Source: Barron's article: Bear Beaters - January 26 2008
Barron's discussed 10 undervalued stocks that look like a good bargain today. They are:
Name Ticker Price P/E
1. Altria MO 73.95 14.80
2. Boeing BA 77.03 14.80
3. CBS CBS 23.88 13.76
4. Chubb CB 48.27 7.01
5. Conoco COP 74.13 11.49
6. Cummins CMI 49.02 13.49
7. Disney DIS 28.68 12.75
8. Freeport McMoran FCX 84.22 10.01
9. General Electric GE 34.00 15.65
10. Motorola MOT 10.73 43.5
1. Altria (MO)
There are talks about breakup between the international and domestic cigarette divisions that is expected in the spring. The stock trades for $73.95 as of Friday, January 25. By breaking up the company, they could unleash the values that stem from better operational management, cost reductions, a clean balance sheet, and big buybacks.
2. Boeing (BA)
Announced that the 787 Dreamliner is delayed, but they have lots of orders, and with the increased competition in the airline industry, and the long term outlook on the expanding economy, it is well positioned for good growth.
3. CBS (CBS)
Trades for just 13 times earnings, and it's down big time from a summer high of 35. Good dividend of $1 will likely increase as Sumner Redstone, the legendary chairman will seek ways to return some value to the investors.
4. Chubb (CB)
Multiyear low valuation, it trades at a 7 times multiple. Profitable business, with a great insurance brand, Chubb generates 16% ROE, and it had no meaningful exposure to the subprime mortgage mess.
5. ConocoPhillips (COP)
Solid financial and operating results. There is a buyback program in progress, but they may also increase dividends as well; now the dividend yield is 2.2%.
6. Cummins (CMI)
The maker of Diesel engines is taking Caterpillar for a ride, as is increasing market share for the heavy and medium-duty trucks. It should benefit from the upcoming explosion of global diesel-emissions regulations.
7. Disney (DIS)
Valuation is at 10-yr low for this stock, despite rising profits. 2008 estimated EPS is $2.13 per share. The dividend is low, just 1.2% and they could pay more, but they prefer buybacks, having just bought 10% of its shares in the fiscal year ended September.
8. Freeport McMoran (FCX)
The world largest copper producer has seen its shares off about 17% in January alone, but copper may be the best positioned among base metals. FCX has a lot going for it, such as high margins, low multiples, and it may be a good takeover potential at a market cap of $32B.
9. General Electric (GE)
Why GE doesn't get some love from Wall Street, I don't know. This company's products are number 1 in many industries, such as aircraft engines, power and health care. The dividend yield is 3.60%, just like the 10-yr Treasury bond, but with more upside from the long term capital gain.
10. Motorola (MOT)
I don't particularly like Motorola, but I must admit that at these levels it starts looking attractive. It is still profitable and has about $2 per share in cash. Something is going to happen at Motorola this year: maybe a breakup, sale of the non-performing divisions, Carl Icahn may strike again, but I see limited downside to the stock at this time.
Barron's is bullish on all these stocks and they see a price appreciation of at least 20% for each one of them.
Good luck and Happy Investing !
Sunday, January 27, 2008
Sunday, January 20, 2008
2008 Outlook
The year started on a very meek note, with all indices faring lower as of date.
The Dow Jones Industrial Average (at 12,099) is down 8.8%, Nasdaq (at 2,340) down almost 9% and S&P 500 (at 1,325) also down by 9.8%.
Looking ahead, what’s the outlook for 2008? Are we going into a recession, or just slow growth? What’s the difference? Will the market recover in the second part of the year?
Well, clearly the danger of the “R” word is here, and it’s real. The “subprime crisis of 2007” as it may go down in history has put many investors in defense, as they don’t know how much of the story is unknown. The uncertainty sinks markets and this time is no exception. Even if we know the extent of the damages – but we don’t – who will come to the rescue. The foreign funds, you say? Sure, but under what conditions and what price? You know, you pay for discomfort just as you pay for convenience. But as a believer in free market economy, I may let this one unanswered for now.
Let see how 2008 may look. The housing is down, the stock market is down, there are not many asset classes left to inflate. Financial pundits are stepping on each other’s toes trying to guess: “is it slow growth? Is it (mild) recession?” The housing market will take many quarters to resolve, and this will impede the overall economic growth. The house prices are down about 10% average nation-wide, but from what I’ve read, they may have to go down about 15-20%. Margin call in housing market!
