Notes from Barron’s 1/27/2014

Streetwise – A Chinese manufacturing slowdown as well as lower earnings growth hit the markets. Based on 16% of the SP500 reporting, q4 growth came in at 5.4% versus a projected 9.6% from last October. Companies make look to M&A to generate growth. Low financing costs have results in both the buyer and seller sometimes rising in price (in the past only the seller would normally rise).

Super Bowl Package – The Ultimate Sportsman Package includes a Rangers hockey game on Friday, a Saturday matinee to The Book of Mormon, Saturday night floor seats to the Knicks-Heat, the Super Bowl and a Billy Joel concert on Monday. Price – $12,000.

Hyundai – bulls see a 30% rise.

The Talk of Davos – Different from past years, attendees were generally upbeat.

Hey, Big Spender – Many companies are buying back shares at prices that are too high as measured by comparing the current p/e ratio versus a 7-year average. Better to pay a dividend instead of buying back stock at a premium.

Technology Week – Netflix keeps pounding the bears. Company forecast faster growth in new subscribers and now sells at 56x next year’s projected EPS of $6.92 and 47x this year’s projected EBITDA. EBITDA margin is only 8%.

Urban Outfitters – Same store sales +3% for November and December but less than the 5% Wall Street projections. Company owns Urban Outfitters, Free People and Anthropologie chains. Good growth in the latter two chains offset decline in Urban Outfitters. EPS should be $1.86 this year versus $1.62. 2015 should be $2.15.

Currently trades at 17x ’15 numbers which is less than the 20x multiple it normally gets. Company has strong management, consistent sales increases, strong balance sheet and cash flow.

Price is $36.52 and Richard Jaffe of Stifel Nicolaus sees the stock rising to $48. Neely Tamminga of Piper Jaffray sees $55 within a year

Weekday Trader – Genesee & Wyoming (GWR) – small railroad with a  big future. $93 today but can get to $120 per Justin Long of Stephens, “The management team is extremely strong, with a great track record of completing deals and integrating acquisitions.” Controls 20% of US short-line market. 16x ’15 EPS and has 15-20% long term earnings growth.

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IQT’s Lucky 13 portfolio – ABT, BAX, CVX, KO, COP, CVS, XOM, MCD, OXY,PEP, PM, RS and UNP.

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Market Watch – Todd Market Forecast wrote “The Dow has been up for five years in a row. Since 1901, there have been three other times when this has happened. The 1920s, the 1940s and the late 1980s. There has been only one period when there were more than five up years in a row. That was in the 1990s, when the Dow moved up nine years consecutively. In other words, we are overextended. Based on history, we are due for a down year…”.

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The Trader – 580 days since last correction.

Aqua America (WTR) – water utility – 19.5 x ’14, discount to 23x long-term median. 2.6% yield. 10-year record of compounding its net income by 10% per year and its dividend by 8%.

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Roundtable Part II

Abby Joseph Cohen – rally is more growth oriented. If p/e remains stable GS forecast for S&P is 1900. If p/e expands to 18 then S&P could hit 2088. Mexico should benefit  from improvement in US. Ishares ETF is EWW.

HFC – Energy sector is now much cheaper than SP. $49.79 100% in US. 9.3 p/e. 6.4% yield. Could earn $5.35 this year, consensus is $4.40.

IP – 2.6% yield. $48.93 (as of 1/10) $45.56 as of Friday. $4.40 this year compared to $.20 in 2013. P/E is 11x ’14.

WYN – $4.60 in ’14 v. $3.85 last year. Consensus if $4.32. Trading at a market p/e of 15.9, 1.6% yield. Risks – time share business.

JWN – $61.11 on 1/10, $58.16 on Friday. Should earn $3.68 for FY ending 2/2 and $4.20 next year, 2% yield. Same store sales could accelerate to 5% from 3%. 16.6x ’13.

EXR – FFO could rise to $2.42 in ’14 from $1.97. 3.4% yield. Negatives could be rise in cost of capital and a slowdown in average rent charged to customers.

Marc Faber – Short the Russell 2000 (IWM), buy 10-year treasuries. Likes GDXJ but owns physical gold. Short a basket of momentum stocks (TSLA, NFLX, FB, TSTR, VEEV, DDD). Also has recommendations on foreign stocks.

Meryl Witmer – likes WYN. Good capital allocator. Shares outstanding have shrunk over time. FCF of $820m. After tax cash FCF of $7.30 to $8 in a couple of years. With a 13-15 multiple gets price to $95 to $119 from about $72.

SPB – repeat of a 2013 pick. $69.80. $7 FCF in ’14. Should trade 30% higher.

ESL – $101.67/share. Avionics and controls, sensors and systems and advanced materials. Operating profit margins are below peers, new CEO has had success previously. Opportunity to improve margins. In 2015, $6.62 + $1.80 in amortization gets you to $8.42 in FCF, At 14-15x, +$7 in free cash this year, equals $125 to $133. FCF can get to $10 in ’16 or ’17.

CSTM – specialized aluminum, trades at $22.98. More use of aluminum in autos.$2 in 2013, can earn $2.50 in 2-3 years. Significant upside.

Bill Gross

PDI – fund can do well if housing market holds up. Trades at 5% discount to NAV.

PML – municipals, 7% yield, no Puerto Rican or Detroit debt.

UTG – utility income.

HYS – maturities are 5 years or less, high yield.