Sunday, October 15, 2006

Barron's Summary

According to the Barron’s, US Steel (X) shares, recently in the mid-60s, could fetch up to $100 in a takeover bid. But even if none materializes, good profits should propel them past $80 within a year.

At 64.50, J&J (JNJ) trades for 16x ‘07 ests. Based on historical multiples of earnings and cash flow, and a sum of the parts, the shares could be worth 77.

According to the Barron’s, Wall St. is pumped about water, and for good reason. Globally, the $365bn business is burgeoning as countries spend billions to repair and build infrastructure to funnel clean water to ppl and industry. Some experts think $1.5trln in capital spending could flow into the sector in the next 5 years, promising a steady stream of business for a host of co’s, from pump makers to water utilities. The mkt, which encompasses residential and industrial water and wastewater treatment and services, is growing by 4-6% a year in developed countries, and as much as 15% in emerging mkts. Co’s mentioned in the article include: GE, ITT, SZE, WTR, PNR, WTS, VE, SBS, AWR and UU.

“The Trader” section discusses NetRatings (NTRT), which received buyout offet last week. The mkt has already determined that $16 appears too low a price, pulling the stock up on the news. The shares finished Fri at 16.76. One money manager who has owned the stock for years calculates that an acquisition of the public shares would be accretive to VNU's owners up to a $25-per-share buyout price. The difference between $16 and $25 for NetRatings' 15m public shares amounts to $135m. The private-equity firms just paid $11bn for VNU in May. Barron’s expects pressure from shareholders and negotiations to make up some of the gap between $16 and $25 before this story concludes.

Also in “The Trader” section is discusses Agco (AG), whose stock is up 65% this year, despite (or is it b/c of?) the disdain of the sell side. There's only one Buy rating among 10 analysts to go with two Sells, and short interest is heavy around 10% of the share float. B/c of a P/E ratio above 18 based on ‘07 forecasts, the stock may not appear cheap. But looking at enterprise value to cash flow, it's a good deal less expensive than Deere (DE), which itself still seems attractive. Buying the weaker players in a concentrated mkt sector can be risky. But in this case, the sour sentiment toward Agco and its impressive stock-price momentum might earn it the benefit of the doubt.

China's telecom-equipment makers have survived on a near-starvation diet of orders from phone operators as they wait, and wait, for Beijing to issue licenses for 3G mobile-phone services. Now, after at least 2 years of delay, 3G's moment of truth in China may be only a few months, or even weeks, away. And that could mean a rush of orders for the gear makers next year, boosting earnings and stock prices. Only US listed co mentioned is GrenTech (GRRF) that sells equipment to boost mobile signals.

“Technology Trader” section discusses Cisco (CSCO) that plans to enter videoconferencing mkt. Its mkt entry next week hardly will cheer videoconference vendors like Polycom (PLCM) and Radvision (RVSN). In addition to a high-def picture, the Cisco system will have a very low price tag. Over time, Cisco thinks its solution could get cheap enough to be bundled into consumer television sets. Neither Polycom nor Radvision are cheap stocks. At 27 bucks, Polycom trades at 45x its trailing 12 months' EPS. At just under 19, Radvision goes for 27x trailing earnings.

Fund manager top holdings include: GE, CSCO, GOOG, GS, PEP, WFC, UBS, MEL, TROW and OXY.

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