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Inside Wall Street


Oxy Still Has Plenty of GasWith crude oil prices continuing to soar, the play on energy stocks is far from over. The critical issue is knowing which oil companies remain undervalued. Few still are, but Occidental Petroleum (OXY) is one that smart-money investors regard as underpriced and underplayed. True, it has vaulted from 70 on Jan. 31 to 93.12 on May 28, but the stock has the potential to hit 145 in three years, says Terry Morris, senior equity manager at National Penn Investors Trust, which owns shares.OXY hit 100 on May 21, partly because of a 50% jump in first-quarter profits. Based on average yearly earnings growth of 12%, a lofty return on total capital of 24% (with no debt), and an estimated 2008 price-earnings ratio of just 11, "OXY is more reasonably valued than ExxonMobil (XOM) or Chevron (CVX)," says Morris. The oil-and-gas producer operates mainly in the U.S. but also drills in Colombia, Ecuador, Qatar, and Yemen. Libya, after 20 years of isolation, in December started offering gas exploration contracts to foreign outfits, including OXY. Libyas natural gas output is 124 billion cu. ft. a year, with a goal to double that by 2013. Of 19 analysts who track OXY, 12 rate it a buy. "For the coming 6 to 12 months, the stock is ranked to outperform the broader market averages," says Frederick Harris III of Value Line. And "we are upbeat about its three-to-five-year prospects."

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.Ready to Build Up at NCIOn Mar. 4, when NCI Building Systems (NCS) cut its 2008 profit forecast, the stock got slammed, diving to 23 from 29 that day. It was at 52 a year ago. Some, however, see a buying opportunity in the shares of this maker of such products as metal roof and wall systems for nonresidential buildings. They note that some of NCI's markets, such as mining, energy, agriculture, and infrastructure industries, are strong.

Arnold Ursaner of CJS Securities raised his second-quarter profit forecast to 40 cents from 30 cents a share, as he expects those sectors to remain robust. There is also speculation NCI could be takeover bait. John Diffendal of BB&T Capital Markets, who rates NCI a buy, expects a doubling of earnings before interest, taxes, depreciation, and amortization in five years, despite the housing malaise. Diffendal sees the stock, now at 30.81, rising to 37 in 12 months.

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.

Why PPL Could Shine with SolarPPL (PPL), a stodgy electric utility that provides power to customers in the U.S. and Britain, has branched out to what investors regard as a sexier business: solar energy. It will install the largest U.S. rooftop solar system at a Schering-Plough facility in Summit, N.J. PPL's Renewable Energy unit will own and operate the system. The solar operation will help Schering-Plough (SGP) cut greenhouse gas emissions by 5% by 2012, says PPL Chairman and CEO James Miller. "We will continue investing in renewable energy projects in New Jersey and other states," he adds.

Neil Kalton of Wachovia Capital Markets (WB), who rates PPL outperform, says the company will benefit from high oil prices and more stringent carbon emission restrictions. Jonathan Arnold of Merrill Lynch (MER) rates PPL, now trading at 49.35, a buy, with a 12-month target of 60.

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.

Marcial writes the Inside Wall Street column for BusinessWeek. In 2008, FT Press published the book Gene Marcial's 7 Commandments of Stock Investing.


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