Posts for Ticker ‘Barron’s’

Wells Fargo, One of the Survivors Regardless of Others (WFC)

On Friday, after a potential deal may be struck to save the monolines, we had been pondering the overall recovery of the healthy banks in the sector.  We have covered "the banks that will make it" before, and Wells Fargo (NYSE: WFC) is one that we think will get to be a selective acquirer after the recent malaise.

Then this weekend we saw that Wells Fargo is actually the cover story on Barron’s, and we have noted how Warren Buffett added to his holdings on last look.

We look at Wells Fargo as one of the winners in a crowd of would-be losers.  Its operations were far less leveraged with CDO’s and funny money mortgage operations that have been seen at some many financial houses.  Its management also hasn’t bought into much of the recently crafted three and four letter initial products that are difficult to understand and explain.  While the company has had to add to its loss reserves, it is still one of the healthier names in the sector.  It also has a very competitive yield of 4.2% that would make it seem like a Dog of the Dow member, even though it isn’t a DJIA component.

We actually think that in a financial recovery that will eventually come, analysts will raise their targets AND their ratings on Wells Fargo.  Almost every firm has moved to a cautious rating because of the current issues, and whenever the tide turns the analysts will ultimately turn to the strong names in the group.  The truth is that the banks and financial institutions with the junkier and poorer books that are more speculative will win in the first round of a recovery because of the inherent leverage they have.  But at the end of the day investors will want to have the quality names on their books.

The chart is perhaps soon to be an obstacle in a sector that is still likely going to see more and more bad headlines over the next 30 to 180 days.  The stock is up close to 10% from the first few days of the year and up well over 20% from the January-scare lows.  But its 200-day moving average $32.91 (roughly 5% higher than the $31.44 Friday close) and even if that number keeps drifting slightly lower it may act as a hurdle.

If the bank decides to be an opportunistic acquirer, then of course you could expect some of the normal immediate dilution share pressure.  And that is when you want to give this one your attention.  It’s one of the winners.

Jon C. Ogg
February 23, 2008

Posted on: February 23, 2008 – 8:11 am in Banking, Financial Stocks, , ,

Can Barron’s Save MBIA From Ambac’s Fate? (MBI, ABK)

There was an interesting article in this weekend’s edition of Barron’s.  The financial weekly bible is noting that, despite the turmoil and perhaps terminal verdict of bond insurers, there may actually be some significant value left MBIA Inc. (NYSE: MBI). 

Barron’s was very negative on this one even last summer about the exposure to mortgages being overlooked.  Back then MBIA shares traded hands at $65-ish.  But now Barron’s is saying "the market has gotten too bearish on the bond insurer."   Barron’s now summarizes the situation at MBIA as: "MBIA was due for a setback. But at its current price, it’s being punished too severely for bond-industry problems." The entire article is online and you can see the other points there.

This more or less denotes that much more of the woes at MBIA is more in sympathy with Ambac Financial (NYSE: ABK) than to the exact exposure that MBIA has in reality.  This article does not at all indicate that Ambac will escape the storm like MBIA can. It also notes what we observed last week with MBIA’s new $1 billion in capital surplus notes with a 14% yield have fallen down to 75 cents on the dollar.  Its credit protection costs also jumped to previously unheard of levels.

Barron’s also points out that even though large value investors such as M.J. Whitman’s Third Avenue Fund, Davis Select Advisors, and Warburg Pincus are down significantly, they are now key investors in MBIA.  Another Barron’s attribute of this being cheap is that it notes "MBIA remains a profitable entity, but its shares are off nearly 90% from their highs." 

One key issue that Barron’s is hinging much of the contra-mortality of MBIA is that any future claims losses from principal and interest will be dribbled out a the 20-year (or in some cases 50-year) time period; hence "the present value of claims cost dwindles dramatically in relative significance."  This also notes that when Warburg Pincus ran its worst case stress test under "Armageddon-like housing and other economic assumptions" that its annual loss expenses came to no more than around $250 million per year under the most harsh conditions.  This even points to some claims of liquidation value being $30 to $40 per share, although we would caution that others are arguing that the death sentence for all of these has already been determined and the formal verdict just hasn’t been announced.

