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Latest Top Picks

Stock Opinions by Pat Naccarato

TOP PICK
(A Top Pick Nov 30/07. Down 43%.) Investment management firm. Value style equity managers got hit but should rebound. They are #3 fixed income managers globally and had short-term performance issues. Valuation is so compelling that you will ultimately do well.
investment companies / funds
TOP PICK
3rd largest global advertising agency. New management are in the process of restoring margins and profitability. Stock was impacted by the economic turndown. Fundamentals are turning upward. Good price.
Advertising Agencies
TOP PICK
Gets paid whenever anyone wants to move a phone number from one carrier to another. It is a monopoly and has a contract until 2015. Expanding globally. Has not been affected by the economy. Enormous free cash flow and no debt. Other business is SMS on cell phones. Transitioning into instant messaging, which has been slow to take off.
Telecommunications
PAST TOP PICK
(A Top Pick Nov 30/07. No change.) Hair cutting franchise with 13,500 locations from Wal-Mart to higher salons. Also have Trade Secrets products. Recession resistant. Have never had negative same-store sales in 80 years.
specialty stores
PAST TOP PICK
(A Top Pick Nov 30/07. Up 11%.) Acquired by Macrovision (MVSN-Q).
publishing / printing
COMMENT
Copy protection. Not a bad business, especially if the phenomena of Blu-ray technology starts to gain. Studios are paying for this service.
computer software / processing
BUY
Diversified medical supply and pharmaceutical. Hitting new highs but valuation is still among the cheapest at 15X earnings. Double-digit growth through many years. 2.6% yield. Has a little bit of upside left. Long-term hold.
biotechnology / pharmaceutical
COMMENT
He currently has no energy exposure in his fund, but natural gas is an area he is starting to look into. Breakeven amount for making money in production is over the present price of natural gas. Producers will have to cut supplies, which will ultimately restore the balance. Could take a little while.
E.T.F.'s
DON'T BUY
MasterCard (MA-N) and Visa (V-N) are phenomenal franchises and basically a global duopoly. Not tied to spending but transaction growth. PE multiple for both companies is somewhere in the mid-20s, which is very rich. On a 5-year time horizon, they will grow into that multiple. Would consider buying at a sub-20 PE.
other services
DON'T BUY
MasterCard (MA-N) and Visa (V-N) are phenomenal franchises and basically a global duopoly. Not tied to spending but transaction growth. PE multiple for both companies is somewhere in the mid-20s, which is very rich. On a 5-year time horizon, they will grow into that multiple. Would consider buying at a sub-20 PE.
other services
DON'T BUY
Not a fan of this. A commodity product. Ups and downs are very violent. Too much competition. Would rather own Intel (INTC-Q), which is the dominant franchise.
computer software / processing
DON'T BUY
Not a fan of this. A commodity product. Ups and downs are very violent. Too much competition. Would rather own Intel (INTC-Q), which is the dominant franchise.
Telecommunications
BUY
A dominant franchise with a very reasonable PE. Fantastic entry point.
electrical / electronic
DON'T BUY
We are currently under-building and homebuilders are very attractive. They are now generally trading below book value. This wouldn't be his first choice because of the leverage they have.
contractors
BUY
The dominant high-end builder. Fantastic franchise.
contractors
DON'T BUY
Expensive. Would like to see the price to sales drop from 1.6 to 1. An alternative would be Foot Locker (FL-N). Not an area that he likes and currently he does not have a lot of retail exposure.
misc consumer products
BUY
Good value with a 12X multiple. Phenomenal franchise and global. Being hurt because of their financial services operation. 4.4% yield, which is safe.
electrical / electronic
WATCH
Favourably inclined towards natural gas and is starting to look at this area. This stock is one that fits his initial starting point. They've taken advantage of buying assets from big integrated oil companies and being able to expropriate these fields in a greater way. Wait for natural gas to rebound.
oil / gas
BUY
One of the higher quality franchises in the US. Gaining deposits. A big mistake last year was the Acquisition of Countrywide. This bank will be a survivor. 8% yield may not be sustainable. Valuation on a book value level is at a trough level.
banks
WATCH
One of the companies that he has on his top 3 or 4 that he will start looking at. Growth by acquisition so their growth will have to come down but they do have some very valuable resources. Wait for natural gas to rebound.
oil / gas
COMMENT
This is a stock that has always been too rich for his blood. If you are not a value investor and want to buy good growth, this is obviously the one to be looking at. A powerhouse that is not likely to be overtaken. The slowdown in the economy has affected advertising.
