Wall Street Stock Forecaster Hotline – Friday, September 16, 2011

MCGRAW-HILL COMPANIES INC., $45.29, New York symbol MHP, rose 17% this week after it announced that it will split into two separate, publicly traded companies.

One of these new firms, McGraw-Hill Markets, will sell a variety of financial-information products. This business will include Standard & Poor’s, which provides credit ratings on bonds, and McGraw-Hill’s J.D. Power market-research firm. McGraw-Hill Markets will have annual revenue of $4 billion. International sales will account for 40% of that total.

The other company, McGraw-Hill Education, will publish textbooks for schools and colleges. This business will have $2.4 billion of annual revenue.

McGraw-Hill still plans to sell its nine TV stations, which account for 2% of its revenue.

The company is still working on the details of the split, but it aims to hand out shares of McGraw-Hill Education as a special dividend by the end of 2012. This will probably be a tax-free transaction: shareholders will not have to pay capital-gains taxes until they sell their new shares.

As part of this plan, McGraw-Hill also plans to buy back $1 billion of its shares in 2011. That’s equal to 7% of its $13.7-billion market cap.

Break-ups like this tend to work out well for investors, because the total value of the two new companies usually exceeds the value of the former parent over time.

McGraw-Hill is still a buy.

McGraw-Hill was recently covered in the September 2011 issue of Wall Street Stock Forecaster. Click here to access it.

McGraw-Hill was recently covered in the Wall Street Stock Forecaster Hotline for August 5, 2011. Click here to access it.

GENERAL ELECTRIC CO., $16.33, New York symbol GE, plans to buy back all of the preferred shares it sold to Berkshire Hathaway Inc. (New York symbol BRK.B), the holding company controlled by billionaire investor Warren Buffett.

GE sold these shares to Berkshire during the 2008-2009 financial crisis. The cash from the sale helped stabilize GE’s finance division.

The company will pay $3.3 billion to buy back these shares. That’s nearly equal to the $3.5 billion, or $0.33 a share, that GE earned in the three months ended June 30, 2011. However, this purchase will save the company $300 million a year in dividend payments.

GE is a buy.

General Electric was recently covered in the August 2011 issue of Wall Street Stock Forecaster. Click here to access it.

General Electric was recently covered in the Wall Street Stock Forecaster Hotline for April 1, 2011. Click here to access it.

ALCOA INC., $11.97, New York symbol AA, has agreed to form a 50/50 joint venture with state-owned China Power Investment Corp.

This new company will develop high-end aluminum products for the Chinese automotive, aerospace, packaging and electronics industries.

Making aluminum requires a lot of electricity. However, China Power is a major electricity supplier. That should help keep the joint venture’s costs down. Alcoa’s aluminum-making expertise should also help increase the new company’s profits.

Alcoa is a buy.

Alcoa was recently covered in the July 2011 issue of Wall Street Stock Forecaster. Click here to access it.

Alcoa was recently covered in the the Wall Street Stock Forecaster Hotline for July 15, 2011. Click here to access it.

INTEL CORP., $21.97, Nasdaq symbol INTC, continues to develop new versions of its Atom chip for mobile devices, like smartphones and tablet computers. These new chips should cut Intel’s reliance on chips for laptop and desktop computers, which aren’t selling as well as mobile devices.

This week, Intel announced a new alliance with GOOGLE INC., $546.68, Nasdaq symbol GOOG. Under this arrangement, the two companies will team up to make Google’s Android operating system perform better on devices powered by Intel’s Atom chips.

Google’s endorsement of Atom should help spur demand for these chips from smartphone makers, and increase Intel’s share of this fast-growing market.

Both Intel and Google are buys.

Intel was recently covered in the June 2011 issue of Wall Street Stock Forecaster. Click here to access it.

Intel was recently covered in the Wall Street Stock Forecaster Hotline for June 3, 2011. Click here to access it.

Google was recently covered in the September 2011 issue of Wall Street Stock Forecaster. Click here to access it.

Google was recently covered in the Wall Street Stock Forecaster Hotline for September 9, 2011. Click here to access it.

VERIZON COMMUNICATIONS INC., $36.72, New York symbol VZ, estimates that it will cost $200 million to $250 million to repair telephone poles, wires and other equipment damaged by Hurricane Irene and Tropical Storm Lee. To put these costs in perspective, Verizon earned $1.6 billion, or $0.57 a share, in the three months ended June 30, 2011.

The storms have also slowed installations of the company’s FiOS high-speed fibre-optic TV and Internet service. However, they had little impact on Verizon’s wireless networks.

Verizon is still a buy.

Verizon was recently covered in the April 2011 issue of Wall Street Stock Forecaster. Click here to access it.

Verizon was recently covered in the Wall Street Stock Forecaster Hotline for September 2, 2011. Click here to access it.

Our next Hotline will go out on Friday, September 23, 2011.