The Hunger for Sara Lee
Shares of Sara Lee jumped as much as 8% on Sept. 25, to 11.36, on news that the company's global body care and European detergents businesses would be purchased by Unilever for almost $1.9 billion. The same day, Sara Lee's board authorized a $1 billion share repurchase program, and CEO Brenda Barnes revealed that the company intends to pursue other divestiture options for the remainder of its household businesses in order "to concentrate on our core food and beverage businesses." Barnes noted that this segment of the business, which includes the Ball Park and Jimmy Dean brands, can generate superior shareholder returns. But analysts at BMO Capital Markets are maintaining a price target of 12 since they expect the deal to have a neutral effect on fiscal year 2010 earnings. Their report did note, however, that they "would not be surprised if [Sara Lee] used the proceeds for acquisitions in its core categories." In which case the stock could stand a better chance of re-reaching its 1998 peak of 26.86.
Munis: Room to Run?
The Barclays Capital Municipal Bond Index is closing in on its best quarterly showing in almost 15 years. Through Sept. 29 the index returned 7%. Investors have taken note, and muni fund inflows topped record highs in recent weeks. High demand and below-average supply have pushed muni prices up, and, as a result, yields on AAA-rated munis are near all-time lows. "It's a lot tougher to make the argument for munis today than it was even a month ago," says Hugh McGuirk, head of municipal investments at T. Rowe Price (TROW).
Still, McGuirk thinks munis have room to run. He notes that yields on lower-rated investment-grade munis (AA- to BBB) remain above long-term averages. And the Build America Bond program, which gives state and local governments a subsidy on taxable bonds issued for capital projects, will continue to take supply from traditional munis through 2010. In essence, McGuirk believes that the same amount of demand will chase a smaller supply. The caveat? "When interest rates rise, you will lose money," he says.
Copper prices have soared 90% in 2009, as the metal benefited from massive stockpiling by China and a recovering global economy. But the hot streak may be ending, says Bay Crest Partners' Blaze Tankersley. Chinese imports are down 42% from their June high, and copper inventories jumped 15% in September, the third month of increases.
Copper prices have historically depended on construction to spur demand, but a new building boom is unlikely to emerge soon. "I find the prices almost fundamentally insulting," says Tankersley. He recommends selling copper futures at $275 to $282 a pound—they closed at $272.90 on Sept. 29—and believes they could trade as low as $200 by the end of March 2010. (He made a similar call in August 2008, when he correctly said copper would fall from $300 to $150.) Investors could also short the iPath Dow Jone-UBS Copper SubIndex Total Return exchange-traded note at around 37.70, he says, just above its Sept. 29 close of 37.49.