There are other things at work that could topple all of these companies, even if the original blame lies elsewhere.  The new issue for 2008 is "counterparty risk" and the implications of systematic counterparty failure are disastrous.  This is the new term that bears will use (and are already using) to put pressure on financial and other sector stocks, even if it is not a new term nor a new issue at all.  The reality is that the blowup at ACA would end up looking like a cartoon in comparison.

Frankly, an intervention via a government stimulus package may or may not help, and you can find the criticisms and support all over the place on that issue.  An intervention with a financial stimulus plan for the public may not be enough if there is actual counterparty failure and outright systematic default.  If a stimulus package is presented whereby the government acts as a backstop to prevent the counterparty defaults from being 100%, then this entire issue may be minimized drastically and the fears of a 1929 crash or 1987 crash would effectively be put to rest.  If some of the figures really do pan out the way some of the calculations we have seen, then the expected meltdown of these insurers could literally have dire consequences in the financial markets.  We have even noted the possibility of a 1,000 point drop in the DJIA.

Perhaps the single best tool to use outside of personal opinions derived from all the facts that can be gathered is to look at the trading volume.  The trading volume measured by inflows and outflows of dollars in stocks and sectors will tell you immediately what Wall Street is thinking.  So far that verdict IS that a death sentence is most likely.  The reality is that some firms have yet to implode.  If we start seeing counterparty defaults then we will see more waves of writedowns from major financial institutions.  To make matters worse, many of those institutions may not survive counterparty implosions that leave them on their own. 

We recently pondered a scenario where Warren Buffett and Berkshire Hathaway (NYSE: BRK-A) could save the day.  The reality there is that he would save the day if it ends up looking like a layup, but he won’t come to the rescue just because these need rescuing. This is also just one more piece of the puzzle in what we have deemed as financial mergers becoming mandated rather than preferred.

Right now the situation is deemed as almost entirely up to the ratings agencies like Moody’s and S&P after "negative credit watch" turned this further into another house of cards.  The worst case scenario very well may end up being another Enron situation, with the difference being that the widespread impact of the bond insurers failing having a much broader economic impact on the entire financial system.  It goes without saying that this holiday-shortened week will be more crucial for all the bond insurers.

Jon C. Ogg
January 21, 2008

Posted on: January 21, 2008 – 9:28 am in Analyst Calls, Economy, Financial Stocks, , , , , , ,

Sears..Barron’s May Have Understated Upside (SHLD, CC, TGT, SPG)

Sears Holdings Corp. (NASDAQ:SHLD) enjoyed a meteoric rise from 2003 to 2005, but now the company is facing the dead money status for investors after recently hitting near-term lows.  Eddie Lampert knows that this current status wasn’t the end-game goal.  This weekend’s issue of Barron’s points out the understated value of Sears.

The Barron’s article does a good job of pointing out the upside and the contingencies here.  The one issue that exists is that Sears as a retail player just isn’t doing that well and 24/7 Wall St. has pointed out how poor of a retailer it is.  But there is lot more to the story that we have been investigating for subscribers of our Special Situation Investing Newsletter which might imply close to a doubling of shares if the company makes the right calls.  There is the shot of a REIT-qualification aspect to Sears, but that will be another discussion at a different time.

Some of the factors that are working against the company are actually not the fault of the company.  And some are.  In fact, if you were going to evaluate the macro-scenario here we’d go ahead and warn the Sears permabulls that the raw numbers out of Eddie Lampert’s retail empire may have another 18 to 24 months of having to stomach poor retail results.  In its latest fiscal year, Sears mustered margins of 4.74%, in comparison to Penney’s 9.66%, Target’s 8.76% and Kohl’s’ 11.7%.

Sears_valuation_targets_2But there are two companies here that we believe will be the savior of the otherwise poor situation: Simon Property (NYSE:SPG) and Target (NYSE:TGT).  Simon is a very expensive stock with premium mall and shopping operations and it would be able to acquire the dirt owned and under long-term leases for a fay cry short of the lofty valuations of each square foot it owns.  It recently raised cash as well.  Target (NYSE:TGT) has already expressed that it outright wants to continue its current expansion and outlined a 25% increase in stores over the next few years. 

