Como se combate o populismo? "Com eleições", responde Fukuyama

[Alfred E. Neuman]

THE STOCKPICKERS

Capital ideas
RS manager likes Peabody Energy, Algoma, BHP Billiton

By Alistair Barr, CBS MarketWatch
Last Update: 12:03 AM ET Nov. 12, 2004


SAN FRANCISCO (CBS.MW) -- Evaluating a company's use of capital offers an important clue about how wisely management spends money.

It's even more crucial when considering natural resource firms, according to MacKenzie Davis, who co-manages the $435 million RS Global Natural Resources Fund (RSNRX: news, chart, profile) with Andy Pilara.

Davis said he spends his time picking through a capital-hungry industry that's been plagued by oversupply -- and the commodity price swings that inevitably follow.

"What often happens is that firms invest all this money in a new copper mine or steel mill, then lots of new supply comes on which overtakes demand and prices fall," said Davis from his office in San Francisco.

Davis and Pilara grill executives about what returns they expect from planned projects and find out what assumptions management is making on variables like commodity prices.

"We're most interested in cash flows and how company managers are employing that cash," Davis said. "If firms can invest in projects and assets that generate after-tax returns in excess of the cost of their capital, then over time their shares will rise."

Based on the answers, Davis and Pilara come up with a theoretical value for companies' shares about two years in the future. The firm's current share price has to be at least 50 percent below that estimate before the managers buy.

The strategy has paid off. RS Global Natural Resources rose 49 percent over the year through Wednesday vs. a 40 percent average gain for the natural resources category, reports fund tracker Lipper. The fund's 30 percent annualized three-year return outstrips the 16 percent average gain for its peers.



The managers' top recommendations all involve companies that Davis said are making "intelligent capital-allocation decisions."




Peabody Energy (BTU: news, chart, profile), the largest coal producer in the U.S., is benefiting as soaring oil and natural gas prices boost demand for coal as a cheaper way to generate electricity, Davis said.

Eastern U.S. utilities are running very low inventories of coal and are increasingly looking at Peabody's Midwestern U.S. reserves as a way to replace dwindling Appalachian supply, Davis said.

Shares of Peabody Energy rose $1.93 on Thursday to $65.91.




Canadian steel firm Algoma Steel (CA:AGA: news, chart, profile) also is high on Davis's list.

The company has gone bankrupt twice, but new management is focusing on long-term returns on capital and is negotiating a new contract with workers, he said.

Shares of Algoma Steel added 30 cents on Thursday to $24.20.




BHP Billiton (BHP: news, chart, profile), the Australian mining giant, has "a terrific accumulation of diversified assets," including coal and iron ore reserves, Davis said.

When Davis meets with BHP's management, he says executives describe a handful of projects that are expected to generate a return on capital of 15 percent to 25 percent.

"Those are the kind of situations where you can look out two to five years and feel that these guys are going to be earning well over their cost of capital," Davis said. "We love those situations and they're not easy to find."

On Thursday, shares of BHP Billiton rose 22 cents to $22.

[Alfred E. Neuman]

Stocks for a year-end bounce
Clear Channel, Coke, Intel and InterActive Corp are among the stocks that may be set to rally.

November 8, 2004: 7:35 PM EST
By Michael Sivy, CNN/Money contributing columnist

NEW YORK (CNN/MONEY) - It's well known that deeply depressed stocks often enjoy a rally as the year comes to a close. This used to be called the "January effect," but the phenomenon has occurred as early as November in recent years.

The chief reason that depressed stocks can rebound late in the year is that investors sell such stocks to book losses for tax purposes. That selling pushes already cheap stocks even lower. But once the tax selling ends, the share prices often snap back.

On average, those gains run a little more than 10 percent. But if economic conditions are favorable, they can continue through the first two or three months of the new year and total close to 20 percent.

Such an extended rally looks likely this year. The bitter Presidential campaign has been a depressant for stocks. So have the troubles in Iraq and fears that the economy is flagging. All told, the market is at least 20 percent below average levels for recoveries since 1900.

Since the tax year for individuals typically ends in December, small stocks often don't rally until near year-end. But for mutual funds and some other institutional investors, the cut off for tax selling is Oct. 31 (so they can do all their accounting and distribute gains and income to their shareholders before the end of the tax year).

As a result, leading blue chips that are favorites of institutional investors may hit bottom and start turning up as early as mid-November. This year, four stocks on the Sivy Seventy list -- Clear Channel Communications, Coca-Cola, Intel and InterActive Corp. -- look like candidates for some kind of comeback.


Coca-Cola
Of the four, Coca-Cola has the least analyst support. And I've recently been recommending better-performing PepsiCo instead.

But after falling 22 percent in just the past four months, Coke (Research) looks like a buy on purely statistical grounds for value investors willing to wait for the company to get its act back together.

The Coca-Cola name is still among the world's top brands. Compound annual growth is expected to top 10 percent over the next five years. The shares now pay a 2.4 percent dividend yield, surprisingly high for Coke. At $41.28, the shares trade at less than 20 times estimated earnings for 2005.


Clear Channel
Clear Channel Communications (Research), down 30 percent from its high, reported mixed results for the third quarter.

The radio business although still weak did better than expected. But the company's outdoor advertising and other divisions were disappointing.