Fortunately, the corporate sector learnt its lessons from the 2000 bubble. By comparison, the inventories are now under control, balance sheets are much stronger. The returns on equity will come under some pressure, but we don’t know how long will last and how bad will get.
Will Bush’s tax stimulus package help? I like the urgency, and I think that any bit will help the economy, so I am a supporter of it. And an interest rate cut will also help, but it appears that the markets don’t really trust the academic face of Mr. Bernanke, and they will soon realize that just a rate cut lf 50 basis points is not enough. In fact, I think that the 50 bps rate cut is already priced in. Now, cut it by 75 bps and get the tax stimulus out, and that’s a bullish signal!
People also talk about the U.S. economy “decoupling” from the global economy, but that’s not possible. The emerging economies are in different lifecycles, and even China may cool off by 200 to 300 basis points, and grow only at 7-9%.
Japan has been a dog for years. The most positive factor for Japan in the past year or two has been the exports. With the yen rising, exports won’t contribute much this year.
The BRIC / CRIB economies will grow at 7-8% per annum, which is solid growth, showing that the global economy is still growing, but at slower pace. The growth will come mainly from the contributing middle class in the BRIC countries, especially China.
The Dow Jones Industrial Average (at 12,099) is down 8.8%, Nasdaq (at 2,340) down almost 9% and S&P 500 (at 1,325) also down by 9.8%.
Looking ahead, what’s the outlook for 2008? Are we going into a recession, or just slow growth? What’s the difference? Will the market recover in the second part of the year?
Well, clearly the danger of the “R” word is here, and it’s real. The “subprime crisis of 2007” as it may go down in history has put many investors in defense, as they don’t know how much of the story is unknown. The uncertainty sinks markets and this time is no exception. Even if we know the extent of the damages – but we don’t – who will come to the rescue. The foreign funds, you say? Sure, but under what conditions and what price? You know, you pay for discomfort just as you pay for convenience. But as a believer in free market economy, I may let this one unanswered for now.
Let see how 2008 may look. The housing is down, the stock market is down, there are not many asset classes left to inflate. Financial pundits are stepping on each other’s toes trying to guess: “is it slow growth? Is it (mild) recession?” The housing market will take many quarters to resolve, and this will impede the overall economic growth. The house prices are down about 10% average nation-wide, but from what I’ve read, they may have to go down about 15-20%. Margin call in housing market!
Fortunately, the corporate sector learnt its lessons from the 2000 bubble. By comparison, the inventories are now under control, balance sheets are much stronger. The returns on equity will come under some pressure, but we don’t know how long will last and how bad will get.
Will Bush’s tax stimulus package help? I like the urgency, and I think that any bit will help the economy, so I am a supporter of it. And an interest rate cut will also help, but it appears that the markets don’t really trust the academic face of Mr. Bernanke, and they will soon realize that just a rate cut lf 50 basis points is not enough. In fact, I think that the 50 bps rate cut is already priced in. Now, cut it by 75 bps and get the tax stimulus out, and that’s a bullish signal!
People also talk about the U.S. economy “decoupling” from the global economy, but that’s not possible. The emerging economies are in different lifecycles, and even China may cool off by 200 to 300 basis points, and grow only at 7-9%.
Japan has been a dog for years. The most positive factor for Japan in the past year or two has been the exports. With the yen rising, exports won’t contribute much this year.
The BRIC / CRIB economies will grow at 7-8% per annum, which is solid growth, showing that the global economy is still growing, but at slower pace. The growth will come mainly from the contributing middle class in the BRIC countries, especially China.
FMCN - Focus Media
Focus Media (Nasdaq: FMCN)
Sector: Services
Industry: Advertising Agencies
Business Profile (source: Yahoo! Finance)
Focus Media Holding Limited operates out-of-home advertising network using audiovisual television displays in the People's Republic of China. Its out-of-home advertising network consists of commercial location network, in-store network, poster frame network, mobile handset advertising network, outdoor LED network, and movie theater network.
LOB:
The commercial location network includes flat-panel television displays placed in high-traffic areas of commercial buildings, such as in lobbies and near elevators, as well as in beauty parlors, karaoke parlors, golf country clubs, auto shops, banks, pharmacies, hotels, airports, airport shuttle buses, and in-air flights.