Business Services
DON'T BUY
Has never owned an automaker and doesn't plan to in the future. It is a business model that has everything wrong. This one has been in the wrong vehicles and are now having to cut costs dramatically. Even so, they will still lose money.
Automotive
BUY
One of the largest refiners in the US. Benefiting right now because of falling oil prices. This is a stock that he was looking at but bought Marathon Oil (MRO-N) instead.
integrated oils
BUY
An oil/gas production company as well as one of the largest refining operations. Believes you are getting the refinery operations for free. Once things get back to a more normal situation, profitability should start increasing.
integrated oils
BUY
Does not believe this company will falter. In need of capital and expect they will have to continue to raise more capital in the next quarter. Insurance operations are still rock solid and they are making $4 a share from this.
insurance
DON'T BUY
His best guess is that a year from now it will not be around.
trust, savings and loan
DON'T BUY
(Market Call Minute.) Would stay away from agriculture. Thinks the ethanol subsidy will be taken away.
E.T.F.'s
DON'T BUY
(Market Call Minute.) The most levered of the drugstores. Would go to Walgreen (WAG-N) instead.
specialty stores
DON'T BUY
(Market Call Minute.) Tied to the agricultural sector so he would stay away right now.
machinery
BUY
(Market Call Minute.) Dominant in their field. Valuation is more compelling than Visa (V-N) and MasterCard (MA-N).
investment companies / funds
DON'T BUY
(Market Call Minute.) A company that has come down a long way but not quite there yet. Getting more attractive.
food services
TOP PICK
Global multi-line insurance business, property/casualty and life. AA balance sheet, so it gives you some protection. Have been caught up in the mortgage backed security business but stopped buying these in 2005 because they foresaw the risks. Currently trading at a 50% discount to what it is worth.
insurance
TOP PICK
Has a new CEO who should be a catalyst for a turnaround.
investment companies / funds
TOP PICK
Trading below liquidation value. Feels they can reverse some of their market share losses. They've introduced a “$99 all you can use” platform for voice and data, which he feels will capture market share.
Telecommunications
BUY
A great US institution that has been hit by this crisis. A great franchise with tremendous value. Trading at a valuation that has not been seen since the last recession. The snap-back coming out of recession can be enormous. Valuation on a PE basis does not look good as earnings are down but if they reverse some of their mortgage write-downs, it could have a big effect on values.
banks
BUY
A great US institution that has been hit by this crisis. A great franchise with tremendous value. Trading at a valuation that has not been seen since the last recession. The snap-back coming out of recession can be enormous. Valuation on a PE basis does not look good as earnings are down but if they reverse some of their mortgage write-downs, it could have a big effect on values.
Financial Services
BUY
A great US institution that has been hit by this crisis. A great franchise with tremendous value. Trading at a valuation that has not been seen since the last recession. The snap-back coming out of recession can be enormous. Valuation on a PE basis does not look good as earnings are down but if they reverse some of their mortgage write-downs, it could have a big effect on values.
banks
BUY
Has a dominant market share, which he likes. Their new jetliner has had a few delays. Ultimately they will get this resolved. This is an opportunity to buy a great franchise.
Transportation
BUY
Likes companies that have dominant market share. Dropped in the last quarter because of an announcement of gross margin pressures on their Flash business. This is a very small component of their business. Risk/reward is positive.
electrical / electronic
BUY
A company that will probably go down in history as having made the worst acquisition ever. Bought AOL at the top and has had a hangover affect ever since. As a result of the 5 years of the stock doing nothing, the valuation has finally caught up with itself. Much more attractive than it has ever been.
