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Monday, October 16, 2006

Barron's Digest October 1,. 2006 Issue

Monster (MNST), the giant online web operation, announced the resignation of its long time CEO amid an options-backdating investigation. With a market cap of $5 billion, the company could be taken over. Two analysts carry targets of $48 on the company, and as a takeover it could being $50.

In the consolidation of the steel industry, no target may be more tempting than US Steel (X). The stock is at $65 now, but its 52 week high is $77. The company is trading at only six times this year's projected profits. Further improvements in the financial could send the shares to $80, and in a takeover, it could get $100.

Johnson & Johnson (JNJ) becomes more appealing as the ecomony weakens because it has timeless, growing brands. At $64, the company trades at 16 times 2006 earnings estimates. It purchase of Pfizer's (PFE) consumer health business also just made JNJ much bigger. Citigroup's analysis of the "sum of JNJ's parts" yields a share price of $77. The company also has at least 10 drugs in late stage development.

Several companies are boosting their dividend payout. Chapparal Steel (CHAP) is the latest steel company to do it. Nucor (NUE) also upped its dividend 33%. Outside the steel company, online travel operation Sabre (TSE) also just increased its dividend.

Traders are bidding up options for earnings moves, particularly in Ebay (EBAY), Google (GOOG), and Yahoo! (YHOO). Some money managers are buying puts to protect options.

Net neutrality bills in Congress could hurt Verizon (VZ). This would allow high-bandwidth consuming websites like Google and YouTube to send data and video without paying a toll to telecoms for the extra bandwidth used. Some in Congress want telecoms to accept net neutrality legislation in exchange for laws that would make it easier for Verizon and AT&T (T) to compete with Comcast (CMCSA) and Time Warner (TWX) in the national broadband space.

Water is becoming a more precious commodity. Spending on water treatment and transport is moving up because under 1% of the earth's water is drinkable. In emerging markets the water sector is growing 15% a year. Aqua America (WTR), Pentair (PNR), Watts Water (WTS), Veolia Environment (VE), Sapesp (SBS), and Sinomem (SINO) are companies in position to benefit for increased demand for H2O.

Turner Investment Partners has returned 12.5% annually since it was started. About 90% of the firms clients are institutions. The company's largest holdings are GE (GE), Cisco (CSCO), Google (GOOG), Goldman Sachs (GS), Pepsico (PEP), Wells Fargo ((WFC), UBS (UBS), Mellon Financial (MEL) T Rowe Price (TROW), and Occidental Petroleum (OXY).

Cisco (CSCO) is moving into the video-conferencing space and believes that it will be a billion dollar business. Some reports say that its transmission architechture could have signals down to milliseconds.

A number of companies are going public on London's AIM exchange. The costs are lower than Nasdaq and companies can avoid expensive Sarbannes Oxley regulations.

Douglas A. McIntyre

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