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Inside Wall Street


Nike: Set for Two Great Leaps

Although Nike (NKE) is already one of the best-known brands in the world, the No.1 athletic shoe and apparel maker constantly spends a lot of effort and money on brand-building. The Summer Olympics in Beijing and the European Football Championship are the next events where Nike is expected to boost its image—and its sales and earnings. Nike is "gearing up for significant product exposure in Beijing and in Europe, two of the largest campaigns in Nike's history," says Richard Helm, portfolio manager of Cohen & Steers Dividend Value Fund (DVFIX), which owns shares. Already, Nike's sales in China in the past 12 months have jumped ahead of expectations, to $1 billion. China is still a small market in Nike's book, but it's the fastest-growing, notes Helm. In past Olympics and major soccer games, Nike's stock invariably sprinted higher after the events. Even in the market's current malaise, Nike's shares have done well, now trading at 67.97, up from 55 in mid-January. Overseas markets account for 57% of sales. "We continue to recommend Nike based on its overall growth in non-U.S. markets, where growth is running strong," says Brad Cragin of Goldman Sachs (GS). But U.S. growth at Nike, a client, in the third quarter was what impressed him the most. Cragin has raised his price target to 71 from 67 six months ago, based on earnings estimates of $4.02 a share in 2009 vs. $3.70 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.

A Heavy Hitter in Heavy Industry

Over the years, SPX (SPW) transformed itself through acquisitions into a global multi-industry manufacturer—and it has paid off handsomely. SPX's profit in 2004 was 30 cents a share. By 2007, earnings had climbed to $4.98, and in 2008, they may reach $6.50. The stock has soared to 107.79 from 68 a year ago and could hit 120 this year, says Nicholas Heymann of investment firm Sterne Agee. He sees SPX earning $8.10 a share in 2009. Some 50% of sales are non-U.S., and 51% of its products cater to the infrastructure market. SPX's industrial products include power transformers, aerospace components, heating and cooling systems, pumps, and valves. Erik Antonson of Value Line (VALU) says the need for power and infrastructure in markets like China will continue to spur business and boost profits.

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.

Greener Pastures for Walgreen?

Walgreen (WAG) is branching out beyond the drugstore business, where it is the No.2 U.S. chain, with more than 6,000 outlets in 48 states. Walgreen, now at 38.11 a share, is following leader CVS Caremark (CVS) by buying two companies that provide health-care services. Some investors are wary of Walgreen's move, but Mark Wiltamuth of Morgan Stanley (MS) favors it. He sees it as a push into services complementary to drugstores. They are "a new growth avenue," he says. The acquired companies provide employer health clinics and pharmacy services for 160 clients at 300 worksites. Edwin Walczak of Vontobel Asset Management, which owns shares, says Walgreen's real estate properties aren't reflected in its stock, which he sees at 55 in a year. He expects earnings of $2.20 a share in 2008 and $2.56 in 2009, vs 2007's $2.03.

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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