Recap of Saturday, February 22Whole Foods Market; Chico’s FAS

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, we heard about this big drug merger.  What do you have for us?

Dennis Kneale, managing editor: I’ve got three drug stocks that I want you to look at today, because in the next two to three years they will be good investments.  Novartis (NVS), Roche (RHHBY), and Genentech (DNA).

David Asman: They’re getting together?

Dennis Kneale: That hasn’t been announced, but they will.  In the past year, Novartis has bought up 33 percent, roughly, of the voting stock in Roche.  Roche doesn’t want them to take over, but  it’s going to happen within two years.  You will see Novartis end up taking full control.  Roche, in turn, owns just over half of Genentech, this very hot biotech firm.  So, Novartis is going to gradually buy both of them and you’ll have quite a powerhouse when they get together.

David Asman: So, who do you buy now?

Dennis Kneale: I think Novartis might be best, or maybe even Roche, which is down a good 20 percent in the past few weeks.

David Asman: All right.  Elizabeth, we’ve been talking war.  There is a war stock, Boeing (BA).  Do you like it?

Elizabeth MacDonald, senior editor: Well, I would like Boeing if it was trading around $20, and I think it has some price pressures.  Two thirds of its business is coming from commercial planes, we know that’s a problem - that there are weaknesses in that market.  They are making a shift, they’re doing a restructuring, but I don’t like the stock now.  The cash flow is not coming in as much as I would like.

David Asman: Joanne, do you like Boeing?

Joanne Gordon, staff writer: I like Boeing because I do think increased military spending is going to help the top line and deal with some of its debt.

David Asman: All right.  Chana Schoenberger, what about Wal-Mart (WMT)?  Wal-Mart has some stores in Germany.  Germany is not too fond of the U.S. right now.  What does that mean?

Chana Schoenberger, staff writer: I want to call it “War-Mart,” actually.  They are the world’s biggest retailer.  They just came out with earnings and they said that one of the reasons they did so well was because of their international division.  But, they are the symbol of American Capitalism and I think now is not a great time to be selling overseas if everyone thinks of you as American.

Dennis Kneale: First of all, it’s a good idea, but never bet against Wal-Mart.  Second of all, of a thousand stores they have overseas, only a hundred or so are in Germany.  None in France, a thousand in Canada, Mexico and the U.K., which are big-time supporters of the U.S.  No problem there.

David Asman: All right, let’s get simple and talk toys.  Everybody likes that idea, Joanne.  Mattel (MAT).

Joanne Gordon: I spent the beginning part of this week walking around the Toy Fair with the CEO of Mattel.  In addition to some new toys coming out, we talked cash.  Since (Chairman & CEO) Bob Eckert joined the company in 2000 it has $1.2 billion in the bank and Eckert told me that he is getting ready to spend it.  Shareholders can expect some acquisitions, possible stock buybacks as well as increased dividends.

David Asman: Now, put all this together, does this mean that it’s a good stock to buy right now?

Joanne Gordon: I think it’s a good stock to buy because everyone thinks, “Oh, Elmo won’t sell.”  Forget the topline, this company is growing.

David Asman: Anyone like Mattel here?

Chana Schoenberger: Well, the toy industry was flat to slightly down last year, so I don’t know about a toy stock right now.

Joanne Gordon: Mattel sales were up 4 percent, operating income was up 14 percent, and, again, he’s cleaning up shop.

Makers & Breakers

Whole Foods Market (WFMI)

Marc Gersetin, director of investment research at Multex: MAKER

I think they’re great for you.  You own a chain of stores with lots of people who have lots of money, bringing lots of food through lots of checkout counters. The company is growing.

Elizabeth MacDonald, senior editor: BREAKER

Well, there’s an inside joke about Whole Foods, they’re actually called “Whole Paycheck,” because that’s how much it costs to buy food in the store.  The stock is as over-priced as the food it sells and the other unnecessary items and it’s trading at around 52, 34 times earnings.  It’s a fad stock.  I say  stay away.

Jim Michaels, editorial vice president: BREAKER

There are a lot of tofu eaters around, but not enough willing to pay those prices.  At 35 times earnings, I would take a wide pass on this one.

Marc Gerstein: The stock, at today’s price is perfectly fine if earnings per share can grow about 16-17 percent a year.  Analysts are looking for 20 percent, the company has done more than that over the last five years.

Chico’s FAS (CHS)

Marc Gerstein: MAKER

It’s not fancy.  No fancy technologies, no proprietary secrets, in fact they don’t even have good retail sales.  The one thing they have is great management.  They execute magnificently.  Their sales forces are trained, they know what they’re doing.

Jim Michaels: BREAKER

They buy Indian and Chinese made garments on the cheap, mark them way up, put a little attitude on them, and people buy them for a couple of years.  Then they go out of style like Old Navy or The Gap.  I would pay eight times earnings, not the 25 it’s selling for.  I wouldn’t touch this one.

Elizabeth MacDonald: BREAKER

I think Jim is right.  I don’t want a fad stock, a trend stock that overcharges women to dress like Maude, or the women on The Golden Girls.  Maybe if it goes to nine I would buy it.  I say stay away.

Marc Gerstein: This is the same thing I have been hearing about Wal-Mart for 20 years.  There’s something to be said for good management.  You want good quality merchandise, you pay good price.  You want a good quality company, you pay a good price for the stock.