by the private equity houses at the height of the boom, it is unclear if
any financing will be available for the firms once lending restarts or
if corporate boards will be willing to deal with them anymore. And the
firms have not had much success investing in distressed debt or equity.
Many bonds issued by highly leveraged companies trade for less than 50
cents on the dollar. It may take time to come to fruition, but the firms
face a wipeout of their investments in companies like Harrah's, Clear
Channel, Hilton Hotels, Freescale Semiconductor, Realogy and Claire's
Stores. Barron's believes that many of these companies only have an
option value, about 15%-20% of the original value, based on the hope of
an eventual recovery. The buyout companies argue that the debt is
unfairly depressed and that their portfolio companies are worth more.
Apollo and KKR are better on disclosure of valuations than Blackstone.
Barron's remains bearish on Blackstone.
Verizon (VZ) shares could rise by 30% over the next two years says
Barron's The company offers reliable, business as usual results, keeps
its focus and offers the promise of market beating returns. Profits
jumped 15% in Q4 due to demand for wireless services and taking share
from cable companies. The company had its negatives but has shown that
it can handle these tough times. And investors couldn't ask for a better
chance to buy as it trades around 12x estimated '09 earnings and 11.5x
'10 estimates. There is stable free cash flow and a 6% dividend yield.
Hartford Financial (HIG) looks like an ultra cheap bet on recovery in
the bond market says Barron's The stock is a speculative bet on doubling
your money in a few years. The shares have been battered by reductions
in book value from unrealized bond losses in its portfolio. But the
company seems to be a compelling buy. Positives include the potential
for book value to spring back once bonds recover from today's panic
level pricing. Its portfolio is largely high quality names with little
default risk. Morgan Stanley has a one year target of $25. Historical
trading averages would place the stock in the $40s. Charge-offs seem to
have peaked in Q3.
Barron's Follow Up is long term positive on Wells Fargo (WFC) but more
skeptical Barron's is still bullish on the name but recent events have
made them more skeptical. The bank says it is being conservative in its
estimates on Wachovia and says it is not regretting the deal, contrary
to opinion on Wall Street. One investor says the bank gained points for
maintaining the dividend and saying it won't take any more TARP funds.
He sees the shares being worth more than $30.
Barron's The Trader is positive on Brink's (BCO) and cautious on Scotts
Miracle-Gro (SMG). Some investors may be moving into recovery stocks a
little too early as selling has become more selective and money has been
moved into riskier segments that will benefit from a recovering economy.
The January effect is only right half of the time for losing months.
Positive on Brink's (BCO). The company is leaner after a spin-off last
year, has $5 in cash per share and has beaten Street estimates for each
of the past 8 quarters. Susquehanna thinks the shares are worth $38.
Much of the good news may already be in the price of Scotts Miracle-Gro
(SMG). There is positive sentiment on the name from lower raw material
costs and the exit of a competitor. But the company loaded up on debt
and has much more long-term debt compared to others in the sector. Plus,
the company had hedged part of its raw materials cost for '09 so it may
not get the full benefit of lower prices. And there is the risk that
plant food will not be recession resistant. Insiders have been selling.
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