Sunday, October 28, 2007

Barron's Summary

Barron's cover discusses tech stocks. Article favors Google (GOOG), which contiunes domination of Yahoo! and MSN as ad dollars flow to Web; Nokia (NOK) that has the biggest share in wireless handsets as that market takes off; TomTom, a solid franchise in the growing personal navigation sector; BMC Software (BMC), whose margins expand for mainframe software and appears to be cheap virtualization play; Seagate (STX), a leader in disk drives benefits from consolidation and PC boomlet; Digital River (DRIV), as online delivery of software continues to gain in popularity; PROS Holding (PRO), which should benefit as co's adopt more sophisticated pricing models; and GSI Commerce (GSIC), which is capitalizing on traditional retailers' need to outsource e-commerce. Pans include Motorola (MOT), saying that cost-cutting is a temporary margin fix, also waiting for a new handset platform; Nvidia (NVDA), as super successful digital-chip co will feel pressure from Intel and AMD; and Electronic Arts (ERTS), whose games portfolio looks tired, the co doesn't benefit from the popular Wii console.

Fund manager likes MUR, CSCO, ORCL, MSFT and ACN. Another fund manager likes ESV and TRN.

The valuations accorded many Chinese co's suggest China's mkt is overheated and due for a fall. Until then, the Chinese might try to buy cheaper US concerns. PetroChina (PTP) trades for more than 20x estd '07 profits, or twice its historic P/E multiple, vs Exxon's P/E of 13 and P/Es of about 10 for other Western oil co's. Some analysts and investors think the co deserves no premium to its Western peers, and is overvalued by 50% or more. Another co trading at huge premium China Life Insurance (LFC).

Weyerhaeuser's (WY) asset value may exceed more than $100 a share, some 50% above its current stock price of 68.

Many brokerage stocks have fallen sharply, but they still are far from cheap. The industry faces more writeoffs of impaired assets, and declining earnings. MER, GS, BSC, WB, JPM, MS, LEH, C, BAC.

FMC (FMC) is in hot markets, like lithium, used in gadget batteries, and soda ash, needed for glass in emerging markets. With profits on track to climb nearly 20% in '08, the stock could rise at least 15% and keep going. A takeover target?

"The Trader" column highlights difference between Chipotle Mexican Grill's (CMG) class A and Class B shares. Chipotle's common stock traders at 134, vs class B at 117, a 13% discount. The two stocks have similar economic rights, and the B shares in fact have superior voting power, but the A shares are more liquid. For those who can stomach the slight liquidity disadvantage, Citigroup analyst Glen Petraglia has long flagged the B shares as the more "compelling" of the two. Tax considerations restrict Chipotle from a move until Oct'08, Petraglia says, but "I would expect them to take steps to merge the share classes after that point." Traders like Tim Lobach, of Keystone Trading Partners, have bought B shares and shorted the A essentially to bet on the gap closing. Fundamentally, however, he thinks the stock are pricey and trading like an Internet stock. "It's just a taco shop!" Lobach says.

"The Trader" suggests that investors should take some money off the table at Aegen Marine Petroleum (ANW).

"The Trader" column also discusses Polo Ralph Lauren (RL), whose shares have stumbled 35% since July. At 68, shares are worth 14.3x forward earnings, below the 18-25x multiples typically commanded by luxury consumer brands. And Polo has more than $6 a-share in cash on its books. Last qrtr's marginal earnings miss also was caused by higher taxes, and any cautious forecast when Polo reports on Nov. 7 could provide a buying opportunity. Over each of the past 3ys, consumer stocks also have rallied in the 4Q as oil prices receded. Also, Polo has continued to streamline its supply chain and bought back licenses to control its products and image. Intl sales should top 40% of rev as it expands to tap foreign fervor for Polo's packaged Americana. Rev will grow with more specialty stores, and licenses that could be bought back. Credit Suisse analyst Omar Saad has estd Ralph Lauren can generate more than $4bn in incremental rev over the next 5ys, or more than $5 in EPS. Sure, there is always the risk of questionable fashion decisions, and '08 profit growth might be muted by investments to launch the "American Living" brand sold through JC Penney. But that merely provides an opening to pony up for shares.

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