Sunday, September 30, 2007

Barron's Summary (BWA, AMR, NDSN, WYNN, LVS, SFD, CSCO, DISH, MU)

Barron’s cover story reveals 50 best hedge funds. Top 5 includes RAB Special Situations (3y cumulative avg return: 47,69%), The Children’s Investment Fund (44.27%), Highland DCO Opportunity (43.98%), BTR Global Opportunity (43.42%) and SR Phoenicia (43.1%).

Interviewed portfolio manager likes NEM, GFI, IVN and GOLD. He believes that gold bubble lies ahead, sees gold at $1000/oz.

The shares of BorgWarner (BWA) now trade in line with the auto-parts group, but merit a premium based on strong patterns of revenue growth. Now around 90, they could hit 105 to 110 in the coming year, analysts say.

AMR (AMR) is trading for about 22, or six times estimated '08 earnings, down from a peak of 41. The stock could rise 50% in the next year, as investors recognize its assets.

Nordson's (NDSN) shares could climb more than 20% in the coming year, thanks in part to global diversification that cushions earnings from an economic downturn in the U.S.

“The Trader” column highlights WYNN and LVS, whose shares have soared about 89% from their late-Jun lows. At 134, LVS now trades at nearly 51x forward earnings and 110x what it earned over the past 12 mo’s. Wynn shares are changing hands near 160, or 56x forward earnings. Seizing the opportunity, Wynn last week priced a public offering of 3.75m common shares at 158, raising an easy $600m for "general corporate purposes." The dizzying valuations reflect increasingly crowded bets on the hot Macau mkt. While new Macau properties add buzz, there are cultural and political risks, and the tilted risk-reward profile makes these stocks more of a gamble. Jefferies analyst Lawrence Klatzkin, for example, recently lowered his rating on Wynn from Buy to Hold b/c the stock "has gotten ahead of itself."

“The Trader” also discusses Smithfield Foods (SFD), saying that the odds are improving for the co. Consider what's happening in China: As the world's largest pork-consuming country celebrates the year of the pig, it ironically is suffering an acute pork shortage. A vicious outbreak of Blue Ear disease has infected 290K pigs and would wipe out 20% of the pig population. Pork prices have jumped 70% in the past yr. Vietnam and Myanmar also reported outbreaks of the disease. Into the fray comes Smithfield, which agreed in late August to supply 60m pounds of pork to a Chinese distributor. While the agreement is to supply pork through Dec’07, it could lead to additional purchases. For one thing, the Chinese pork shortage won't ease soon: It takes about 18mo’s to rear a sow and produce piglets, and the govt's disease control and vaccinations will take time. Meanwhile, the govt is under mounting pressure to keep food inflation in check and stave off social unrest. At about 31.50, Smithfield has pulled back 12% from its mid-summer peak and is trading at 12.6x forward earnings. Shares have been stagnant in the past 2ys, chiefly as worries persist about rising grain and feed costs. As Smithfield beefs up its commodity offerings with higher-margin products it could emerge stronger from the current cycle trough. Ted Baszler, of Heartland Select Value Fund, sees operating margins, now at 3%, increasing to 5% or 6% by 2010.

“Follow Up” section discusses Cisco (CSCO), whose stock is up 38% since Barron’s highlighted it positively back in Oct.9 ’06. But after the mkt's rotation into tech stocks over the last few mo’s, Cisco's going for almost 7x its trailing revs. Its forward earnings multiple of 21x has surpassed the median level of the last 3ys. Time for investors to look for less fashionable stocks.

“Technology Trader” highlights EchoStar (DISH), which last week revealed plans to acquire Sling Media. Announcement two was that EchoStar is planning to split into 2 co’s. All this means EchoStar shares are worth more today than they were a week ago. B/c DISH Network as a stand-alone business is expected to get a higher multiple, since it will be less capital-intensive than while buried inside today's Echostar. And splitting off the tech business opens up new prospects. Finally, it's possible that the 2 announcements are a prelude to another bigger one: an acquisition of the DISH Network. Rumors suggest merger with DirecTV (DTV) or outright acquisition by AT&T (T). In fact, last week reported that AT&T has offered to buy the co for $55 a share. Thomas Eagan, of Oppenheimer, last week raised his rating on EchoStar to Buy from Hold, and asserted that AT&T needs a new strategy. And given the fact that AT&T has for some time now been reselling DISH service to its customers, buying the co has a certain logic. Eagan, in fact, contends that when it comes to AT&T buying EchoStar it is "a matter of when, not if." Consistent with the rumormongers at TheStreet, Eagan says DISH could be worth $56 in a takeout.

According to the “Technology Trader” column, Toshiba last week said it has sold out its supply of NAND flash memory through the end of the year, and is turning away business. That bodes well for Micron (MU), which reports results Tue. Micron shares are always volatile; they are the classic example of a trading stock as opposed to an investing stock. Never consistently profitable, the chip maker's fortunes are determined in no small measure by the state of the memory-chip mkt. Some still equate Micron with DRAM, but over the years, the co has diversified a bit. Daniel Amir, of Lazard, asserted last week that the upcoming earnings could hold a positive surprise in the form of better-than-expected NAND results. Meanwhile, investors await word on the potential sale of Micron's image-sensor business. Amir thinks the unit will be spun off in the 1H08, a move that could act as a catalyst for the stock. He thinks the stock can reach 14.

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