Thursday, October 25, 2007

Paperstand (MCK, ITW)

The WSJ's "Heard on the Street" column highlights McKesson (MCK), saying that rough comparisons with last year suggest that earnings are unlikely to impress Wall St during the rest of this year. But some smart investors say the best time to scoop up shares of a co like McKesson is when they are ignored, and before a profit pickup is at hand. These investors, including some top hedge funds and private-equity firms, say McKesson, might even be a takeover candidate if the merger game heats up again. At a recent charity event in NY, during which a group of prominent hedge-fund and private-equity players shared their best investments picks, McKesson was the only stock for which the honchos shared an affection. Larry Robbins, of Glenview Capital, argued that Street's profit expectations are too low and that McKesson has so little debt it could borrow money to boost its current share-buyback program. The co is one of Glenview's largest holdings. Some say an activist might tgt McKesson, attracted by the meager debt levels, potentially sending shares higher. At the same event Rick Schnall, of Clayton, Dubilier & Rice, said McKesson has one of the best mgmts in the health-care business. He said "many private-equity firms would love to figure out a way" to buy it, though he said it is unlikely that such big deals will take place until difficulties in the credit mkts pass.

According to the WSJ, the UAW appear to be on the verge of ratifying a tentative labor contract with Chrysler after workers at 4 plants near Detroit voted in favor of the deal Wed night. All 4 passed the contract by significant margins, tipping the total vote toward approval with only one major UAW-represented facility yet to vote. The contract must be approved by a majority of the 45K UAW workers employed by Chrysler. It has encountered stronger-than-expected opposition, with workers at several plants rejecting the deal. The total vote count now shows roughly 55% of those who have cast ballots voted to accept the contract. The total includes results from 26 of 27 union locals that represent Chrysler workers.

Barron's Online "Insode Scoop" section reports that with shares of Illinois Tool Works (ITW) flying high, two insiders have sold $11m in stock. On Fri director Harold Smith sold 130K shares for $7.3m. On Thu director Robert McCormack sold 62K shares for $3.7m. "The co has done well, and [it's common to see] insiders taking profit," says Jonathan Moreland, advisor to Ladenburg Thalmann Asset Mgmt. "While they are the heaviest sellers, they are also [some of the] heaviest holders," says Moreland, who thinks that it is a positive for the stock that the amount Smith and McCormack are selling is small, "compared to what they are willing to hold long term."

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