debt to build its infrastructure. "But what was negative for the previous regime is now positive for the co," Ruderman says. "It has a state-of-the-art network already in place, and now it's up to mgmt to monetize the value of that network." He reckons shares are worth at least 35, with Virgin's cash flow and dominant network also enticing to buyout firms. Drawing parallels between UK and US cable businesses can seem as absurd as, well, comparing soccer and football. But at about 24, Virgin shares trade at just 6.4x ‘07 operating cash flow, compared with multiples of 8-9 for stateside counterparts, says Oppenheimer analyst Thomas Eagan. He calls the stock's pullback "overdone" and says "now is the time to buy."

“The Trader” also out saying that the selling in the shares of Dean Food (DF) may be overdone. The shares seem to have discounted a worst-case scenario, making valuation more compelling. Mgmt had guided ‘07 profits to $1.72 a share, the low end of its forecast range. Jim Lane, of TriPoint Asset Mgmt, also sees limited downside. If shares slide toward, say, 25, an earnings yield approaching 6.6% could make Dean a tgt for larger food co’s. If dairy margins firm up, the shares could trade up to 42.

“Technology Trader” section discusses Seagate (STX) and Western Digital (WDC), whose shares are down 16% and 11% respectively, YTD. Some analysts have even suggested that flash memory could completely replace drives in PCs, and put Western and Seagate out of business. But PC sales are doing just fine, and flash - in great part owing to its cost - is not going to replace disk drives globally for years to come. Once investors come to appreciate those facts, Western Digital shares could appreciate another 20% or more. Western is cheaper than Seagate by a wide margin, trading at a 2-y-low P/E multiple of about 9.4x the next four quarters' estd profit, below its 5-y median of 11.6x, while Seagate is near its median of 12.2x. "Western has an attractively valued stock for a co that is one of the premier players in a mkt that's set to grow at least 10% a year for several years," says Citigroup analyst Paul Mansky, referring to the expected ramp-up in disk-drive unit sales. Mansky thinks that Western Digital is "a technology laggard by design," and that some investors underestimate Western Digital's strategy of gaming the technology curve to turn in profits and steady cash flow.

1 comment:

The Trader said...

The Barron's interview on the steel companies' analyst was great. I bought NUE today and sold a rich covered call on it.