Sunday, January 06, 2008

Barron's Summary (MRVC worth $4.50 a share; AB, PLD, CRM, CNQR)

Barron’s cover out saying that AllianceBernstein's (AB) shares are off 22% from their 52w highs, making them cheaper than their peers. And the firm's growing foreign business should provide some upside.

Fund manager likes CLP, ARE and KIM.

Many depressed shares are trading at or near book value, a level that often provides a floor under prices. When investors sense a bottom in a stock, the turnaround can come quickly. Those include: AIG, BSC, CMCSA, CMA, GCI, KSS, LM, MU, LUV, SBUX, STI and TWX.

S&P materials stocks have risen 19% annually, and industrials 15%, for the past five years. Both sectors could see steep declines if the US economy enters a recession. Ed Shill, CIO of QCI Asset Mgmt, is underweight industrials and owns no materials stocks. "Virtually any commodity price is trading well above its cost of production," he says. JEC, CMI, DE, FLR, MON, FCX, X, PX.

Investors have unfairly dumped shares of ProLogis (PLD), along with other real-estate plays. The stock could rally to around 70 this year from the mid-50's If the global economy keeps growing. "From an operational standpoint we expect to outperform in '08, given our international platform," says CEO Jeffrey Schwartz. "Hopefully, it'll be reflected in the stock price."

“The Trader” column discusses MRV Comm. (MRVC), saying that one hedge fund after another has been drawn to the glimmer of its optical-equipment business. Some have argued that the sum of its parts deserves a richer value. Yet the stock is mired where it was nearly 6ys ago, at $2.11. Yet, the co finally plans to take public its optical- equipment business, Source Photonics. It's a tangible sign MRV "finally is going to force the street to value the separate entities at their respective multiples, which we believe will unlock tremendous value," says Leo Saraceno, of Sun Life Financial. MRV has 3 key businesses: the fast-growing optical unit, a core network-products business, and a 3rd-party network- integration unit. According to the prospectus, Source Photonics will combine MRV's optical- equipment business with a recently-acquired Fiberxon. This will expand the unit's technology platform and allow it to tap Fiberxon's cheaper China-based manufacturing facilities. Rev for Source Photonics is expected to grow 25% to about $225m this year. Applying a multiple of 1.5x ‘08 sales would value it at $338m, or $2.11 for each MRV share, Saraceno argues. He reckons the core network-products unit might be worth another $230m, while the 3rd-party network-integration unit is good for $95m. Add net cash and MRV, he says, should fetch $4.50 a share.

“Plugged In” column out saying that 2 of the most outrageously priced software stocks around are Salesforce (CRM) and Concur (CNQR). Both are vastly more expensive than Apple (AAPL) and Microsoft (MSFT). That's partly b/c the 2 upstarts have big growth ahead of them, with analysts projecting 49% rev growth this year for Salesforce and 25% for Concur. But it's also b/c until recently, their stocks were the only game in town for investors who wanted a piece of the action in "software as a service." But suddenly, there's company. Joining Salesforce and Concur are Netsuite (N) and SuccessFactors (SFSF). Both Netsuite and SuccessFactors sell programs very similar to Salesforce's. And there's no shortage of hopefuls who've filed with the SEC to join Salesforce and Concur in the mkt. Among them: Varolii. It claims six of the US' 10 largest banks as customers. It filed in September to go public. In a sign some are already trying to specialize in a crowded mkt, Convio is aiming its customer-relations software specifically at nonprofits, whose "customers" are their donors. Its IPO prospectus lists Goldman as leading the deal. Even if there are many ways to slice the pie there's still going to be fierce jockeying among these Web-software firms to claim title to the best on-demand investment. Pacific Crest analyst Brendan Barnicle on Mon initiated coverage of SuccessFactors with an Outperform rating, saying that with 2 million users, SuccessFactors is "the world's largest on-demand application provider." Eventually, a good chunk of commercial-software programs, perhaps even most of them, will follow the model set by Salesforce and Concur. As that happens, the imprimatur of the two co’s as the "pure plays" will come to mean less and less. No doubt both stocks will still seem attractive as acquisition tgts for Oracle or SAP as they continue their rapid growth. And both are profitable, something neither Netsuite nor SuccessFactors can claim. But their days as exclusives in this particular genre of investment are numbered, a fact that is sure to make investors take a closer look at the rich premium baked into their shares.

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