Sunday, December 09, 2007

Barron's Summary (JPM, YHOO, CMCSA, PALM)

Barron’s cover discusses favorably JP Morgan (JPM), saying that the co isn't immune to current banking problems. It wrote down $1.3bn of its leveraged-loan portfolio in the 3Q. It's been nicked by its subprime business, home-equity loans in particular, for which it recently added $306m to its loss reserves. But the big investment and commercial bank has fared better than many of its peers, and its stock has held up better, too, falling 4% for the yr. The co provides the best evidence yet that a well-driven banking behemoth can negotiate the harrowing curves of the world's financial mkts. And when the road straightens out, JPMorgan could really accelerate. Thus far, it's shown a talent for avoiding the worst of the subprime wreckage, thanks to risk-conscious CEO Jamie Dimon's firm hand on the wheel. With ample reserves, capital and liquidity, the bank also has the wherewithal to pounce on strategic deals; it could buy a big consumer bank or brokerage. "Jamie and his team are in the catbird seat to be opportunistic," says Susan Roth Katzke, of Credit Suisse, which has an Outperform rating on the stock, with a 12-18mo price tgt of 60-65.

Allstate (ALL) is trading at a depressed level, but investors are focusing too much on potential risks and too little on potential rewards. Barring a Katrina-like catastrophe, the stock could rise at least 25% in a year.

Kinetic Concepts (KCI) shares, which have fallen back after strong gains, look like dead money for now. The medical company faces new competition, including the U.K.'s large Smith & Nephew.

According to the “The Trader” column, Utility shares have the added attraction of potential upside. David Kovacs, of Turner Investment Partners, believes stocks like FPL Group (FPL), with 7% annual dividend growth over the past 5ys, and Exelon (EXC), with 15% annual dividend growth, have room to rise. "Nobody's paying attention to this group," which Kovacs believes will outperform the mkt for the next 6mo’s or so.

Fund top 10 holdings include: GE, NVS, MS, JPM, MRK, DD, HES, OXY, PG and NSC.

“Technology Trader” section discusses Yahoo (YHOO), saying despite a recent high-profile mgmt change, with Terry Semel booted out as CEO in favor of co-founder Jerry Yang, and a much-ballyhooed program called Panama to improve the monetization of search results, Yahoo continues to flounder. Yang's tenure so far has featured a flurry of mgmt shifts and pruning of some minor operations, but not the grand gestures the Street is hoping to see. Jeffrey Lindsay, of Bernstein, contends that the co seems more and more befuddled. "It is becoming increasingly difficult to put a positive spin on Yahoo's continuing misfortunes," he wrote in a research note. He points to mounting signs of operational problems. For instance, he notes that the co's shopping site was basically out of commission on Cyber Monday, leaving many of the merchants that rely on Yahoo to host their online stores without a way to complete transactions. He also thinks Yahoo mishandled the disclosure of recent changes in its relationship with Rogers Communications. Lindsay notes that though Yahoo recently announced a renewal of their relationship, the company failed to disclose the termination of the monthly subscription fees that Rogers had been paying Yahoo. In fact, Rogers is paying Yahoo $52m to get out of the deal. Under the new arrangement, the co’s will simply share revenue from ads Yahoo sells on Rogers' Websites. "We believe that this change not only reflects how keen one of Yahoo's [partners] was to get out of this type of agreement, but it also likely triggers the most-favored- nation provisions in the other players' contracts," he wrote in his report. The co has deals with AT&T (T) and others coming up for renewal; Lindsay expects the relationships to be similarly restructured. Over all, he sees about $750m in annual revenue from per-subscriber fees now in jeopardy.

“Technology Trader“ discusses also Comcast (CMCSA), whose shares are down 35% YTD. That includes a drop of about 10% last week, after Comcast (CMCSA) ratcheted down growth expectations for the rest of the year. Many analysts last week were slashing ratings, ests and price tgts. But maybe enough is enough. Morgan Stanley's Benjamin Swinburne last week actually raised his rating on the stock to Overweight from Equal Weight, saying concerns about "an all-out price war" in pay TV aren't reasonable. Cable, telco and satellite players have installed bigger rate increases for ‘08 than in ‘07, and he contends that Comcast can continue to score 15-20% growth in EPS and FCF in the yrs ahead, driven by gains in voice, expanded deployment of high-def and DVR set-top boxes and increasing data speeds. The stock, he says, trades for a historically low valuation. He thinks you should buy it.

“Plugged In” column highlights Palm (PALM), whose shares were hammered on Fri. But they started to recover once Morgan Keegan analyst Tavis McCourt reported that shipments of Palm's Windows Mobile smartphones have grown faster than total Windows Mobile shipments in the past 2 qrtrs. One possible conclusion to draw from the Windows Mobile sales is that Palm is gaining with corporate users-who like integration with their Windows OS, at the expense of RIM's (RIMM) BlackBerry. It also implies Palm is selling more handsets abroad. Elevation Partners injected in Oct $325m into the co for a 27% stake. Elevation managing partner and Palm board member Roger McNamee said "The shareholders voted to support mgmt's strategy to invest in products and operational expertise so that Palm could participate fully in the growth opportunity of smartphones.” "You won't even see it in the numbers for awhile, but the co is off to a great start," he adds. McNamee is confident that the new blood can transform Palm into a strong niche player in the handset mkt. One opportunity is affordable mobile e-mail for everybody-not just corporate execs. Palm's new Centro handset, introduced this fall by Sprint at a price of about $100, is selling like hotcakes, McCourt says. Elevation inherited that product, but it suggests some of the future possibilities in mobile broadband. Says McNamee: "We are betting our fund on that notion."

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