Sunday, June 03, 2007

Barron's Summary (GE, ABT, BLC, MTRX, SCI, PALM)

Barron’s cover profiles General Electric (GE), saying that the co trades in line with, or at a discount to, most of its competitors in the aerospace and infrastructure industries. Its shares are likely to be revalued upward in coming years as the co benefits from a changing business mix and explosive growth in emerging mkts. The explosive growth of emerging mkts could help power GE's rev sharply higher in coming years, leading to even more robust and sustainable gains in the co's earnings, and a share price of around 50. Within 5 years, GE will get 55-60% of its rev from outside the US, compared with 50% now. "Whenever I feel bad about the co, I leave the country," Chmn and CEO Jeffrey Immelt recently told clients and suppliers. "They love us outside the US."

Abbott (ABT) trades for around 56, or a lofty 18 times earnings. It could be worth closer to 50, especially in view of questions surrounding a key drug.

With the Dow having finally broken out of its 8-year long trading range and moved higher, some technicians advise using any pullbacks to add exposure to large-cap stocks. Large caps mentioned include SGP, Q, XRX and VZ.

If Belo (BLC) splits its TV and newspaper units, its stock, now around 22, could hit 30. Shareholders also might benefit from a higher dividend or bigger stock buybacks.

According to the Barron’s, demand for crude oil continues to increase with economic growth, while productive capacity grows more slowly. One possible stock play on creaky refining infrastructure is Matrix Service (MTRX). The decline in production from major fields will not be reversed quickly. Technology can enhance production but it also accelerates the depletion of existing fields. Those that are able to ratchet up production to meet demand. A domestic crude-oil producer that fits the bill is Arena Resources (ARD), which has increased production of oil and equivalents by 76% yoy and is well positioned for further gains. These sorts of declines have hastened the shift to unconventional sources, such as shale gas, tight sands and coalbed methane. Unconventional resources comprised 56% of domestic gas supply in ‘05. Extraction from these resources generally requires more support from services. Among the service beneficiaries: OMNI (OMNI); Pioneer Drilling (PDC); and Natural Gas Services (NGS). The global mkt for liquefied natural gas is expected to more than double in the next 5 years. A speculative play is InterOil (IOC).

According to the “The Trader” column, death-care providers have revived over the past year, none more so than Service Corp. Intl. (SCI). While death is inevitable, SCI's continued surge is not. A ‘06 acquisition of rival Alderwoods boosted yoy profits, but volume on a comparable basis has declined. SCI was able to offset that drop by ratcheting up rev per funeral last qrtr, and has shrewdly shifted its focus from selling commoditized merchandise to providing more value-added services. But gross margins pushing 23% could weaken over time if, for instance, the trend toward cremations continue. The rate of cremations is expected to grow from about 1/3 today to 1/2 by 2030, and while co’s pad value with memorial services, cremations cost less and offer thinner margins. At about 14, SCI shares trade at 27x projected '07 earnings, versus about 19x for lesser rivals like Carriage Services (CSV) and Stewart Enterprises (STEI). "Much of the anticipated success for the year is priced into the stock," says John Ransom, of Raymond James. "Moreover, investors may have to brace for deceleration in the 2H07."

“Technology Trader” out saying that Palm’s (PALM) the Foleo is a monumental dud: Too pricey to be a companion to a cellphone, but not full-featured enough to replace a full-powered laptop. It didn't help that Palm founder Jeff Hawkins performed one of the all-time bad demos at the D: All Things Digital conference; he talked about the device for 10 minutes before actually demonstrating it; half-way through, ppl were streaming to the exits. It looked like the 7th inning of a blowout at Chavez Ravine. For months now, there have been rumors on the Street that Palm might be up for sale; theoretical suitors include Motorola (MOT) and Nokia (NOK) and various private-equity firms, but the chatter has faded lately. Barron’s would not be surprised to see the rumors mill heat up again, though. The Foleo is looking like a loser, which could trigger increased conviction that the co's Treo could gain wider acceptance in the hands of a handset maker with deeper pockets.

1 comment:

fCh said...

Absent from your summary are the real estate recommendations from this week's "Barron's":


BTW, Notable Calls does an excellent job/service; thanks!