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Inside Wall Street


Markel, Insurer of Last Resort

Loyal fans of Markel (MKL) like to call this specialty insurer a "mini-Berkshire Hathaway (BRK)." It's similar to the outfit Warren Buffett heads "in its strategy, underwriting discipline, and ability to compound book value annually at more than 20% since 1990," says John Schott, head of value investing at Steinberg Global Asset Management, which owns shares. Markel's stock isn't as high-flying as Berkshire's, but it has also ramped up, from 449 a year ago to 554 in early November—before the subprime crisis heated up. Now at 480, Markel will be worth 575 in a year, Schott figures, based on the double-digit growth of its book value, now at $270 a share. Historically, the stock trades at more than twice its book. The company went public in 1986 at 10 a share. Markel insures risks that others won't touch: It provides malpractice insurance to doctors, including those with a history of drug abuse. Since it's in a high-risk business, Markel is able to set rates and terms that produce hefty underwriting profits. Other hard-to-place risks Markel accepts include motorcycles, speedboats, and equine mortality. Elizabeth Malone of KeyBanc Capital Markets rates Markel a buy, with a 12-month target of 600. She upped her 2007 profits forecast from $35.37 a share to $36.63, and for 2008 from $36.79 to $38.38, following the "positive earnings surprise" posted in the third quarter.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Positive Energy At LSB Industries

Little-known LSB Industries (LXU) is in two businesses—climate control and chemicals—where it vies, respectively, with Trane (TT) and Carrier (UTX) and with Terra (TRA) and Potash (POT). But LSB is also a play in alternative energy, which makes it attractive, says Daniel Mannes of investment firm Avondale Partners. LSB has 38% of the market for geothermal and water-source heat pumps, mainly in commercial buildings. Its geothermal system taps the solar energy stored in the ground and can cut electricity usage by 60%, says Mannes. LSB also supplies fertilizer for corn and other biofuel crops. Mannes rates LSB, which has doubled from 11 a year ago to 22.20, "outperform." He sees it at 30 in a year. David Covas of Oberweis Asset Management, which owns shares, says LSB is a "long-term play on clean energy."

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Where to Get the Goods on China

As China's exports surge, so does Global Sources (GSOL). Relatively unknown on Wall Street, Global is a big provider of verified information on China's major export companies to some 647,000 big importers worldwide, including Wal-Mart (WMT) and France's Carrefour and Casino, a large convenience store operator. Based in Bermuda, Global holds trade shows to get China's suppliers and buyers together. It also runs an online service where it offers information about Chinese products, whose quality it verifies and authenticates. John Ma of Roth Capital Partners, who rates Global a buy, says it is a long-term play on Chinese exports. Global Sources' stock has climbed from 11 in May, 2006, to 33.33 on Dec. 5. Ma sees earnings of 67 cents a share in 2007 and 97 cents in 2008. Jason Brueschke of Citigroup (C) rates Global a buy, with a target of 45. ^

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.


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