Sunday, July 08, 2007

Barron's Summary (SONO, GILD, ITW, VMED, PAY)

Barron’s out saying that banks, brokerages and hedge funds that have been eager buyers of subprime CDOs could face losses of more than $100bn in coming years. Co’s mentioned include Bear Sterns (BSC) and MBIA (MBI).

SonoSite's (SONO) shares, after a long climb, slipped during the past year as a competitive threat from General Electric (GE) mounted. Now at 36, they could easily fall by six bucks or so, and far more if GE prevails in a lawsuit. "If the lawsuit is successful, it could be crippling to SonoSite, considering the co's one-dimensional product line," says Sean D. Lavin, of Oppenheimer.

Gilead's (GILD) stock, up some 40% in the past year, could climb another 20-25%, fueled by strong demand for both existing drugs and remedies now in the pipeline.

Illinois Tool Works (ITW) has rallied 20% this year, to 55. The co's continued success could push the shares up to 67-68 in the next year, for a prospective gain of about 23%. ITW trades for only 15x consensus ‘08 earnings, about 10% below the multiples afforded diversified industrial multinationals such as Danaher (DHR), notes Goldman Sachs analyst Deane Dray. "It's exceptionally attractive," he says. "It has had a nice pop, but has a lot more room to run."

“The Trader” column highlights Virgin Media (VMED), which confirmed it has been approached by a suitor it would not identify, and which reportedly is the Carlyle Group. Shareholder churn has swelled investor ranks with impatient fund managers. Franklin Mutual recently amassed a 9.4% stake and began prodding mgmt for action. A $12bn debt load also may not deter buyers, since Virgin generates enough cash to cover loan payments. Carlyle is no stranger to cable deals, and Virgin's infrastructure is unparalleled. Increasingly, the mkt also seems to warm to the idea of Virgin as a private entity. "The things that are delaying its turnaround are all better tackled as a private concern out of the eye of the very aggressive British media and the scrutiny of sell-side analysts," says Brad Ruderman of Ruderman Capital Mgmt. He sees good odds of a deal and says the shares are worth 35.

“Review” section highlights VeriFone (PAY), which offers a Wi-Fi bill-paying device for waiters. Credit cards with embedded chips, already in the hands of millions, make it even easier. And all of these technologies may be more secure than the current approach, where unscrupulous waiters can make personal use of your card in the back room. "I am 100% certain these devices will eliminate card-skimming in restaurants," says Isaac Lay, a California entrepreneur.

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