Thursday, August 23, 2007

Paperstand (WB, DGX, HUN)

The WSJ’s “Heard on the Street“ column discusses Wachovia (WB), which has been punished for bulking up on exotic adjustable-rate home loans at the height of the mkt. Still, investors should be smiling, because Wachovia could take advantage of the downturn to build its lending business. And at the current valuation, the bank's shares now trade at a 12-mo trailing P/E of 10, a 10-y low and a discount to its peers, means investors are expecting serious losses from its mortgages, which are unlikely to happen. "It's cheap," says banking analyst John McDonald of BofA, who calls Wachovia a Buy.

Barron’s Online discusses Quest Diagnostics (DGX), whose shares are down 14.6% from a record close last August. But thanks to new business, an acquisition, cost cutting and growing demand for sophisticated medical tests, Quest may be a good prescription for nervous investors. Quest still generates lots of cash. And after falling this year, rev and profits should start growing again in ‘08. Plus, if the overall mkt remains shaky, a defensive play such as Quest looks all the more appealing, despite a slight premium to the broader mkt. "It's a quality business that throws off a good amount of cash, and the numbers are getting better," says Robert Sellar, of Aberdeen Asset Mgmt.

“Inside Scoop” section highlights Huntsman (HUN), which is set to be acquired by Hexion Specialty Chemicals, but a wide disparity between the takeover price and the mkt is sparking insiders into a merger-arbitrage play. Jon Huntsman Sr. serves as Chmn of the co he formed in ‘94 but has roots dating back to the ‘70s. His 2nd oldest son, Peter, currently serves as CEO, President and Director. Together, they doled out $15.4m to purchase 637K shares on the open mkt within the past two weeks. Ben Silverman, of, says it looks like father and son "are playing the spread here on the arbitrage."

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