Saturday, October 12, 2013

Barron’s Saturday summary

Positive on KLIC, SRC; cautious on SHLD, PBPB, CDE

Cover story: Report on municipal bond market says Despite ominous headlines about municipal bondsgiven Detroits bankruptcy and Puerto Ricos problemsmost of the $3.7T market is in excellent financial condition, with states being among the strongest credits in the muni market; State and local governments face problems with unfunded pension and healthcare obligations, but their total financial obligations generally look manageable, when measured against revenue, personal income, and the size of state economies, and investors may have overreacted about problems; States in the best shape regarding debt and unfunded pension liabilities as a percentage of GDP include Nebraska, Iowa, South Dakota, North Carolina, and Nevada; the worst are Massachusetts, Alaska, Hawaii, Illinois, and Connecticut.

1) Negative on SHLD: Retailer has been operating in the red for several years and expects more losses, while Wall Streets bullish case, based on perceived value of companys real estate, may be misguided, with property portfolio worth less than predicted.
2) Positive on ALL, COF, CELG, SJM, OXY, SNA: Six stocks are among the few for which earnings estimates have been revised upward, bucking the overall trend of lower guidance, and all look reasonably priced relative to earnings.
3) Positive on KLIC: Profitable and low-profile maker of semiconductor capital equipment is sitting on cash equal to more than half its market value, has a dominant position in its sector, and shares look cheap, offering potential upside of 50%.
4) Traditional infotech suppliers are under siege from new cloud computing rivals, says Tiernan Ray, but not all technology winners will be good for investors, as some have been bid up to excessive valuations (positive on GOOG, AMZN, AMD, AMCC, CIEN, SPLK, VZ; negative on JNPR, NTAP, ORCL, SAP, HPQ, CSCO, EMC).
5) Positive on SRC: Real estate investment trust owns thousands of buildings around the country and has a 99% occupancy rate, but shares, which yield a juicy 7%, trade at a deep discount to competitors and could rally 30% or more.

Trader: Negative on PBPB: Shares are grossly overvalued, trading at 114 times trailing earnings, an astronomical valuation given companys history of growth or what is reasonable to expect from a small restaurant chain, with fair value probably closer to IPO price than current one; Negative on ANGI: Company is cutting membership fees in order to attract more subscribers, shares are expensivethough perhaps not overvaluedand insider selling points to bearish outlook; Negative on JOSB-MW deal: Potential benefits of tie-up pale in comparison to the risk for investors in what would be a futile bid for synergy best watched from the sidelines.

Small Caps: Cautious on CDE: Shares have tumbled over the past year amid operational problems and decline in price of silver, and high costs add to companys vulnerability, but selloff looks overdone, and shares could see major upside.

Mutual Funds: Interview with Richard Freeman, Portfolio Manager, ClearBridge Aggressive Growth Fund, who says any manager who doesnt pay attention to value is a fool (top ten holdings: BIIB, UNH, APC, AMGN, CMCSK, WFT, FRX, CLB, SNDK, CREE); Interview with Jim Rogers, investor, author, and co-founder of the Quantum Fund, who lives in Singapore and is investing in China, Russia, and Myanmar, agriculture, and Chinese airlines (top holdings include FU, HOLI, MSM Holdings, Nok Airlines).

European Trader: Positive on Air Liquide, Linde: Industrial gas companies offer a good opportunity to play a mediocre macroeconomic environment, with each offering a strong pipeline of projects going online in the next year; £3.30 per share Royal Mail IPO, priced at high end of range, is massively oversubscribed, and some private investors will lose out.

Asian Trader: Investors looking for an Asian market thats likely to benefit most from a pickup in demand from the U.S., Europe, and Japan, and an uptick in Chinese growth, should consider Taiwan shares (positive on EWT, TSM, Hon Hai Precision Industries, Pegatron, Inotera Memories, Fubon Financial).

Emerging Markets: For China investors, owning an actively managed fund is probably better than holding an ETF focused on large stocks, many of which arent direct beneficiaries of Chinas rising middle class (positive on MCHFX, FHKCX, OBCHX).

Commodities: Owners of wells and mineral rights are benefiting from growth in U.S. crude production, a situation Derren Geigers Caritas Royalty hedge fund is taking advantage of.

Streetwise: Cautious on HOLX: Turmoil surrounding Affordable Care Act and management turnover havent helped shares, but adoption of its breast-imaging technology should eventually pick up as hospitals replace old mammography equipment; RBS analyst Glenn Novarro predicts shares could be worth $24-31 in a takeout.