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Inside Wall Street


ProLogis: A Rosy Real Estate Story

Owning, managing, and renting out warehouses and distribution facilities is a sector of the real estate business that has avoided getting pulled down by the protracted housing debacle. Continued growth at real estate investment trust ProLogis (PLD), the world's leader in that business, with $38.8 billion in assets in 2,817 properties worldwide, reflects an upsurge in spite of the U.S. economic slowdown. "Expanding global trade levels will contribute to a rise in demand for PLD's properties," says Robert McMillan of Standard & Poor's (MHP), who rates the stock a buy. He sees the shares, now at 62.61, at 72 in a year. "Our solid financial and operating results in the first quarter were mostly driven by our global exposure at a time of increased uncertainty in the U.S.," says ProLogis CEO Jeffrey Schwartz. The rise in global demand has led Schwartz to form 50-50 joint ventures overseas—in China, India, Japan, Europe, and the Middle East. In five major cities in China, ProLogis operates warehouses leased to such companies as Best Buy (BBY), Fiat (FIA), and Nokia (NOK). Its $1 billion ProLogis Middle East joint venture will acquire properties in Bahrain, Kuwait, Oman, Qatar, and Saudi Arabia. The joint ventures are letting the company grow very fast, says James Feldman of UBS (UBS), who rates the stock a buy. He sees ProLogis earnings of $3.11 a share in 2008, $3.34 in 2009, and $3.65 in 2010.

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.

Nabors Industries Is Full of Energy

With oil prices hovering near $118 a barrel, are energy stocks peaking? Hardly. In fact, the oil sector's price-earnings ratio since the end of 2000 has dropped by 50% despite a 390% leap in earnings, says Morgan Stanley's (MS) Abhijit Chakraborti. Over the same period, the p-e for the S&P 500 (excluding energy) fell just 10%. This indicates the market doesn't believe energy companies can keep up their strong profit growth, Chakraborti says. But it also means, says oil price bull Steve Leeb of Leeb Capital Management, that oil stocks are a bargain. His top choice: Nabors Industries (NBR), the world's largest land oil driller, which operates in North America, Africa, Latin America, and the Middle East. He sees the stock, now at 37.54, at 75 in 18 months. Kevin Pollard of JPMorgan Chase (JPM) also rates it a buy.

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.

Organic Growth at Whole Foods

Pressure on profit margins at Whole Foods Market (WFMI) has driven its stock to 32.64plus or minus—near its March low of 29.99—down from 53 last October. Its purchase of organic-food retailer Wild Oats Markets in 2007 and new-store openings jacked up costs. But some analysts see sales jumping 28% in the year ending Sept. 30, to $8.5 billion. Sales growth in the "U.S. natural and organic food industry remains strong," notes Mark Miller of investment firm William Blair, who rates the stock outperform. Edward Aaron of RBC Capital Markets also tags Whole Foods outperform, based on its "superior growth prospects." He sees potential for an upturn as the company integrates Wild Oats, which runs 109 stores in 23 states, into its operations. "High-quality management" and stable cash-flow generation are positives, Miller adds.

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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