Read More »

Posted on: October 21, 2007 – 11:26 am in Retail, , , , , , ,

Paychex Might Not Have The Value Barron’s Thinks (PAYX)

This weekend there was a positive report out of Barron’s on Paychex Inc. (NASDAQ:PAYX) that has shares up almost 2% pre-market, although the timing of this is odd considering the part of the economic cycle we are in. Barron’s notes that the recent pullback to around $41 looks like a classic buying opportunity as shares could recover to $46 within a year and $50 in eighteen months.

Barron’s specifically noted, "Though the numbers were generally in line with or above company guidance, with sales up 10% at $507 million and earnings of 40 cents a share, they fell short of many analysts’ more ambitious projections. Investors also worried over the company’s slightly lowered expectations for the full year, with profit growth now set at about 13% versus 15% three months earlier." You can read through the whole article yourself to see if you believe the company on a "because of the FOMC rate cut and because of the stock buybacks" as the excuse that is being used for lower guidance. 

Shares closed at $42.02 on Friday and the 52-week range is $36.08 to $47.14.  If you go back to summer of 2006, this was the real opportunity, as shares fell off and traded under $35 for a brief period of time.  In the year that followed this the shares ran more than 35% before the recent giveback.

The good news here is that shares didn’t really fall off more than they did on the warning.  But at this point in the business cycle it seems that the risk is perhaps more than the rewards for a stock that has become arguably range-bound.  Analysts on average appear to have a $47.50 to $48 price target, the market cap is $15.75 Billion, and it trades at 26.25-times forward fiscal May-2008 earnings projections.

There isn’t really anything wrong with Paychex as a business, but this is less than a 10% projected upside for the next year and that isn’t really a solid projected return for what is arguably still deemed by many as a growth stock.  If growth and income investors are looking for oversold opportunities, there are many other stocks out there.

Jon C. Ogg
October 8, 2007

Posted on: October 8, 2007 – 8:18 am in Business Services, ,

Taking Issue With Barron’s Cramer Cover Story (Aug 19, 2007)

It was a bit surprising to see Barron’s used Jim Cramer for the cover story.  The article points out that Jim Cramer’s picks have lagged the market.  For starters, Cramer rarely gives formal targets or entry points on every pick.  Sure he has his huge prediction level on the DJIA this year and he has given targets for the beloved Google (NASDAQ:GOOG).   This talks about his 3,458 picks on TheStreet.com, and the article points to you being better off in an index fund. 

Dow Jones (NYSE:DJ) owns Barron’s, and Dow Jones is about to become part of Rupert Murdoch’s giant News Corp. (NYSE:NWS).  It just seems hard to think that the article isn’t a bit of "getting in on the in with Rupert," particularly as News Corp is about to launch its own competing business news channel to compete against CNBC.  Here is a link to the whole article at Barron’s Online for your review.

The more stocks someone covers, the more ‘marketesque’ returns they will have and the commissions compared to an index fund may drag it lower.  But in good times and bad, people love to talk about their best stock pick.  Sometimes it will be better and sometimes worse, but it comes down to a basket and the more diverse and broad a basket gets the more it is going to look like the market.  It seems every media focus wants to slam Jim Cramer at some point.  Sometimes I agree with his picks and sometimes not, so creating a "Full Basket of Cramer Picks" and trying to assign a performance to it just seems beyond reality.  Besides that, media get great coverage when they slam another pundit.  He’s loud, highly opinionated, a risk taker, and boisterous.  But no critic seems to get the point of Jim Cramer, even though Barron’s lightly addresses the good side and his track record.  This is about a lifelong process, not about every single individual pick for a week or a month or a year.  He’s trying to get you to think about the process, and yes of course recommendations and opinions come into play. 

