Recap of Sat., Sept. 6:General Electric and Johnson & Johnson

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

David Asman: Dennis, GE (GE) and Vivendi (V). It sounds like a huge deal, what does it mean for the stocks?

Dennis Kneale, managing editor: Let’s talk about GE. You know, if you look at stocks two years ago versus today, the Dow Jones Industrial Average (DJI) is almost within 5 percent of where it was two years ago. GE (search) is still down 25 percent. GE is lagging behind the entire Dow. Why? I think one reason is because investors don’t realize the value of NBC in that stock. It’s really an odd bird; it doesn’t belong in the company. The Vivendi (search) deal comes along, you merge NBC with Universal. What GE has really done is set up NBC perfectly for a spin-off two years down the road, let’s say.

David Asman: When GE finally buys Vivendi, when that deal comes through, what happens to the stock?

Dennis Kneale: You know, usually when you get a big deal done, your stock, if you’re the acquirer, goes down a little bit – a couple of bucks. A fine time to buy. In two years, I think NBC will be spun off and is going to unlock lots of value

David Asman: So don’t buy this stock, wait until the deal is done?

Dennis Kneale: You might do that, yeah.

David Asman: All right, Bob, Munis. I’ve heard a lot about Munis. What are they? Why do you like them?

Bob Lenzner, national editor: Well, they’re tax-free bonds, and there’re funds of tax-free bonds. Some that are closed-end, you can buy stock in them on the American Stock Exchange. Some very smart money are buying these funds.

David Asman: Here are some of them. Nuveen Dividend Advantage Municipal Fund 2 (NXZ) and Nuveen Select Tax-Free Income Portfolio (NXP).

Bob Lenzner: Right. You can buy some. I would buy the ones that don’t borrow money, that aren’t leveraged. The higher-yield one that’s on the screen, they have a third of it is leveraged, so they’re borrowing money very cheaply and putting it into these municipal bonds.

David Asman: So, folks, these are tax-free, they give you high yields, what’s wrong with them?

Dennis Kneale: The one thing wrong would be this: I’ve talked to Bob about this, he’s a lot smarter than I am. Even after talking to Bob, I still don’t understand it. Don’t invest in what you don’t understand.

Bob Lenzner: It’s easy to understand. These are tax-free bonds. They’re lumped together in a mutual fund. They are borrowing money. If interest rates go up, you might have to hold it to maturity.

David Asman: All right. Well, what’s easy to understand is rap music. I hate it, but apparently the folks at Reebok (RBK) love it and it helps sales, right Leigh?

Leigh Gallagher, staff writer: They do, it does, and the kids love it too, and that’s what is important to Reebok, the number-three sneaker maker. Reebok is changing the game in these “sneaker wars,” which are quite vicious. It’s going after rappers instead of athletes. “Going after” meaning “signing them,” signing them to endorsement deals. So far, it’s signed up Jay-Z and 50 Cent. The Jay-Z sneaker was the fastest-selling shoe in the company’s history.

David Asman: And all this is good for the stock, but could it be the kiss of death making these deals with rappers?

Dennis Kneale: Well, rappers like 50 Cent sing my life, but I do not want to put millions of dollars into them so that they can then get arrested the next time he gets shot nine times.

Bob Lenzner: The only thing I’m worried about is the incredibly intense competition in this field, back and forth between the major companies. Can the margins really increase? Can the market really increase?

Leigh Gallagher: There’s no doubt that it’s a competitive business, but Reebok, at 16 times earnings, is cheaper than Nike (NKE) and it’s in the middle of a turnaround and still has a way to go.

Makers and Breakers

General Electric (GE)

Vita Nelson, president of The Moneypaper: MAKER

Well, I can’t say I like it now. I’ve liked it for a long time. We believe in dollar-cost averaging and continually picking up more stock in the same company. We’ve held it for a long time. All the companies in our MP63 fund have been there since the beginning, its like an index fund.

David Asman: And it’s a stock you can depend on for a long time. Mike would you have it in yours?

Mike Ozanian, senior editor: BREAKER

I’m a breaker on it. It’s delivered for a long time, I know, but it now has $300 billion in total debt, which is almost equal to its market value. So, I’m a little hesitant right now.

Elizabeth MacDonald, senior editor: BREAKER

I’m a breaker too. It’s like watching grass grow. It also picked up the Vivendi music and movie studio assets, those are extraordinarily expensive to run. And, finally, this is a stock that tracks the economy, it is so big that it follows what the economy does, I want a stock that beats the economy in economic growth.

David Asman: Well, it’s two against one, but I’m going to give you a lead on this. Vivendi, we just heard from Dennis Kneale, sounds like it might be a good deal along the line.

Vita Nelson: Universal Studios can only help the company and create more for its media outlets, it’ll be very helpful for it.

Johnson & Johnson (JNJ)

Vita Nelson: MAKER

We like these companies for long-term holding. They have brand names like Band-Aid. Everybody knows these companies; everybody uses their products. The most important thing about both companies is that they increase their earnings consistently and consistently increase their dividends.

David Asman: Well, Elizabeth, I have to tell you that one product that they have, that I love, is a wheelchair the climbs stairs, that was just approved by the FDA. It costs about $30,000. They’ve got a lot of great stuff.

Elizabeth MacDonald: MAKER

That’s right. I’m a maker on this stock. I love Johnson & Johnson. Not just the wheelchair, they’re ramping up their R&D in biotech. They also have a really solid customer base. Their three biggest customers are the biggest drug distributors in the world, and that’s why I like the stock. I think it’s a good choice.

Mike Ozanian: MAKER

I’m a maker too. They have $8 billion in cash and when they take that cash and plug it into R&D, they’re going to average a return of 20 percent. That’s $1.6 billion in profits, right there. I love the company.

David Asman: Is there anything not to like about this company?

Vita Nelson: 13 percent into R&D, I think, is very substantial, and very worthwhile.

David Asman: Mike, final word. There are some concerns about sales overseas, you don’t see any problems there?

Mike Ozanian: You know what? There’s going to be some bumps in the road, but their long-term track record is they own over 20 percent on their shareholders money, consistently, year after year.