Friday, December 07, 2007

Paperstand (CFC, AN, UR)

According to the WSJ’s “Heard on the Street” column, since a credit crunch engulfed mortgage lenders in mid-August, analysts and investors have had nearly 4mo’s to think about whether Countrywide Financial (CFC) can survive. Their conclusion? It is too early to tell. So far, the nation's largest mortgage lender has managed to limp along, largely by increasing its borrowings from the Federal Home Loan Bank of Atlanta and receiving $2bn from Banc of America (BAC) for preferred stock convertible into a stake of about 16% in Countrywide. Its execs have vowed to return to profitability this qrtr after a $1.2bn loss in the 3Q. "I'd rather be breathing than dead," Countrywide's CEO, Angelo Mozilo, quipped at a conference Mon. The co's stock and bond prices, however, suggest that investors see a serious risk that Countrywide eventually could seek bankruptcy protection or resort to huge sales of new stock that would slash the value of existing shares. "The mkt is really concerned about the possibility of default," says Steven Persky, of Dalton Investments.

Barron’s Online discusses AutoNation (AN), which has been burned by the tightening credit mkt, fears of a recession and predictions of lower ‘08 vehicles sales. The stock is down 20% in the past 12mo’s, hovering near its multiyear low. But at this point, the stock looks attractive. Billionaire investor Edward Lampert for one has already signaled his belief the stock is bargain priced. Since late Oct, Lampert's ESL Partners scooped up more than 6.5m shares for $109m, raising its stake in AutoNation to almost a third of the auto retailer's common shares. With a mix of domestic and foreign brands, and with revenue from maintenance and service as well as vehicle sales, AutoNation can still offer investors value. "It is easy to see the potential problems for a retailer of autos from a liquidity-challenged US consumer," says Al Frank Asset Mgmt analyst Chris Armbruster. "Still…it seems that much of their potential problems are priced into the shares. And, that is without growth which may reaccelerate in the coming year as the [comparable sales] become easier."

“Inside Scoop” section highlights United Rentals (UR), which last month was jilted by its private-equity suitor just days before the merger was going to be closed. After the Nov. 14 announcement of the dead deal through Dec. 6, SuttonBrook Capital Mgmt plunked down $111m to purchase 4.65m United Rentals shares on the open mkt. That boosted SuttonBrook's fledging United Rentals stake to 5m shares, or 5.83%. The firm has spent $121.9m to build this entire stake. If United Rentals succeeds in compelling Cerberus to complete the transaction, SuttonBrook "stands to make a pretty good profit on the buys," says Ben Silverman, of

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