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Inside Wall Street


Liberty Global: Free from U.S. Woes

Investors spooked by Bear Stearns' (BSC) collapse and the prospect of a protracted U.S. financial crisis can take flight—to opportunities overseas. "It's conceivable that the market may already have baked in the housing debacle and a recession, but it still makes sense to put more money in non-U.S. investments," says John Maloney, president of M&R Capital Management. At the top of his list: Liberty Global (LBTYA), a major cable company operating in Europe, Asia, and Latin America. It provides phone and broadband services, video programming, and Internet access. One big shareholder is cable mogul John Malone, who has a 27% voting stake. Liberty is in a "sweet spot for growth" in the cable market outside the U.S., with limited competition, says Maloney. Operations in Europe account for 71% of Liberty's operating cash flow; Japan, Chile, Australia, and Puerto Rico, 29%. Investors should find Liberty attractive based on its strong free cash-flow growth and modest valuation, says Bryan Kraft of Credit Suisse (CS), who rates it "outperform." He sees cash flow growing 62% this year. Now at 34.92, Liberty (a CS client) should be at 48 in a year, he says. David Kestenbaum of investment firm Morgan Joseph, who rates Liberty a buy, upped his 2008 revenue estimate to $10.12 billion, from a previous $10 billion, vs.2007's $9 billion. He sees 2008 operating earnings of $4.09 billion vs. 2007's $3.56 billion.

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.

Anglo-American Allure

Global mining is where pros like Richard Steinberg have gone for winners outside the U.S. He favors London's Anglo American (AAUK), one of the world's largest diversified miners, which derives operating profits from South Africa (48%), Latin America (39%), Europe (19%), and Australia/Asia (7%). It is in platinum, gold, other metals, coal, and diamonds. The mining industry is consolidating, and Steinberg, president of Steinberg Global Asset management, sees AAUK as a possible takeover target. Part of the attraction, he adds, is its sizable deposits of platinum and ferrous and nonferrous metals. Leo Larkin of Standard & Poor's (MHP), who rates it a buy, says economic growth in China and India is boosting demand for metals, as well as coal. He sees the stock, now at 28.46, climbing to 39 in a year.

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.

Perfect World for Online Games

Online gaming is still on a fast track in China, and a big winner is Perfect World (PWRD), whose stock shot to 37 in October, up from 16 in July. It has since slid to 21.90. The lower price has attracted more investors. Meanwhile profits and revenues keep ramping up, says Tian X. Hou of Pali Capital, who rates Perfect World a buy, with a 12-month target of 46. The Beijing company develops three-dimensional multiplayer online games that have been big hits in China, says Hou, who sees profits leaping to $1.68 a share in 2008 on sales of $189 million and to $2.58 in 2009 on $286 million, up from 93 cents in 2007 on $97 million. It has licensed its games to operators in Japan, Korea, Russia, and Taiwan. Paul Keung of Oppenheimer (OPY), who rates Perfect World outperform, expects to see "promising" new products in 2008.

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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