The main question the article raises is this: How are viewers supposed to know that they should pay attention only to this subset of stock picks each week and ignore the thousands of others that Cramer makes on his show?  The answer is as simple as the question: If a scenario is one you don’t understand or don’t agree with, then you don’t invest in it.  Better yet, if you are using it for an educational lesson about how to think over a lifetime and how to look at things from sometimes unconventional viewpoints, then you’d only want to try a coat tail riding when you have strong conviction.  Barron’s readers by and large tend to be more sophisticated readers than most other financial shows and publications, so you as a Barron’s reader would probably answer "I would only follow him if it made more than enough sense and I wish I had found this or thought of that." 

The article says that CNBC officials said stocks should be bought a well after the coverage and, that the show is mainly educational, and not just about stock-picking.  The article does take a little bit of both sides and points out that with 7,000 picks in a year it’s hard expect much else.  But doing any direct tracking is like applying unproven and unknown theory to generally accepted fact.  Sometimes a theory will do better and sometimes it won’t, but there are times and ways to show results that support whichever side you want to show.  The article talks about the "Cramer Effect" where shares gap up 2% on average and then tend to go sideways or down for a period.  Oddly enough, the same has been true quite frequently in a "Barron’s Effect" on Mondays and even a "Business Week Effect" on Friday’s.  On April 21, 2007, Barron’s ran a feature with the "BUY YAHOO!, IT’S CHEAP" and we took issue against their article with the thought that it was too soon to make that call; shares closed that Friday at $27.47, briefly traded north of $30.00, and now they sit at $23.54. 

The Barron’s article against Cramer also points out how some of the calculations on his returns were not correct. This is sort of funny because daily Cramer tells you to wait and do your own homework and not to chase his feature picks right after the gap and never in after-hours trading.  So any entry price is theoretical at best, and many positions are ones that investors strong on their own opinions would simply ignore.  When it comes down to certain features, those become worth tracking as they are pretty hard lines in the sand, there are some that tend to get more following:

Cramer’s "TOP NINE PICKS FOR 2007"

Cramer’s "MORTGAGE MADNESS INDEX"

Cramer’s review of Warren Buffett Picks, and a review of 10 more of his picks.

Cramer’s 5 CHINA PICKS, although he makes the point over and over that this is only if you insist because he doesn’t trust investing there.

Cramer’s "New Four Horsemen of Tech"

He even gave a review of DJIA component stocks in 3 batches to come to his year-end target: the first batch of 10; the second batch of 10; and the third batch of 10.

Some will certainly send in emails on both sides of this, because italmost always happens since the Cramer followers and critics are often so polarizing.  None of those emails will be opened or responded to.  I will be the first to admit that no one should follow every pick from anyone.  Not from Cramer.  Not from us.  Not from bulge bracket brokerage analysts.  Not from independent boutiques.  Not from your bar buddy with a tip.  Do only what makes sense.  That doesn’t mean you can’t learn something along the way. 

Personally I know people that have made money both ways off Cramer: where they have made money by going where they wouldn’t have but it seemed right, and others who have shorted his stock picks after a 10% gap-up.  So take it for what it is meant for instead of using his picks as a dart board and then looking for someone to blame if it doesn’t work out.

Jon C. Ogg
August 19, 2007

Posted on: August 19, 2007 – 12:19 pm in Analyst Calls, Cramer, Media, Mutual Funds, , , , , , , , ,

Taking Issue With Barron’s “Buy Yahoo!” Feature Article

This morning grabbing a Barron’s off the rack was a bit different.  There I was expecting the cover to have calls for big new highs, but besides noticing the "top 100 financial advisors" was this week’s Internet controversy……

"It’s a good time to buy Yahoo!" was the first thing I noticed on the side of the cover.  Gabelli’s fund manager who cover’s the stock noted that it’s cheap, but "If you believe the forecast…".  Also a manager from Ironbridge noted that the market is not paying for any accelerated growth from Panama and the downside from any disappointment is limited.  This is a coin toss, no doubt.  Investors WERE betting on Panama and growth ahead, otherwise the shares wouldn’t have risen 25% ahead of earnings since the first of the year.  It sounds more like this manager was putting some icing on the "long and wrong" cupcake.

