Thursday, May 10, 2007

Paperstand (ABX, NEM, DAR, NSM)

The WSJ’s ”Ahead of the Tape” discusses gold stocks. After a year of poor performance by the sector, Barrick Gold (ABX) posted solid quarterly earnings last week. Newmont Mining (NEM) last month posted disappointing earnings after a jump in energy and other costs. Citigroup analyst John Hill thinks that while higher expenses have hurt gold miners, the real problem comes from a disconnect between forces driving the price of gold and gold-mining stocks. Rising demand for jewelry in India and China has increased demand for gold. That explains why prices for gold have risen during a global bull mkt in stocks the past few years. Gold miners, however, have languished b/c the classic investors in their shares, the bearish kind, have been on the sidelines as stocks churn higher, Mr. Hill says. Buyers of gold "have been on fire, but the natural buyers of gold stocks" haven't been, he said. Recent rumblings in the economy, soft 1Q expansion, slack hiring in April and tepid business spending, have raised concerns about a slowdown, but stocks haven't blinked. So far, the recent rise in gold-miner stocks is a blip in the bigger picture. But if concerns about the economy keep driving them higher, the rest of the stock mkt may be in for a rude awakening.

Barron’s Online highlights Darling Intl. (DAR), whose stinky business of processing slaughterhouse animal waste and restaurant grease is turning sweet. Anticipation that Darling may start offering animal fat as a component for biodiesel fuel has turned the stock with 19th century roots into a 21st century alternative-energy play. In what is known as "rendering," Darling collects leftover animal components and cooking oil from restaurants to produce various grades of protein, fat, and animal hide. These ingredients are sold to co’s that make pet food and livestock feed, soap, and leather goods, among other items. The co is emerging from a cyclical downturn marked by low product prices and high energy costs. Product prices have climbed higher in recent mo’s. Darling's grease-trap business is capturing new clients, and foreign demand for US cattle is recovering from the ‘03. Last year's acquisition of a leading competitor is generating cost synergies. Michael Cook, CEO and CIO of SouthernSun Asset Mgmt, says the biofuel debate "has made the stock more interesting in recent days, but our view is that this is a substantially longer-term play in both the co's (traditional businesses) and the biofuel space."

“Inside Scoop” section reports that Relational Investors, a private investment firm, has just sunk $107m into shares of National Semi (NSM). RI bought 3.95m shares between May 1 and May 8. The purchases pushed Relational's stake in National Semi to 38m shares, or 12.4%. The investment firm's latest purchase of NSM stock "suggests that [Relational thinks] there is additional value in this co that can be wrung out and that there are ways for the co to find that value," says Ben Silverman, of He adds that the size of the buy is a very strong signal, particularly for long-term focused investors.

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