Recap of Sat., Oct. 18:Emulex and Sysco

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Our panelists give you the scoop on all the inside business information before you hear it anywhere else in The Informer segment:

David Asman: Victoria, what about Microsoft (MSFT)? It’s more than just Bill (Gates) and Steve (Ballmer), right?

Victoria Murphy, senior reporter: It is more than just Bill and Steve. The de facto number three at Microsoft is a guy by the name of Jeff Raikes, who I spent a lot of time with for a story that I have in the current issue. Jeff oversees the Office division, which is very important to Microsoft. It accounts for a third of sales and over half of the profits. He’s really turned around the division. They have a new version of (Microsoft) Office, Office 2003, coming out next week.

David Asman: Because a lot of people are still using, what is it? The 1997 version?

Victoria Murphy: Yeah, a third of the users, it turns out, are on the 1997 version of Microsoft Office. So he sees his challenge as convincing those guys to update. And I think he’ll do a good job of it.

David Asman: Bruce, we’ve got great management and great new products. What’s not to like?

Bruce Upbin, senior editor: Well, as this guy’s profile keeps going up and people do stories about him, I wonder whether Steve and Bill Gates might slap him down a bit.

Victoria Murphy: You know, I don’t think there’s any kind of weird dynamic there, and I think Bill and Steve still grab a majority of the headlines, and Jeff’s been there for a long time, and I think he’s figured out his role in the company.

David Asman: All right, Pete, let’s move on to a war stock. Raytheon (RTN). Why do you like Raytheon?

Pete Newcomb, senior editor: Raytheon makes the Patriot Missile Defense System. They use these to shoot down missiles. Apparently they were nine for nine in the skirmish earlier this year, if we believe what the government is telling us. However, there are six countries, now, who are considering purchasing the next system, called PAC-3. With each system sold, that’s $1.5 billion in sales, which translates to about 35 cents in earnings.

Bruce Upbin. senior editor: If you’re a country on a budget, there’s a Russian anti-missile system out now that’s cheaper, right?

Pete Newcomb: The Russians are cheaper, all right, but do you want the Mir or do you want the Mercedes?

David Asman: OK, let’s move on to beer, one of my favorite topics. Which one looks good?

Bruce Upbin, senior editor: Well, there’s a carbohydrate war going on right now, and it looks like Budweiser [Anheuser Busch (BUD)] is the weaker player, Miller Lite [SABMiller (SBMRY)] saying they have half the carbs of Bud Lite, and Bud Lite’s more expensive. Any kind of weakness to the Bud brand is bad news for Anheuser Busch which is a very expensive stock right now. I like Miller, the guys who bought Miller, the South African Brewers.

David Asman: But I always thought that Miller was a US beer. Does it bother you at all that that it’s a South African beer?

Pete Newcomb: That doesn’t bother me. I’m more of a Guinness [Diageo PLC (DEO)] guy anyway. However, I’m more concerned with the fact that they are not alone in doing this. There are other people making these drinks.

Victoria Murphy: You know, I think, really, people aren’t that brand-loyal when it comes to beer, so I think that if Miller’s cheaper, it’s probably going to do well.

Bruce Upbin: I agree, and Bud better watch out with the prices.
 
Makers & Breakers

Emulex (ELX)

Matt Rich, portfolio manager of the Technical Chart Fund: MAKER

Emulex is a $3.5 billion data storage company. Their three largest customers, EMC Corp (EMC), Hewlett-Packard (HPQ) and IBM (IBM) are all ordering more product.

Jim Michaels, editorial vice president: BREAKER

Big “mo” is back. This is a momentum stock. In other words, it goes up because it goes up. Stock’s doubled in a year, I’d say it’s due for a rest. You don’t get my money in Emulex.

Pete Newcomb, senior editor: MAKER

I disagree. I don’t think the stock is really that expensive right now, it’s 25 times trailing earnings. I think capital spending is going to improve. I like it.

David Asman: Well, Matt, you actually have a target price, at which you might think about selling?

Matt Rich: I have a target price of $35. The stock has been trading in a pretty tight range for about a year. It’s in the high 20’s, about $28-29. We have a $35 price target.

Sysco (SYY)

Matt Rich: MAKER

Sysco is the largest food retailer and wholesaler in North America. It’s a $20 billion food company. The stock hit a new high about a month ago. We have a $40 price target on this stock, margins are growing, food prices went up 6.6 percent last month. That was the largest increase in 13 years.

Pete Newcomb: MAKER

You know, he hit it with margins. This is a company over the last ten years, that has slowly grown margins from 2-3 percent. That’s not a lot, but it’s been slow and steady. I think for the long term, I like it.

Jim Michaels: BREAKER

I get a little indigestion looking at these food stocks. This one is at 25 times earnings, a premium to the market, slow in growth, skinny margins, I’ll pass.

David Asman: Well, very quickly, again, you have a target price for this one. What is it?

Matt Rich: Target price is $40.

David Asman: So once you see Sysco going to $40, that’s the time to think about selling.

Matt Rich: That’s the time we’re going to get out.