Recap of Sat., Sept. 13:IBM and United Parcel Service

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David Asman: Chana, Christmas (search) is a long way away, but we’re in a shopping season now; the second biggest shopping season besides Christmas, right?

Chana Schoenberger, staff writer: That’s right: “Back to School.” Actually, it’s not that far off because, as you know, they now have Halloween candy in the drug stores. But, the “Back to School” season is not really going all that well and we’re starting to see some trends which we think may carry over into Christmas and it’s bad for the retailers.

David Asman: What does that mean for specific retailers?

Chana Schoenberger: Well, we like Target (TGT) and Kohl’s (KSS). Target, of course, is a big discounter. They’re doing extremely well as shoppers continue to shop in discount stores instead of in department stores. One of the notable exceptions is Kohl’s, which is a department store with a difference. It does very well; it has a great selection. People like it, but they did note that a lot of shoppers are waiting until the very last minute, in this case, right before their kids go back to school to make their choices, which means they’re really dependent on sales.

David Asman: Rich, what do you think about the retailers?

Rich Karlgaard, publisher: You know, I really like Target. Target has managed to pull of what JC Penney (JCP) and others have not, which is that it’s cool, even if you have the means to shop at more expensive stores. So Target really has a broad appeal.

David Asman: Bruce, tell us about healthcare. Can anybody make money in healthcare these days?

Bruce Upbin, senior editor: It seems difficult, but Tenet Healthcare (THC), which is one of the top hospital chains in the country, has been dragged through the mud, and rightfully so. The federal investigators and people have really indicted it for fraudulent billing of Medicare patients. But this is a company that’s real, it’s got real profits, it’s got great assets.

David Asman: It’s got real problems.

Bruce Upbin: It’s got real problems, but if you look beyond it, it’s a fantastic value play for the contrarian, for those with steel stomachs.

Chana Schoenberger: I’m wary of all the scandals there. I feel like there’s more dirt that hasn’t been dug up yet.

Bruce Upbin: I think it’s in the stock. The stock is $16 and it could go to $20, low 20’s, 25.

David Asman: All right. Well, Rich, we want to go out to you. How do you play on the blackout? We had that blackout, is there anybody that’s going to make money off of it?

Rich Karlgaard: Yeah, I like Eaton Corporation (ETN). A long-time, Cleveland-based supplier to the automobile industry, but it’s now doing a joint venture with Caterpillar (CAT), the truck company, to do power generators. Now, you know, America runs on electricity. Supply chains, everything else. Something’s got to power the Internet, so they’re in the right place at the right time.

Bruce Upbin: Eaton is a great company. They spent the last six years getting rid of everything with grease on it and buying everything with a wire on it, and one of those wire areas is electronic sensors and things that makes power better.

David Asman: But, Rich, are these blackout concerns just a flash in the pan?

Rich Karlgaard: No they’re not, because Internet usage is just going to go up, almost at double-digit rates. So, more and more, America is powered by electricity.

Makers & Breakers


David Sokolower, managing director of Repex Investments: MAKER

The stock’s been held in check by an SEC investigation into one of its customers which we think turns out to not be a big deal for IBM. Investors need to focus on revenue and earnings growth led by the big, steady services business and the microelectronics division where there’s a new plant coming on-line.

Mike Ozanian, senior editor: BREAKER

I’m a breaker. I think there’s too much pricing pressure in this industry right now. No ability to raise prices, I think that’s put a lot of pressure on profit margins. So, I don’t really see any earnings growth down the road.

Elizabeth MacDonald, senior editor: BREAKER

I agree with Mike. I’m a breaker too, unfortunately. I just see this stock as watching grass grow. Plus, there’s lots of “smoke and mirrors” accounting there. A lot of gamesmanship, sort of with reserves. Maybe “gamesmanship” is too harsh a word to use, but they are using this kind of “smoke and mirrors” accounting, including relying really heavily on gains from the employee pension funds.

David Asman: But this is IBM.

David Sokolower: Yeah, IBM. The accounting is old issues. Now is now. And don’t be surprised, as the year goes on, technology’s been doing pretty well, it’s going to continue to get better, and you could get some nice earnings there as well.

United Parcel Service (UPS)

David Sokolower: MAKER

The stock’s been a beneficiary, and we expect that it’s going to continue to be one, of the economic expansion here and overseas. It’s a triple-A rated company, earning double-digits, earnings-wise. You’ve got good management and a real strong balance sheet.

Elizabeth MacDonald: BREAKER

I’m a breaker on this stock too. I just think that UPS is stretching itself too thin. It’s getting into financial consulting, aviation technologies, the family owns most of the voting blocks of the shares in UPS. And, also, lots of the earnings coming in future years is from an IRS settlement of a tax dispute. It’s about a billion dollars, so you have to watch with that.

Mike Ozanian: MAKER

I’m a maker on UPS. They’ve made tremendous gains in productivity in the last couple of years. They now generate $15,000 in operating cash flow, per employee, versus $14,000 for their rival, Fed Ex (FDX). So, I’m a big maker on this.

David Asman: We just heard Chana talking about the holidays coming, that’s going to be good for UPS too.

Mike Ozanian: A stronger economy will help them.