Our panelists give you the scoop on all the inside business information before you hear it anywhere else in The Informer segment:
• Brand Name Stocks
Bob Lenzner, national editor: Beware of brand name product stocks. There was a time when we could depend on brand name stocks like Coca-Cola (KO), Procter & Gamble (PG), Gillette (G), & McDonald's (MCD) but not anymore. Stocks are still selling at high multiples and there's no top line growth.
Dennis Kneale, managing editor: You're probably right about these stocks not growing very fast but where else do you put your money? If you're gonna bet, you have to bet on the big guys and the established brand.
Lenzner: These brand companies are going to cut costs but what are they going to do to get that topline growth?
• Viacom
Kneale: The no. 2 guy at Viacom (VIA), Mel Karmazin, has raised $35 million by selling 7% of the stock he controls. Hands raised all over Wall Street, “Oh my god, this stock is going down.”
David Asman, host: Well, let's be honest, sometimes that sale means that company's in trouble.
Kneale: And a lot of times it doesn't. This guy has a right to reap a little of the rewards. If you buy Viacom now, a year from now that stock will be doubled.
Elizabeth MacDonald, senior editor: Two things to remember regarding this sale. He just got married and probably need the money for personal reasons. And according to his contract, he was restricted from selling the stock for about a year.
Lenzner: A footnote, his boss Mr. Redstone, has never sold a stock and doesn't intend to.
• End of Napster?
Peter Newcomb: The music companies have been lobbying to get rid of Napster. They went and formed their own music subscription services (Sony Music (SNE); Vivendi Universal (V); AOL Time Warner (AOL); EMI Group (EMIPY)) and now the government is looking at them because they might want to shut them down. The government for years has thought the music companies price fix and they're worried this might be happening again.
Kneale: The problem is the record companies have fought every technological advance that has come into the music world in history. With Napster, they made the mistake of trying to snuff it instead of trying to work with them.
Asman: Is it the government or is it the companies?
Kneale: It's the companies that drove the entire argument that snuffed out Napster. They probably need a middle-man to make separate contracts with the seven different record companies.
• Alcatel
MacDonald: Alcatel (ALA), get out the Alka-Seltzer if you own this company. This is a Paris-based company that's full of baloney. The $34 billion merger with Lucent in May fell through. They just reported $3 billion in losses. From the twelve months through the end of March, Alcatel took $254 million in restructuring charges. They're taking piggy bank reserves. Whenever you see reserves set up like that, that's bad news.
Makers & Breakers
• Beazer Homes (BZH)
Orin McCluskey, CWH Associates: Maker
Beazer Homes focuses on the first time home buyers and immigration. Immigrants have caused a powerful surge in home acquisitions. They've also caused lowest inventory on unsold homes ever according to the census bureau.
Matt Schifrin, senior editor: Breaker
Orin is right. This stock is going great. The problem is there is a low flow with only 8.6 million shares outstanding. It's been all good news thus far. If there's any bad news in the future this stock will get hammered.
Jim Clash, associate editor: Maker
I'm a maker on this stock but a reluctant maker. This thing has tripled in the last 52 weeks. But it's only trading at 10 times earnings. It has a good location in the southwest where there's a very large immigrant population and large housing market.
• Fidelity National Financial (FNL)
McCluskey: Maker
The bottom line here is that title insurance is a great business especially if you're the largest most efficient player. Five guys control 85% of the transactions. The stock is well priced at 1.2 times book value.
Clash: Breaker
I would stay away from this one. A lot of this business is refinancing and the rates aren't going to go any lower.
Schifrin: Breaker
It's been a great year for refinancing. It's at the peak of the cycle. You don't buy a stock at the peak of their cycle.
• Noble Drilling (NE)
McCluskey: Maker
This is a stock where the bad case scenario has been priced in. Natural gas prices have dropped. There's been some softness in the rates for gas drilling. This stock is an international drill. They have ten going down to seven rigs going in the gulf. Major oil companies who have abandoned production drilling. Now they're playing catch up.
Schifrin: Maker
This is one of the few values I see in the energy sector. They recently brought a huge amount of stock at 38, the stock's at 28 now. They've got smart management.
Clash: Maker
I like it too. I think there's going to be continued strain in the oil market. And more importantly, this stock has fallen 50% since March when we had the whole energy hysteria. Now's a good time and a good price.
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