Broadcasting
DON'T BUY
Beneficiaries of the branded drug companies’ losses are generic manufacturers. This one is the largest. Not sure if the timing is exactly appropriate right now, but on a longer-term perspective, this should benefit with generic drug manufacturing.
biotechnology / pharmaceutical
BUY
Have 2 businesses. Industrial, which is rock solid and their financial which is caught up in the credit crunch. The industrial side will benefit from the weaker US dollar. On a valuation basis, it comes out very attractive.
electrical / electronic
COMMENT
Biggest business is beer and is a company that should not waver too much no matter what the economy is. He is focusing more on companies that have been affected and stocks are down a lot more. The price is not as attractive as others.
breweries / beverages
BUY
This is the type of investment that he is looking for. All the investment bankers and investment brokers have been impacted from the credit crisis.
investment companies / funds
DON'T BUY
This is a difficult one for a value investor. The stock is down quite a bit and has a great balance sheet with a lot of cash. However, this could be a value trap. Looking forward, this company is going to be losing a lot of its primary drugs. Also, there is an election coming up and the rules may change on drug pricing.
biotechnology / pharmaceutical
BUY
Government backstops the loans for Freddie Mac (FRE-N) and Fannie Mae (FNM-N). The Government has asked for their help and have given them leeway to issue larger mortgages, which will allow them to grow their portfolios. The stocks are severely undervalued.
Financial Services
BUY
Government backstops the loans for Freddie Mac (FRE-N) and Fannie Mae (FNM-N). The Government has asked for their help and have given them leeway to issue larger mortgages, which will allow them to grow their portfolios. The stocks are severely undervalued.
Financial Services
BUY
Refinery. Stock has been hit hard as oil has gone up. An attractive place to be. Have a lot of assets and there are no new refineries being built in the US.
integrated oils
BUY
Stock is down because they made a bid to acquire Yahoo (YHOO-Q). He believes the down side is close to $25 and low $40's on the upside. On a risk/reward, the upside is greater than the down side.
computer software / processing
PAST TOP PICK
(A Top Pick Nov 30/07. Down 22%.) This is an asset manager. This is a wonderful franchise and a real value opportunity. He is still buying.
investment companies / funds
PAST TOP PICK
(A Top Pick Nov 30/07. Down 4%.) Largest services for haircuts and own Mastercuts, Supercuts, Hair Club for Men, et cetera. Has been affected by the weak retail environment but has been doing very well. Good defensive play and is cheap.
specialty stores
PAST TOP PICK
(A Top Pick Nov 30/07. Down 19%.) Had a takeover offer for a higher price than the present price, but are using shares. Believes it will go through.
publishing / printing
HOLD
A leader in medical supplies with the main product being needles. Great stock and great company but right now, the valuation is not there.
Healthcare
STRONG BUY
A rating agency that rated a lot of the mortgage-backed securities as okay. There are lawsuits but he doesn't believe there is any case against them. This stock has a lot of value. Dirt cheap.
Financial Services
PAST TOP PICK
(Past Top Pick July 17/07. Up 6.2%.) Basically control every telephone # in North America. When switching a telephone number to a different carrier, you go through them. Recently got contracts in Brazil and Taiwan. A monopoly. Fabulous franchise.
Telecommunications
TOP PICK
Stock has been cut in half in the last 1.5 to 2 years. Asset management that manages $1 trillion. Have an outstanding track record.
investment companies / funds
TOP PICK
Remote TV channel guide. Only 25% of TVs are digital so there is still 75% to go. Every single new digital TV issued with an on-screen guide has to pay this company. Still own the old TV Guide magazine that has been losing money. They have to fix this and turn it around. Have put themselves up for sale and have a number of bidders looking at it.
publishing / printing
TOP PICK
12,000 haircut salons. Stock has been hit because hair styles are going long.
specialty stores
PAST TOP PICK
(Past Top Pick July 17/07. Down 16.8%.) A global advertising agency. Dropped because of fears of a recession affecting advertising. Management is making changes and margin potential should be significantly higher. Easily a double from these levels.
Advertising Agencies
PAST TOP PICK
(Past Top Pick July 17/07. Down 19.3%.) Produces children's games and toys. Should have launched their trading card, Chaotic for the holiday season but delayed to the 1st quarter and stock dropped. 50% of their market cap is in cash. A cash-rich, asset rich company.
entertainment services
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