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Inside Wall Street


Noble's Oil Rigs Are Running Flat OutWith all the clamor to "drill, drill, drill," you'd think rig operators would be the darlings of investors. Not quite. Shares of drillers, particularly those operating offshore, such as Noble (NE), have been slammed along with Big Oil as crude prices have eased. "It makes no sense, as global demand for offshore drilling services and day rates for equipment use are on the rise," says Scott Black, president of investment firm Delphi Management. He says Noble's stock decline—to 45.90 on Sept. 3, down from a 52-week high of 67.98 on June 9—makes the stock among the most undervalued in the oil patch, based on his earnings forecast of $5.85 a share in 2008 and $7.25 in 2009. Black, who owns stock, figures Noble is worth 70.

Noble is operating at near-full capacity, having signed long-term contracts as demand for rigs continues to exceed supply. Noble's diversified fleet of 62 deepwater and shallow drilling rigs is mainly in the Middle East (25%), with less than 15% in any other single region. Its deepwater rigs in the Gulf of Mexico were not damaged by Hurricane Gustav. Stewart Glickman of Standard & Poor's (MHP), which has a strong buy rating, says Noble is a "solid play on growing demand for drilling equipment," with a strong presence in Brazil, Mexico, West Africa, Europe, and the Middle East. In 2009, he sees shallow-water rigs accounting for 60% of sales, and deepwater floaters and drill ships 40%.

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.Diagnosis by DNAUnlike most biotechs, tiny CombiMatrix (CBMX) is on the rise. What's behind the stock's climb to 16.03 on Sept. 3, up from 4.50 a year ago? The company is in a hot sector: DNA diagnostics. It develops DNA microarrays—chips that let labs analyze many genes at once. Dr. Ryan Robetorye, director of molecular diagnostics at the University of Texas in San Antonio, says the chips help analyze tumor genomes to determine whether a patient with, say, chronic lymphocytic leukemia needs a more aggressive treament.

CEO Amit Kumar reports second-quarter sales jumped 55%, to $2.1 million. Raymond Myers of investment firm Emerging Growth Equities says Combi's genetic diagnostics let doctors "characterize patients' susceptibility to disease and offer personalized prognosis [for] treatment." He puts the market for the tests at $1 billion. He rates the stock a buy.

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.Wyndham, a Busy InnkeeperDespite the economic slump and sluggish consumer spending, Wyndham Worldwide (WYN), one of the world's largest lodging companies, is doing well. But not so its shares, down to 19.72 on Sept.3 from 33.80 in July 2007. Based on the sum of its parts, Wyndham is way undervalued, says Robert LaFleur of investment firm Susquehanna, who rates it "positive," with a 12-month target of 30.

He puts the value of Wyndham's three units—time shares, hotels such as Ramada and Days Inn, and vacation exchanges and rentals—at 33 a share. LaFleur's valuation is based on comparisons with others in its peer group.

Wyndham posted a surprisingly strong second quarter, according to Value Line's (VALU) Dominic Silva, who notes that overseas expansion will help offset U.S. weakness and will support earnings growth through 2011-13.

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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