It is hard to wonder why they only covered this one from the good side because the market gave the stock a different verdict this week.  YHOO shares are down more than 14% since its earnings.  Stocks that get hit this hard after earnings on such strong volume usually have to drift lower after initial recovery attempts.  This traded 127 million shares the day after earnings, and that is 50% more than the 80+ million shares traded the day after earnings in January.  Investors clearly gave Google (GOOG) the thumbs up after it exceeded about every metric under the sun, so you can see where the money is heading.  We still don’t even know if Yahoo! is going to make a competing buyout for an online ad firm to compete with Google’s buyout of DoubleClick, or if they are just going to let it all ride on Panama.  The latest data out of comScore also showed Yahoo! losing ground to all other major search platforms in march, and that is AFTER the launch of Panama.

They could be right on Yahoo!, but most times investors have tried using the "cheap" or "value" cards on Internet stocks hahave been a reminder that Internet investors are after "coolness factors" and Growth. 

We called for Terry Semel to go at the end of 2006, and this stock would still probably benefit from his termination.  There is a reason that Yahoo! has Sue Decker do most of the apperances rather than Semel.  He’s got to fire on all cylinders from here on out.  Otherwise he better figure out how he can go back to movies in one of the new private equity backed studios.  Shares will probably get the "Barron’s Effect" pop ahead of the open on Monday, Yahoo! may have "value" to it.   But even if the markets are surging, it’s just too early to make a bullish defensive call.

Jon C. Ogg
April 21, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: April 21, 2007 – 11:50 am in Analyst Calls, Earnings, Internet, Management Change, Media, Press Digest, , ,

Barron’s Alzheimer’s Article Only Scratches the Surface

Stock Tickers: WYE, NRMX, ELN, NVS, PFE, LLY, JNJ, AZN, TRGT, SNH, SRZ, BKD, ALC, HCR, ESC, MYGN, FRX, NYMX, ICGN, MEMY, EPIX, SI, ESALY, MRK, MATK

This weekend, Barron’s has run its cover story on which companies may stand to win in the medical war against Alzheimer’s Disease.  This really only scratches the surface of this devastating problem,even though it is addressing the pipelines that may yield newtreatments.  Barron’s notes drugs that may be able to treat the disease rather than just the symptoms in the next two years.  The article still does a good job to point out the current treatments and some of the companies that have studies that have either completed or being close to completion.   

Wyeth (WYE-NYSE) was the one noted as the best investment bet in the cover story article from Barron’s, which also was noted at the biggest discount to peers. Barron’s also notes: Neurochem (NRMX-NASDAQ) out of Canada, Elan (ELN-NYSE/ADR) in Ireland (and US) (with mixed results in recent years), Novartis (NVS-NYSE/ADR) is Switzerland (And US and elsewhere), Pfizer (PFE-NYSE), Forest Labs (FRX), Eli Lilly (LLY-NYSE), Johnson & Johnson (JNJ-NYSE) were all noted with currently "on the market" drugs in the ongoing studies for possible Alzheimer’s treatments in some form or fashion.  The current drugs from J&J, Novartis, Forest and Pfizer are really meant more as slowing-agents rather than cures.  Unfortunately, there is no magic pill that just zaps this disease.

Neurochem (NRMX) mentioned in the Barron’s article is in Phase III studies in Europe and recently completed Phase III’s in North America for its Alzhemed(TM). It has already filed to raise $102 million in aggregate securities and its balance sheet indicates it may need more cash again at some point in the near future.  This one is perhaps one of the more leveraged names in the article.

Myriad Genetics (MYGN-NYSE) has just completed enrollment ofpatients in its global Phase 3 clinical trial of Flurizan(TM) inAlzheimer’s disease, the first in a new class of drugs known asSelective Amyloid Lowering Agents (SALAs).  This was also noted briefly in the Barron’s article, but these results look promising so far even though the interim results are not planned and results will be unknown until next year.

Forest Lab’s (FRX-NYSE) fiscal March 2006 saw $505 million of $2.96Billion total sales come from Namenda (R) (not Manenda), which was approved in 2003 asan Alzheimer’s treatment.

