Barrons weekend summary: positive on MAR, MHK, TYL; cautious on AFSI
Cover story: Barron's Big Money poll found that 38% of money managers are bullish or very bullish about the prospects for stocks in the coming months, down from 55% in last fall's survey and 45% last spring; most managers see only a modest rise in stock prices in the year ahead, with the potential for dramatic, if temporary, setbacks.
1) Positive on MAR: Tie-up with HOT offers financial and strategic benefits, and could generate annual cost savings of about $250M; the deal will broaden Marriott's reach with the loyal customers who constitute 50% of its volume, and shares could rise 30% during the next 18 months;
2) Positive on MHK: Amid a healthy housing sector, company-the top flooring business in the U.S.-should get a boost, and shares could rise 20% or more during the next year;
3) Positive on TYL: Little-known Texas-based software firm sells to local governments and has a reliable revenue stream, and a recent pullback is a good opportunity for investors;
4) Cautious on AFSI: Investors have largely ignored concerns about insurance company's accounting and the adequacy of its reserves, but even with a recent drop they should move carefully.
Trader: Wall Street is still debating whether the market is overvalued or fairly valued, says Malcolm Polley of Stewart Capital Advisors, who says it's definitely not undervalued; James Paulsen of Wells Fargo Capital Management says defensive stocks have been giving way; Positive on FMC: Cyclical, short-term problems have hammered the midsize chemicals firm, but its shares now look undervalued by as much as 50%; Positive on ARRS: Shares of broadband equipment and cable-box maker are down amid skepticism about the effect of potential changes in FCC rules, but they're cheap at a recent $22.
Interview: Ron Baron of Baron Capital, a growth investment firm with $23B in 13 funds overseen by 10 managers, seeks companies with competitive advantage and good management (picks: H, INOV, TSLA, MANU).
Alternative Investments: Profile of Randy Swan of Swan Global Investments, who stays invested in the S&P 500 but uses long-term index put options to protect the portfolio against declines, with the biggest benefits seen during drops of 20% or more.
Small Caps: Cautious on CKEC: Amid a shareholder dispute about the proposed AMC takeover, investors might want to book some profits but hold onto the majority of their shares on the chance of a sweetened offer; Cautious on CFX: Shares are up 60% since January, but there may not be much room for improvement during the next year, and they look ripe for profit-taking.
Follow-Up: SHW: Paint company has excellent growth prospects, especially because of its acquisition of VAL, but shares are close to being overvalued, investors seeking access to the housing sector might be better off with MHK; Cautious on HCA: Hospital company has strong free cash flow and a good balance sheet, but amid a turbulent political landscape, "taking profits now and buying on the next dip could be the healthiest move."
European Trader: Positive on HSBC, BCS, BNP Paribas, Societe Generale: Stocks of European banks may be risky, but their subordinated debt could be a good investment, offering yields between 5.5% and 10%.
Asian Trader: Cautious on ATHM: Investors in the U.S.-listed Chinese company, a provider of online ad services for car makers and dealers, could take a hit if a management buyout goes through.
Emerging Markets: With its political turmoil and ongoing battle against deadly terrorism, Pakistan may seem like a country to avoid, but it has a long-term growth story, with an economy expanding 4.5% annually.
Commodities: Drivers this summer will find diesel to be cheaper than gasoline at the pump; each fuel has its own supply-demand picture, with divergent outlooks heading into summer.
Streetwise: "For contrarians, knowing what other investors don't own can be just as important as knowing what they do own"; A list of "fading stars" kept by Lori Calvasina of CS includes CMG, M, WFM, and BIIB-though the latter could be on the upswing.