Sunday, June 10, 2007

Barron's Summary (AMZN, ASN)

Barrons’ “The Trader” column discusses Amazon (AMZN), whose shares have vaulted 74% in less than 2 mo’s. With its rally, shares have zoomed past the recently raised price tgts of even the more optimistic analysts. They trade today at 123x what Amazon earned over the past year, or 57x forward earnings. The latter far exceeds multiples of less than 20x for eBay (EBAY) and 27x for Google (GOOG), themselves no shrinking violets of the Internet. Amazon bulls argue that projected profits may still prove too low and will be lifted as skepticism dissipates. But the current valuation heaps pressure on Amazon to deliver steady margin expansion and outsize profit growth, and assumes ever-escalating demand for online goods and services. Amid such great expectations, the shrewd move might be to book some profits. The surge has even attracted the attention of speculators who bet that Amazon might use its inflated currency to plug the DVD-rental gap in its resumé. As the broad mkt sold off last week, Netflix (NFLX) shares jumped 9%. "Although we like the long-term prospects for Amazon, we believe the recent run-up in the stock has been overdone," says Dan Jones, of Blue Water Asset Mgmt.

Barron’s discusses Archstone-Smith (ASN), saying that the interest on the $17bn of debt on the co after it is taken private could exceed $1bn, while this year's net operating income isn't likely to surpass $800m. A sale of assets might not cover the shortfall.

Fund manager likes TWB, ESLR, WU and dislikes AMZN. Other fund top holdings include DELL, FFH, IR and CX.

Limited Brands (LTD) shares, now around 26, should move into the 30s in a year or so, once the retailer finishes its restructuring. Any sharp pullbacks would offer a good chance to buy the stock.

Shares of smaller producers, like Forest Oil (FST) and Pioneer Natural (PXD), could jump 15-40% if the co’s spin off some assets into master limited partnerships. "If investors get in during the early part of the US MLP-creation cycle, they have the opportunity to profit," says Robert Gillon, of John S. Herold. Among existing master limited partnerships with growth potential is Kinder Morgan (KMP).

Wyndham (WYN) came public in August at 32 and now trades around 35. The company could be worth almost 60 a share as investors, or a financial buyer, recognize its growth potential.

“The Trader” section discusses Ameritrade (AMTD) situation. Last week, the shares popped on news that SAC Capital and JANA Partners had amassed an 8.4% stake and were prodding Ameritrade toward the altar. But no trip to the altar can occur without the blessing of TD Bank (TD), which owns 40% of the outstanding shares. In fact, the hedge funds see TD as such an obstacle that their May 29 missive to the Ameritrade board lobbied first for TD's removal from the proceedings even before they made a case for a merger. The remaining choice is for TD to buy out the 60% piece of Ameritrade that it doesn't own. Ameritrade now trades at 16x forward earnings, and given its opportunity cost for enhancing value in a merger, Brad Smith, of Blackmont Capital, ests that TD may have to cough up at least $25 a share. "While that may be its ultimate longer-term objective, it's not something TD wants to do right now," Smith says.

“Preview” section reports that conventional wisdom says that military contractors' stocks do well in presidential election years. A recent study of the past 6 presidential election years by analyst Byron Callan ,of Prudential, shows that a basket of the 5 largest pure-play defense issues, bought at the start of each year and held till the end, beat the S&P 500 in 4 of those years. In ‘04, the collective share prices of GD, LLL, LMT, NOC and RTN bested the S&P by 23%. In the ‘92 election, the basket trounced the mkt by nearly 37%. But the ‘08 election could resemble those of ‘52 and ‘68, where a central issue was how to end a war and big defense issues underperformed the mkt. "Given the national debate about what to do in Iraq, you have a similar situation developing next year," Callan cautions. In addition, he says, other issues, including "the rising cost of health care, are also high on many voters' agendas. So results might not follow previous patterns." At the same time, the analyst notes, "None of the candidates is calling for cuts in defense spending, so that could be viewed positive for stocks."

“Technology Trader” section discusses recent M&A activity in online ad and mkting firms. Article suggests that it isn’t hard to come with a list of potential tgts, including CNET, WBMD, RATE, TSCM, KNOT, ANSW, LGBT and QPSA. But, the question is, why haven't any of these co’s been bought so far? Problem No. 1: None of the key buyers in the recent ad-firm consolidation appear all that interested in owning co’s that pay ppl to create content. Problem No. 2. What those co’s, and their counterparts in the mainstream media, actually are interested in is user-generated content. They're enamored of social networks, places where users will return over and over again to entertain and socialize with each other. Problem No. 3. The barriers to creating compelling content on the Web are falling rapidly. CNET, for instance, faces challenges from a host of all-purpose gadget blogs, like Engadget and Gizmodo, and more specialized sites. Content is spreading into the long tail; the niche mkts aren't that niche-y any more. A final point. Stock activity doesn't necessarily mean an actual takeover bid is coming.

1 comment:

Bruce said...

Defense stocks are certainly rising as our continuing right on terrorism continues. I recommend this article to anyone not quite clear about the role Defense stocks play in our country.