NOTES FROM BARRONS
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Follow-Up: Gamestop (GME) got hit hard last week on disappointing sales. Good entry opportunity, now at 10x ’14 eps. $5 per cash and no debt, 50% market share. Wedbush analyst Michael Pachter has a $60 target, GME has “at least 10 years” left in its core business.
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The Eco-Oil Producer – Denbury Resources (DNR) – specializes in getting out the last 60% of oil from a well using carbon-dioxide flooding. DNR is second largest player in this space. Yield should be 3% in 2015. Price = $16.46; 4.5x FCF, industry average is 6.8. Closing the gap will get price to $20 not including dividend. Greenspring fund is an investor. 36% discount to NAV, peers trade at a 20% discount.
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The Valuation Gap at Gap – shares could climb 30%. Price = $37.30, company has set itself up for difficult sales comparisons. Same store sales were flat in December and +2% in November. 12.6x ’14. Has been buying back stock.
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Sizing up Small-Caps – Dean Foods (DF) – 1.6% yield, $300m stock buyback program. 5.7x ’14 EBITDA and 6% FCF yield.
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Trouble on the Menu – Restaurant stocks could be in for trouble, trading at 21x. During expansions, home purchases rise and spending moves towards durables and away from restaurants. Stronger economy will increase birth rate. A new child reduces a family’s restaurant spending by 10%. Low income jobs are replacing middle income jobs. MCD, BKW, DRI might have trouble.
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Ride Out the Mortgage Reit Rout – a guessing game as to what directions prices will move. LNY and AGNC are at 80% of book value. Rising rates at the long end of the curve could put pressure on book value. In a webcast last week, Jeff Gundlach said “I have no problem owning Annaly at this price; I just don’t think the price is going to go up in the near term.” But with the dividend, that could still mean a 10% return this year.
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Roundtable – “Optimists expect the global economy to pick up, bonds to tick up and stocks to mosey higher, notwithstanding the errant hiccup.” The pessimists “see crippled economies here and abroad, rotten government policies, and a sell off in stocks that could rekindle fears of yes, systemic risk.”
Bill Gross does not expect rising yields and absent higher inflation and a change in policy, bond markets should be stable. Abbey Cohen thinks they could drift higher. According to Cohen, GS is forecasting GDP growth of 3.3%. Zulauf thinks world economy will disappoint, US will be top economy. Faber says the Fed will bankrupt the world. Faber said “The Fed acted correctly to save the financial system during the financial crisis, which it created with easy-money policies in the late 1990s and early 2000s. But Ms. Yellen could be sitting on a barrel of gunpowder, pouring gasoline on top of it, and lighting a cigarette, and she wouldn’t know the danger of bubble creation.” Faber thinks sometime this year there will be a big tumble, like in 1987 and the long bond will rally. Fred Hickey says that the markets dropped 13% at end of QE1 and 17.5% at end of QE2, the market is set to blow up.
Scott Black and Cohen expect SP earnings of $116. If p/e remains steady that gets you to 1900, but if PE expands to 18-20x, which could be reasonable given core inflation, target would be 2088.
Some of Felix Zulauf’s picks, +TLT, +GDX, -EWH, -TUR.