Barron's Digest December 4, 2006 Issue


A number of property and casualty insurers will do well this year as they rebound from last year’s hurricane season. Some of the shares are already up, but there may be further increases in the price of these companies: AllState, Aspen, Axis, Endurance, IPC, Max Re, Montpelier, Platinum, Renaissance, and XL.

Depite a run-up to a 52-week high of $78.75, Polo Ralph Lauren’s share could continue to move. Certain investors are concerned about insider selling. , but the company’s operating margins continue to rise.

DirecTV does about $1 billion a year in free cash flow. Some investors are concerned that its subsciber churn rate is too high, Other believe that at 18x projected 2007 earnings, the shares are cheap

The five hottest hedge funds are Appaloosa, ESL Greenlight, Icahn, and Lone Pine. Other firms track their buying and selling. Appaloosa’s top five holdings are Oracle, Micron, Applied Materials, AMR, and Mirant. ESL’s are Sears, AutoZone, AutoNation. Greenlight’s are Amerpirise, Microsoft, Hospira, First Data and Live Nation. Icahn’s are TimeWarner, Imclone, Cmerican Railroad, Hilton, and Symantec. Lone Pine’s are Brookfield Asset, Google, Comcast, Schlumberger, and Research in Motion.

Duke Power is spinning off its natural gas distribution business, Spectra Energy. The distribution company may be undervalued. Investors may also understand the business better that typical untility investors.

IBM shareholders have had a tough ride the last few years. But, the company’s plan to convert itself into a software company is working. It is now the second largest software company in the world.Software is now 40% of IBM’s earings.  The company has also gotten out of the PC and disk drive businesses. The pretax margin on software may hit 31.3% up from 22.8% in 2001. If its does, the shares could move up.The company is also No.1 in the world in the blade server business. A hot sector, it is one of IBM’s cash cows.

Microsoft has begin its next stage by introducing its new Windows operating system and its latest version of Microsoft Office. Some investors are worried that Microsoft can improve greatly on its $15 billion a year cashflow business. But, Microsoft is also launching voice communications and collaborative software to compete with Cisco. And, its XBox unit may start to turn a profit.

Nintendo has more than doubled over the last year hitting $30. Its new Wii gaming system may follow the success of the older Nintendo DS. For the stock to run many on Wall St think that they Wii would have to sell well for several years. But, Microsoft’s XBox and Sony’s Playstation are formidable competition, and there is some risk that Wii sales may begin to weaken as Christmas 2007 approaches.

Douglas A. McIntyre