The in-store network consists of flat-panel television displays placed in the personal care, food, and beverage sections, as well as in hypermarkets, supermarkets, and convenience stores.
The poster frame network comprises advertising poster frames placed primarily in the elevators and public areas of residential complexes, which are marketed under the brand name Framedia.
The mobile handset advertising network offers WAP-based mobile handset advertising services on the mobile telecommunications networks.
The outdoor LED network consists of leased 5' x 5' LED digital billboards installed on the street-sides in shopping districts and other locations with pedestrian traffic in Shanghai.
The movie theater network consists of movie theaters, which the company leased approximately three minutes of screen-time prior to each showing of a movie in the People's Republic of China.
As of March 31, 2007, Focus Media had approximately 90,000 display units in its commercial location network; 40,700 display units in its in-store network; 124,500 advertising poster frames installed throughout China; and 200 outdoor LED displays in Shanghai. The company was founded in 1997 and is headquartered in Shanghai, the People's Republic of China.
Competitive Advantage:
80% of the in-store network. Near-monopoly in this market in Beijing and Shanghai.
Customers:
Consumer brands: Mercedes, Buick, Proctor & Gamble. Companies spending about 10% of their budget in advertising.
Financials:
China ad market: $13 billion vs. US ad market: $155 billion.
Shares outstanding: 128 million
Earnings:
2007: $1.42 per share
2008: $2-2.50 per share
2009: $3.25 per share
Earnings growth: 30% per annum.
Current stock price (Jan 20, 2008): $47.82
YTD Performance: -16% (down $9.31)
Key Statistics (Source: Yahoo! Finance)
Market Cap: $5.85 B
Debt: $0
Profit margin: 33.52%
Operating margin: 32.86%
ROA: 6.53%
ROE: 11.67%
Reason for buying:
Increased interest in advertising buoyed by 2008 Beijing Olympics.
S&P500 Rating: 3 stars (Hold)
Sector: Services
Industry: Advertising Agencies
Business Profile (source: Yahoo! Finance)
Focus Media Holding Limited operates out-of-home advertising network using audiovisual television displays in the People's Republic of China. Its out-of-home advertising network consists of commercial location network, in-store network, poster frame network, mobile handset advertising network, outdoor LED network, and movie theater network.
LOB:
The commercial location network includes flat-panel television displays placed in high-traffic areas of commercial buildings, such as in lobbies and near elevators, as well as in beauty parlors, karaoke parlors, golf country clubs, auto shops, banks, pharmacies, hotels, airports, airport shuttle buses, and in-air flights.
The in-store network consists of flat-panel television displays placed in the personal care, food, and beverage sections, as well as in hypermarkets, supermarkets, and convenience stores.
The poster frame network comprises advertising poster frames placed primarily in the elevators and public areas of residential complexes, which are marketed under the brand name Framedia.
The mobile handset advertising network offers WAP-based mobile handset advertising services on the mobile telecommunications networks.
The outdoor LED network consists of leased 5' x 5' LED digital billboards installed on the street-sides in shopping districts and other locations with pedestrian traffic in Shanghai.
The movie theater network consists of movie theaters, which the company leased approximately three minutes of screen-time prior to each showing of a movie in the People's Republic of China.
As of March 31, 2007, Focus Media had approximately 90,000 display units in its commercial location network; 40,700 display units in its in-store network; 124,500 advertising poster frames installed throughout China; and 200 outdoor LED displays in Shanghai. The company was founded in 1997 and is headquartered in Shanghai, the People's Republic of China.
Competitive Advantage:
80% of the in-store network. Near-monopoly in this market in Beijing and Shanghai.
Customers:
Consumer brands: Mercedes, Buick, Proctor & Gamble. Companies spending about 10% of their budget in advertising.
Financials:
China ad market: $13 billion vs. US ad market: $155 billion.
Shares outstanding: 128 million
Earnings:
2007: $1.42 per share
2008: $2-2.50 per share
2009: $3.25 per share
Earnings growth: 30% per annum.
Current stock price (Jan 20, 2008): $47.82
YTD Performance: -16% (down $9.31)
Key Statistics (Source: Yahoo! Finance)
Market Cap: $5.85 B
Debt: $0
Profit margin: 33.52%
Operating margin: 32.86%
ROA: 6.53%
ROE: 11.67%
Reason for buying:
Increased interest in advertising buoyed by 2008 Beijing Olympics.
S&P500 Rating: 3 stars (Hold)
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