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Monday, July 24, 2006

Barron’s Digest July 24, 2006 Issue


Barron’s writes that Yahoo!’s price drop on its earnings announcement and delay of its new search technology may represent an opportunity for investors. Wall Street is concerned that Yahoo!’s delayed search upgrade may give Google an edge in building its market share. However, Yahoo!’s earnings were in line with Wall Street’s expectations. With annual cash flow growing at 25% a year, Yahoo! May be worth a look.

Shares in Kellogg’s have been going up slowly. In the first quarter, earnings were up 11%. At $48.74, Kellogg’s shares are near a 52-week high. Wall Street is becoming more comfortable with the new CEO, who has not operating experience at the company, but came from ad agency Leo Burnett. Kellogg has been balancing its energy, freight and commodity costs without increasing prices that might hurts sales. The company has also been repurchasing shares and paying down debt. Kellogg is also adding market share.

Ashland, the maker of motor oil and chemicals, is selling off divisions in a set of moves that have concerned investors. The company has sold its gas-refining and road-building units. The company is not considering selling its Paving and Construction business. Ashland is in negotiations to divest the units to CRH of Ireland for between $1.6 and $2.3 billion. The cash would help the company increase its cash balance and allow the company to repurchase more shares and invest in its growing chemicals business. Some analysts think that Ashland could be worth 20% more than its current share price of $65, if the company’s spin-offs product the necessary cash for the Ashland balance sheet.

Stations Casinos, which is a favorite of locals for playing slot machines and other gaming, could be coming to the end of its stock market run. The real estate market in LasVegas, which has been rising rapidly, is not falling off. The stock now trades at 25 times expected earnings. Local market competitor Boyd Gaming trades at only a 14 times multiple. With its stock tied to the real estate market in the region, Stations Casino may be set for a drop.

Ericsson’s run may be slowing down. The company is the world’s number one provider of mobile networks. However, one of its growth engines has been its business in emerging markets would be cooling off. Also, competition from companies like Motorola is heating up.

SAP trades at a premium of competitors Oracle and Microsoft. Its most recent results were helped by low tax rate. But, Oracle is clearly an emerging threat. Up to this point, SAP has been taking US customers from Oracle, but that may not continue. Also, SAP has downgraded its second quarter license revenue. . The shares may be expensive.

Barron’s say that with markets down due it issues like political unrest, markets may rally in the second half. Ten stocks may be good bets due to reasonable P/E ratios and good earnings prospects. The stocks are: Chevron, Cisco, Dow Chemical, GE, Home Depot, Lehman Bros., Nestle, News Corp, Vodafone, and Wal-Mart.
Electricity transmission company ITC has been able to take a good regulatory environment for the benefit of customers and shareholders. Regulators have put in place favorable laws for stand-along transmission companies. The company serves a customer base in Michigan. Analysts view the transmission business as “predictable earner”. ITC’s business being exclusively in transmission will continue to help its prospects with regulators and investors.

Amgen’s shares have fallen recently and that may be for good reason. Many of the company’s cash cows are being challenged by generics. Competing companies are targeting Amgen’s anemia franchise. With Novartis moving into generics, Amgen may have earnings problems ahead.

Electronics companies selling hot products to consumers like the Apple iPod and Motorola Razr are helping their investors. Tech companies selling to companies are doing less well. IBM, SAP, Intel, and Microsoft have little that drives demand by enterprise customers. One question about these companies is whether consumers will continue to be big electronics buyers through Christmas. If not, some of the hot stock could have trouble.

Merck is beginning to do better. With three new vaccines coming out, the company’s pipeline is doing better. The stock is up 40% since hitting a 10-year low last October. Improved margins and cost cutting should help the company improve its financial performance.

By Douglas A. McIntyre

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