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Strategies & Market Trends : Value Investing

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From: Paul Senior3/1/2008 11:15:12 AM
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Cover story in latest Barron's highlights several stocks recently discussed here: BONT, IAR, GTN, FCH. Barron's saying they might be buys now based on their high leverage (high d/e, low stock price) - if they can survive in this economy.

Some snippets:

FCH: "Despite the company's good financial results, FelCor stock is depressed because of concerns about the impact of a weaker economy on the lodging business. FelCor, however, should benefit this year from extensive renovations of its hotels in 2007...One reason that Hawks of Brigade Capital is bullish on FelCor is that growth in the supply of hotels is very limited."

IAR: "Any stock trading with a P/E ratio of two and a dividend yield of 25% is worth a closer look. Verizon Communications spun off its yellow-pages business as Idearc...Verizon put $9 billion of debt on Idearc, effectively creating a public LBO. That debt is proving a millstone amid a sudden weakening in phone-directory industry trends. The company's CEO resigned for health reasons last week, just a week into the job. Idearc's shares, which hit $38 last spring, now fetch under $5, valuing the company at less than $1 billion. At issue is whether recent troubles merely reflect a weak economy or a permanent shift by advertisers away from print directories."

GTN: "Gray is highly leveraged with a market cap of $300 million, against debt of $900 million. 'Our stock is extremely undervalued,' says Gray President Bob Prather, who lately bought 11,500 shares in the open market. 'Wall Street is down on Old Media and we've been dragged down by newspapers and radio. TV has some issues, but they're nothing like those industries.' ...If TV can hold its own in the face of the Internet advertising threat, Gray should do well.

I have been considering following Spekulatius and switching into FCH from AHT. I have been adding to GTN as stock has dropped. With IAR...ouch! I started to buy at $9.27/sh. and have added in $8, $7, $6 range, and yesterday a litte more under $4.

The Barron's article also says this: "We've shown a sampling of levered equities but there are many more out there. Those with market values of more than $5 billion are scarce. Some larger outfits include Hertz Global Holdings (HTZ), Virgin Media (VMED), Rite Aid (RAD), Dean Foods (DF) and Level 3 Communications (LVLT)"

I've sold some RAD as it's moved up from under $2/sh; I've recently looked at DF and decided to pass on that one. I will likely take a few shares of Hertz. I've bought Dollar-Thrifty recently, and given my propensity to buy a package of stocks within a downtrodden sector, I will likely take on a few shares of Hertz too. I like Hertz for its dominance in the sector and for its profitable (I believe) equipment rental business.
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