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Monday, July 17, 2006

Barron's Digest July 17 2006 Issue


Barron's reports that Apple Computer's stock has been driven down 40% this year by concerns about iPod sales. However, the new line of Mac computers may make up for any drop in iPod sales now that the product can run both Apple's operating system and Microsoft's Windows. The sales for the beginning of the new school year could be critical. If this period produces strong sales, Apple's stock could do very well over the next 12 months.

The worst may not be over for 3M, which recently said it would miss Q2 forecasts. As the company scrabbles to increase sales it may have to accept smaller margins on some products. The stock now trades at $71, but one analyst who spoke to Barron's thinks it could fall to $63.

Radio Shack may have a new CEO, which caused the stock to rise, but the problems at the company will be difficult to fix. The company no longer draws customers looking for tech products. Many of these buyers have moved to Target, Circuit City, and Best Buy. Getting them back to Radio Shack may be nearly impossible.

Panera Bread, the bakery and cafe chain, has had a tremendouse run. Sales have more than tripled in five years and should be at about $2 billion by the end of 2006. Shares in the company are up 435% since 2001. However, same store sales growth has begun to slow, and the company has a high earnings multiple of 51. The company claims that average unit volume at its stores is running ahead of Starbucks, McDonald's and Wendy's. But, if same-store sales at Panera don't stay high, the stock could drop.

Biotech company Imclone has put itself up for sale. Final bids are due later in July. However, a patent suit that Imclone is defending could hurt the company. If the company loses the suit, it could have a negative impact on sales growth.

The markets will get a good impression of the direction of tech stocks based on earnings announcement this week. EBay, CDW, Juniper, Motorola, Qualcomm, and Apple will announce on July 19. IBM announces on July 18 and Nokia on July 20. The forecast for the second half may be more important than Q2 results.

Republic Industries, the nation's third largest trash hauler has been doing well with rising returns. The company gets about 35% of its revenue from exclusive long-term contracts. The company has excellent price-to-free-cash-flow. One analyst told Barron's that the companies share price could rise to $48 in the next year, an increase of 20% over the current price.

The head of the Gabelli Global Multimedia Trust fund said that the market may have sold to a bottom as investors become concerned about low forecasts from major companies. Some companies are attractive in the current environment including Yahoo!, Station Casinos, Boyd Gaming, Las Vegas Sands, MGM Mirage, Harrah's, Pinnacle Entertainment, International Game Technologies, Apple, Home Depot and E.W. Scripps.

Douglas A. McIntyre

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