Thursday, May 03, 2007

Paperstand (GM, MORN, AMGN, LCC)

The WSJ’s ”Heard on the Street” column out on General Motors (GM), saying that investors looking to buy shares now should beware of looming challenges. The co last year raised a pile of cash to avoid a liquidity crisis and has improved its cost structure and put new models on the mkt. Although GM recently lost its No. 1 rank by global sales to Toyota, it is expanding overseas in hot mkts such as China. Still, GM's well-being depends on the ability to cut labor costs, mostly health benefits. If GM can get concessions from the UAW, its shares and bonds could post significant gains. If the two sides engage in a prolonged fight, it could slow the co's bid to stop burning cash, set back its turnaround plan and wipe out the recent advances in its stock and bonds. The upshot is that even the most bullish analysts think GM's shares and bonds could face pressure. "With GM, the scary thing is they're not even close to the finish line here. They're not generating cash," says Rod Lache, an analyst at Deutsche Bank who has a Buy rating on GM's stock in the hopes the auto maker will get significant health-care givebacks during the union negotiations. "It's too early to say the worst is over for GM," says Shelly Lombard, of Gimme Credit, who believes the co is about a 1/3 of the way through its turnaround. She says GM's bonds could see more upside if the co gets the union concessions it needs and its vehicles sell well, but adds the securities aren't exactly cheap. "In the best-case scenario the bonds could go to par by ‘09, but it's still a volatile situation now," she says.

“Ahead of the Tape” highlights Morningstar (MORN), whose shares have doubled since going public 2 years ago. This qtr, analysts expect a 24% increase in EPS and strong rev growth. The co is firing on all cylinders, with sales in its critical individual, adviser and institutional segments growing at strong double-digit rates last year. It's also been on an acquisitions binge, picking up the funds-data business of S&P's this year and Ibbotson Associates last year, among others. Independent research has also become a hot commodity since Wall St. firms were forced to clean up their own research after the tech bubble burst. But as its shares climb higher, Morningstar's own oft-repeated advice to investors might be applicable: Don't chase performance. The firm trades at 47x last year's earnings, more than highfliers like Google and Apple. Since listing, its share price has outperformed Google, and measured up to Apple. The air is pretty thin up there.

Barron’s Online out on Amgen (AMGN), saying that recent problems may have been overblown. And with multiples bouncing off 5y lows and profits still outgrowing the broader mkt, Amgen looks cheap, especially if promising new drugs hit the mkt in coming years. "The mkt has overreacted [to safety concerns] and created a pocket of inefficiency," says Cliff Hoover, of Dreman Value Mgmt. "If investors step back, they see a co of size with good existing drugs and a pipeline." Hoover says that the co "can grow earnings 10-15% annually over the next 3 years." At "13 or 14x potential earnings in ‘08, [Amgen] is not being rewarded for its future potential," says Robert Kang, of HighMark.

“Inside Scoop” reports that PAR Capital Mgmt, who played a significant role in bringing US Airways (LCC) out of bankruptcy nearly 2 years ago, yesterday decided it was time to let the airline fly on its own. PAR disclosed Wed morning that it had sold 6.75m shares of US Airways to UBS the previous day. The transaction slashed PAR's stake in the airline to 0.29% from 7.9%.'s Ben Silverman calls the sale a negative for US Airways shareholders and says it could create an overhang for the stock.

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