merger
NVIDIA CORP. $34 (Nasdaq symbol NVDA; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 362.0 million; Market cap: $12.3 billion; WSSF Rating: Average) earned $0.33 a share in its first fiscal quarter ended April 29, 2007, up 37.5% from $0.24 a year earlier. Revenue rose 23.8%, to $844.3 million from $681.8 million, as strong sales of notebook computers spurred demand for its video chips. Nvidia’s chips now have 60% of the notebook market. Demand for video chips will continue to grow as manufacturers of mobile phones and video games enhance the graphical features of their products. But the company faces growing competition from Advanced Micro Devices, which recently purchased video chip specialist ATI Technologies. Nvidia is a hold for aggressive investors....
JONES APPAREL GROUP INC. $30 (New York symbol JNY; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 108.9 million; Market cap: $3.3 billion; WSSF Rating: Average) designs clothing, accessories and footwear under several brands, including Jones New York, Gloria Vanderbilt and Nine West. Jones is also suffering from the Federated merger and the growth of private label clothing in most big department stores. In the first quarter of 2007, profits before unusual items fell 24.2%, to $0.50 a share from $0.66 a year earlier. Sales crept up to $1.25 billion from $1.22 billion, due to an extra week in the most recent quarter....
LIZ CLAIBORNE INC. $34 (New York symbol LIZ; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 104.5 million; Market cap: $3.6 billion; WSSF Rating: Average) designs and markets a wide variety of clothing and accessories for men and women. The company sells most of its products through department stores. However, the recent merger of Federated Department Stores and May Department Stores has hurt its sales. Many retailers are also selling more private label apparel, which has hurt demand for Liz Claiborne’s national brands. Weakness in its wholesale business forced Liz Claiborne to mark down certain products to cut inventories. Consequently, profits in the first quarter of 2007 fell 63.3%, to $0.22 a share from $0.60 a year earlier. These figures exclude unusual items. Sales fell 1.7%, to $1.15 billion from $1.17 billion. The lower profits spooked investors, and the stock fell 20%. It now trades at 17.4 times the $1.95 a share that it should earn in 2007. The $0.225 dividend seems safe, and yields 0.7%....
Apparel companies have to deal with all sorts of factors outside of their control, such as bad weather and unpredictable fashion shifts. This increases the uncertainty of earnings, as well as the volatility of their stock price. While these three top apparel companies have struggled in the past few months, our view is that their well-established brands will help them overcome their recent setbacks. All three are also cheap in relation to their long-term prospects. LIZ CLAIBORNE INC. $34 (New York symbol LIZ; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 104.5 million; Market cap: $3.6 billion; WSSF Rating: Average) designs and markets a wide variety of clothing and accessories for men and women. The company sells most of its products through department stores. However, the recent merger of Federated Department Stores and May Department Stores has hurt its sales. Many retailers are also selling more private label apparel, which has hurt demand for Liz Claiborne’s national brands....
GREAT-WEST LIFECO INC. $35 (Toronto symbol GWO; Conservative Growth Portfolio, Finance sector; Shares outstanding: 892.1 million; Market cap: $31.2 billion; SI Rating: Above average) is Canada’s largest insurance company with $216.2 billion in assets under administration. Power Financial Corp. owns 75% of Great-West’s stock. The company sells its products directly and through brokers to groups and individuals, mainly under the Great-West Life, London Life and Canada Life brands. Great-West also provides retirement planning and other financial services. Canada accounts for about 45% of its revenue, followed by Europe (35%) and the United States (20%).
Troubled Putnam could be a bargain
Great-West recently agreed to buy U.S.-based mutual fund manager Putnam Investments Trust for $3.9 billion U.S. Putnam ran into trouble over a mutual fund trading scandal a few years ago, which hurt its reputation. It also helps explain the low selling price in relation to Putnam’s assets under management of $192 billion U.S....
ALCAN INC. $86 (Toronto symbol AL; Conservative Growth Portfolio, Resources sector; Shares outstanding: 367.6 million; Market cap: $31.6 billion; SI Rating: Above average) soared after rival aluminum producer Alcoa Inc. (New York symbol AA) launched a hostile (that is, unwanted by Alcan’s management) takeover bid for the company. Alcoa is offering $58.60 U.S. in cash plus 0.4108 of an Alcoa common share for every Alcan share. At Alcoa’s current price, the offer is worth roughly $82.30 (Canadian). The merger would create the world’s largest aluminum producer, with operations in 67 countries and annual revenue of $54 billion U.S. Of course, the bid faces significant regulatory hurdles. A takeover could jeopardize Alcan’s long-term deals for cheap electrical power in Quebec and B.C. The merged company would also have a dominant share of the aluminum aerospace market, so it would probably have to sell some of these operations....
AVAYA INC. $16.08, New York symbol AV, moved up by more than $2 this week on rumors that it’s talking with other telecommunication equipment firms about a merger. It may also be negotiating with private investors. Avaya has no controlling stockholder, and its patents and strong position in the fast-growing Internet-based phone network market should make it an attractive takeover target. Avaya is debt free and has cash of $1.84 a share, which adds to its appeal. Avaya is now a hold....
MCGRAW-HILL COMPANIES LTD. $63 (New York symbol MHP; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 351.3 million; Market cap: $22.1 billion; WSSF Rating: Average) has three main operations: school textbooks (40% of sales in 2006, 21% of profit); financial information under the Standard & Poor’s brand (44%, 76%); and the media division which includes BusinessWeek magazine and four TV stations (16%, 3%). McGraw-Hill’s specialized information products and databases are ideally suited for the Internet, and it is rapidly expanding its online services. Electronic distribution speeds up delivery and cuts costs for postage and paper, while its mainly subscription based services gives it predictable revenue streams. In 2006, McGraw-Hill’s profits before one-time items grew 12.3%, to $2.56 a share (total $939.3 million) from $2.28 a share ($872.3 million) in 2005. The company began expensing stock option costs in 2006, which cut its earnings by $0.23 a share. Revenue grew 5%, to $6.3 billion from $6.0 billion....
Advertisers continue to shift spending to Internet sites and away from newspapers and other print publications. But these three leading publishers are doing a good job adapting their businesses to the Internet, and profiting from it. They own some of the best-known brands in this industry, which gives their online properties instant credibility. Strong web sites also make it easier for them to attract advertisers with custom packages that include a variety of platforms. We feel all three will thrive as they expand their Internet activities. But only two are buys right now....
BORDERS GROUP INC. $21.32, New York symbol BGP, has struggled lately, due to strong price competition from Internet booksellers and discount retailers. It earned $1.61 a share before unusual items in its fourth fiscal quarter ended February 3, 2007, down 13.9% from $1.87 a year earlier. Sales rose 3.4%, to $1.5 billion from $1.45 billion. However, same-store sales fell 2.8% at its superstores, and 6.2% at its Waldenbooks mall-based chain. The company aims to improve profits with several new initiatives. It plans to close or sell half of its mall-based stores and form its own publishing operation. It will also launch its own bookselling new web site, to replace its current venture with Amazon. Borders is also looking at selling its international operations, or transforming them into franchises. Each of the facets of this plan makes sense to us, but it will take at least a year for Borders to complete them all. However, profits should begin to rise again in 2008. The company will probably maintain its $0.44 dividend, which yields 2.1%....