Overall, annualized earnings growth was less than 9 percent. Analysts think the worst is over, though, and project a 13 percent gain in 2005 that could accelerate slightly over the coming five years.

The shares also pay a 1.4 percent yield. At $33.31, the stock trades at 21 times 2005 earnings.


Intel
Intel (Research) is another stalled franchise that looks to have brighter days ahead. The leading maker of microprocessors for personal computers faces flat earnings in 2005. PC sales are projected to scarcely rise and there are currently excess inventories of chips.

Still, this industry leader could enjoy earnings growth as high as 15 percent a year in a better environment. At $23.23, this quality franchise trades at 20 times 2005 earnings.


InterActive Corp.
InterActive Corp. (Research) was a great disappointment this year for investors looking for Internet stocks with real businesses.

The company -- which owns Expedia, the HSN home shopping service, Match.com and Ticketmaster -- has failed to deliver the double-digit growth that investors expect.

But the most recent quarter's results, reported last week, showed a 13 percent revenue gain and substantially larger increases in earnings and cash flow. In addition, the company announced a sizable share-repurchase plan.

Earnings growth is projected at 15 percent in 2005 and an average rate of as much as 20 percent over the next five years. At $25, the stock trades at less than 25 times earnings -- a multiple that would once have seemed dirt-cheap for a dot-com.


Michael Sivy is an editor-at-large for MONEY magazine.


Links referenced within this article

Sivy Seventy
http://money.cnn.com/pr/sivy/sivy70/
Coke
http://money.cnn.com/quote/quote.html?s ... ue&symb=KO
Research
http://cnnfn.multexinvestor.com/Reports.aspx?ticker=KO
Clear Channel Communications
http://money.cnn.com/quote/quote.html?s ... e&symb=CCU
Research
http://cnnfn.multexinvestor.com/Reports.aspx?ticker=CCU
Intel
http://money.cnn.com/quote/quote.html?s ... &symb=INTC
Research
http://cnnfn.multexinvestor.com/Reports ... icker=INTC
InterActive Corp.
http://money.cnn.com/quote/quote.html?s ... &symb=IACI
Research
http://cnnfn.multexinvestor.com/Reports ... icker=IACI
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[Alfred E. Neuman]

Running with the bulls
Glinsman likes Wal-Mart, ChoicePoint, AMBAC

By Chris Kraeuter, CBS.MarketWatch.com
Last Update: 12:03 AM ET Nov. 9, 2004


SAN FRANCISCO (CBS.MW) -- Colin Glinsman sees a bright future for U.S. stocks.

The manager of the Oppenheimer Quest Balanced fund (QVGIX: news, chart, profile) says he's "very bullish" about the market, likening the U.S. economy today to conditions that existed in 1994 - at the start of what would become a powerful bull run. Glinsman predicts a full economic expansion over the next several years.

Shareholders in the Quest Balanced fund have enjoyed their own portfolio expansion since Glinsman took the helm in December 1992. At the time, the $7 million fund was new to investors -- as was Glinsman, who'd never run a portfolio before.

Almost 12 years later, the fund has grown to $7.4 billion in assets and delivered a 12.3 percent annualized return since inception. As for Glinsman, he's now chief investment officer at Oppenheimer Capital, overseeing $25 billion in assets in addition to his fund-manager duties.

The portfolio's Class A shares rose 12 percent over the year through Nov. 4, vs. the balanced category's 8.6 percent average advance, reports fund data firm Lipper. The fund's 4.8 percent annualized return over three years edges its peers' 4.3 percent average gain.

Although it's a balanced portfolio, which buys both stocks and bonds, Glinsman has about 72 percent of assets in stocks - close to the portfolio's 75 percent maximum. He's emphasized stocks since October 2002, when the S&P 500 Index (SPX: news, chart, profile) hit a five-year low.

"We don't have a fancy discounted cash flow model. We try and have better thinking about where a company is going," he said. "We make an investment not because we think it's valued unfairly, but because we have fundamentally different expectations about the real opportunity and financial performance over time."



One company he likes is Wal-Mart (WMT: news, chart, profile), which is tied for the fund's largest holding at almost 5 percent.

Glinsman said he likes the quality of the world's largest retail company, along with its valuation and long-term prospects.

"I'm tired of owning companies that they are putting out of business," he said. "Everything about the company is tight, clean, and effective, and they have institutionalized this."

Wal-Mart shares added 6 cents on Monday to $56.53.



ChoicePoint (CPS: news, chart, profile) is another favorite. The company analyzes and sells data, primarily to insurance companies that use the information to price and evaluate policies. ChoicePoint also conducts employee drug testing and background checks.

At about 23-times next year's expected earnings, ChoicePoint is no bargain, Glinsman said, but its dominant competitive position and business outlook make it a good buy.

Shares of ChoicePoint finished Monday at $44.04, up 3 cents. Glinsman said he sees the stock at $70 in three years.



He also highlighted AMBAC Financial Group (ABK: news, chart, profile), a financial services giant that started out insuring and guaranteeing municipal bond issues.

The company since has moved into investment agreements, interest rate swaps, and investment advisory and cash management services.

Glinsman said he's drawn to AMBAC's market niche and deliberate expansion.

"They're very careful and very conservative, even though they could have grown much faster," he said. "They don't stretch their financial resources."

Shares of AMBAC Financial added 11 cents on Monday to $78.88.