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Inside Wall Street


Sempra Keeps the Power On

Utilities are not usually considered growth stocks, but Sempra Energy (SRE) is turning out to be one. "This utility has lined up new sources of earnings through 2012, which would provide a diversified earnings stream and a stable cash flow," says Christopher Muir of Standard & Poor's (MHP), who rates the stock, now at 54.94, a strong buy with a 12-month target of 70. "It has growth opportunities in all of its businesses," he says.

Sempra's regulated San Diego Gas & Electric has 1.3 million customers, while its Southern California Gas, a distributor, has 6.4 million. One of its unregulated operations--liquefied natural gas terminals in Louisiana and Mexico--will start making money, estimated at $40 million, in 2009, says Muir. This should grow to $150 million or $170 million a year by 2012. And a 50-50 energy-trading venture with Royal Bank of Scotland could add $300 million in profits in 2009, jumping to $475 million by 2012. Earnings from Sempra's gas pipelines and storage facilities in the U.S. and Latin America should grow from $64 million in 2007 to $170 million in 2012. Chief Financial Officer Mark Snell says the unregulated operations account for 55% to 60% of earnings. Elvira Scotto of Bank of America (BAC), who rates the stock a buy, favors Sempra's "transparent long-term growth potential and its reduced risk profile" through the formation of the venture with Royal Bank of Scotland.

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.

Western Digital, A Tech Standout?

In this bearish market, tech stocks have taken it on the chin like everything else. Western Digital (WDC), which had more than doubled, to 40 on June 5, up from 18 last August, wasn't spared: It sank to 32.10 by July 16. But some see the drop as a chance to buy additional shares of WDC, a major maker of hard-disk drives for desktop PCs and video recording devices.

"Based on its ability to beat expectations, we think WDC will earn $4.50 a share for fiscal 2009 ending June 30 [vs. consensus estimates of $4.18], and we expect its stock to rise to 43 a share in 12 months, then climb to 58 longer term," says Terry Morris, senior equity manager at National Penn Investors Trust. Faster-growing Asia accounts for 35% of sales, and the U.S. 34%. Doug Reid of Thomas Weisel Partners (TWPG), who rates WDC overweight, says its "long-term competitive position remains strong."

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.

How Acacia Polices Patents

Tiny Acacia Research-Technologies (ACTG) teams up with small tech outfits and takes a license on their patented technologies. Then Acacia goes after companies it believes have infringed those patents. Several titans--Apple (AAPL), Verizon (VZ), and Siemens (SI)—had Acacia come after them, and they wound up paying fees. In Apple's case, Acacia issued it two tech licenses, and Verizon Wireless took a license on a process that synchronizes addresses between wireless network devices, says Acacia Chairman Paul Ryan.

"Acacia [a client] is in the early stages of monetizing its patent assets," notes Bennett Notman of investment firm Davenport, which owns shares. He rates the stock, now at 4.69, a strong buy, with a 12-month target of 15. He sees profits of 20 cents a share in 2008 and 50 cents in 2009, vs. 14 cents in 2007. Researcher ValuEngine agrees Acacia is undervalued and should be trading at 11.39.

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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