AstraZeneca (AZN-NYSE) and Targacept (TRGT-NASDAQ) are in Phase II’s for AZD3480 to stimulate the brain’s memory neurotransmitters.

BUT…..there are many more companies here that need to be given some attention.  This is a huge field and there are many mid-cap and small-cap stocks that can be huge beneficiaries of this.  As we have said the Barron’s article is incomplete, and the same will obviously be true here because there are so many aspects to the story.

Our own Douglas McIntyre pointed out several nursing home and assisted care facility operators just on March 20, 2007 after the Wall Street Journal ran an article about the boomers reaching retirement age and the long-term forecasts in the dementia epidemic.  The facilities Doug noted there were Senior Housing (SNH-NYSE) (a REIT), Sunrise Senior Living (SRZ-NYSE), Brookdale Senior Living (BKD), Assisted Living (ALC-NYSE), and Manor Care (HCR).   There are many, many others worth note that have the potential to benefit from this.

Emeritus Corporations (ESC-AMEX) is a national provider of assisted living and Alzheimer’s and related dementia care services to senior citizens.  After the acquisition of Summerville Senior Living announced this last week it will operate 284 communities in 36 states comprising 24,448 units with a capacity for over 28,000 residents. Summerville is adding 81 communities comprising 7,935 units in 13 states which provide independent living, assisted living, and Alzheimer’s and dementia related services to seniors.  This one is more of a pure-play in the assisted living sector, but keep in mind that its stock ran up on this acquisition and its earnings has been spotty.

Nymox Pharmaceutical Corporation’s (NYMX-NASDAQ) in Canada holds some patent rights for statin use for the treatment and prevention of Alzheimer’s disease, so some of these larger statin makers could theoretically end up shelling out some royalties down the road.  Will they really?  Who knows, that’s a long-term issue. 

Icagen, Inc. (ICGN-NASDAQ) has potential candidates as lead compounds for dementia, including Alzheimer’s disease, for which the Company’s collaborator Astellas Pharma Inc. is conducting preclinical studies, and lead compounds for attention deficit/hyperactivity disorder, which were derived from the collaboration and for which the Company is conducting preclinical studies.

Memory Pharmaceuticals (MEMY-NASDAQ) just raised cash ($10M) to help fund its pipeline studies.  These conditions include Alzheimer’s disease, schizophrenia, bipolar disorder and depression.  This one recently saw its stock implode when its MEM1003 failed to show its effectiveness in acute mania in bipolar disorder, and this MEM1003 is actually being studied for Alzheimer’s.  We noted this at the time, so they better hope for better luck there on the new indication.

EPIX Pharmaceuticals (EPIX-NASDAQ) has a compound PRX-03140 which is in a Phase IIa clinical trial in Alzheimer’s disease.  Siemens (SI-NYSE/ADR) an agreement with Wyeth Pharmaceuticals to utilize Siemens’ new research imaging agent in Wyeth’s clinical studies of new therapies in development for Alzheimer’s disease.

 

Eisai Co. Ltd (ESALY-NASDAQ/OTC) has increased its research facilities in the US and is studying E2012 in preliminary Phase I of its gamma secretase modulator that is being evaluated as a potential new treatment for Alzheimer’s disease.  Merck (MRK-NYSE) and Martek Biosciences (MATK-NASDAQ) are each studying seperate tests (not related to each other).

Even in 2000, the Biotechnology Industry Organization estimated that in the United States alone the total cost of Alzheimer’s Disease was approximately $100 Billion per year.  Healthcare costs haven’t been static by any means, so you can take that number on up drastically from there.  After getting to witness on multiple personal occasions the devastationAlzheimer’s and Dementia causes to the patient, their finances, and theimpacts it has on immediate family, this is a topic of personalimportance and interest.  I have added on to the article because thisis a far reaching issue where it doesn’t really seem like one miraclealone is going to be a true cure that eradicates what is by no meansshort of an epidemic as we live longer and longer.  It is estimatedthat 5 million people in the United States alone are living withAlzheimer’s Disease.

Jon C. Ogg
March 31, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: April 1, 2007 – 12:01 pm in Biotech, Drug companies, Medical, , , , , , , , ,