Sunday, December 30, 2007

Barron's Summary (COGT worth only $4 a share; MED; LTR)

Barron’s cover discusses emerging farmland bubble. Nationwide, farmland prices skyrocketed 50% over the past 3ys. Mike Duffy, of Iowa State University, calculates that the avg yr-end farm price in the state will be a record $3,908 an acre. The catalysts in the farmland bubble are federal subsidies to ethanol producers and the belief that ethanol demand will keep rising and that China's and India's new wealth will keep boosting global commodity prices. US farmers are switching to corn from other crops, curbing supplies of food grains. Nationwide, from ‘02 to ‘07, the number of acres on which corn was planted rose 24%. An investor who buys land will have no problem finding tenants to work it for him, says agricultural-property auctioneer Rex D. Schrader, b/c, with commodity prices high, they believe they will still be able to make fat profits. Rising rents appeal to Wall Streeters who want a piece of the hot action but don't know a corn stalk from a pole bean. Schrader says that 10% of his customers are investment groups of 5 or 6 ppl who want in on the current boom.

Fund manager likes FNM, FRE, COF, C, BAC and ALU.

Investors are valuing BNY Mellon (BK) more modesty than its two biggest rivals. When they fully recognize the co's virtues, the stock will rise by over 15% annually. BNY Mellon CEO Robert Kelly says that while, at first glance, his stock might appear fairly valued vs State Street's and Northern Trust's, the rapid growth of his co's asset-mgmt and non-US profits don't seem to be reflected in the price. "In 5ys," Kelly observes, "we could be closer to 50% asset mgmt and close to 50% international," up from 30% for each right now. "There is $140 trln of fixed-income and equity assets on the planet, and we have $21 trln of it," under mgmt or in custody.

Cogent (COGT) shares, trading near 12, are worth about 1/3 that, by one est. The mkt for its fingerprint-ID systems is growing more slowly and is more price-sensitive than expected. A hedge-fund manager who's short the stock pegs the shares' worth closer to 4. His view: "It's just not a growth co." The $4 figure would value the co at 2-3x sales, which he believes more accurately depicts its growth status. Cogent, which has ample cash reserves of $331m, has been an acquirer of its own stock. But CFO Kim sold $478K worth of shares Nov. 15. As sales and operating performance have deteriorated, Cogent increasingly has relied on the interest generated by its cash to boost earnings. In the SepQ, interest income equaled $5.8m, or nearly 80% of pretax profits, while operating income equaled just $1.7m. "Revenue predictability has been an issue for the co, and it will continue to be a problem," Kim says.

Loews (LTR) trades around $49, a marked discount to its estd NAV of $64 a share. A plan to spin off its tobacco unit could lift the stock about 20%. In June or July, public holders of Carolina Group should get shares in Lorillard, while Loews is expected to execute a tax-free "splitoff" of its $5.7bn stake in Carolina. "We believe this is in the best interests of Loews and Carolina Group, and that there is more value in splitting them up than having them stay together," says Jim Tisch.

“Follow Up” section highlights Medifast (MED), saying that the stock looks cheap. It's trading at about 10x the consensus '08 earnings forecast. Says analyst Laura A. Richardson of BB&T: "Even with the risks of a down economy, we continue to think '08 could be a breakout year for Medifast as it gains sales traction from investments made during '07," including a new ad campaign. In addition, the analyst expects the co to disclose positive results for a new clinical study of its products. Richardson, who sees profit up 25% annually over the next 3-5ys, has a 12-month tgt of 9.

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