Do It Yourself

It’s a big world out there–49,000 stocks trade on overseas markets. You can throw up your hands and have a mutual fund do the picking for you. Or you can be your own portfolio manager. Over the next four pages we provide a jumping-off point for your search. These are 125 foreign stocks that are cheap by at least one of three different classic measures.

Despite the rally in most bourses over the past year, stocks are less expensive than they were five years ago. Since mid-1999 the U.S. and Japanese markets and the Morgan Stanley Capital International EAFE Index of European and Asian stocks are all off between 13% and 22%. Five years ago the average Japanese stock was going for 45 times estimated profits for that fiscal year. Now it costs a mere 16 times expected earnings. A handful of dicier markets have done very well since 1999; both Turkey and Russia would have better than tripled your money in dollar terms.

Full story at Forbes.com

Pentagon: Rough RFID Ride Ahead?

WASHINGTON, D.C. – It’s always a little nerve-wracking when big businesses or government bureaucracies wager on a new technology, especially when the technology in question involves the fate of thousands of suppliers and billions in inventory. So Wal-Mart Stores and the U.S. Department of Defense have no doubt rattled some with their embrace of radio frequency identification, or RFID, as the next big thing for managing their supply chains. Both outfits have deadlines this coming January for significant RFID rollouts.

But between the two RFID efforts, which will likely prove more challenging for the organization and its suppliers? That’s an easy one: the Pentagon’s. “Their needs are probably the most robust and exhaustive of anyone, way more than whatever Wal-Mart is thinking,” says Ann Grackin, chief executive at ChainLink Research, a Cambridge, Mass.-based logistics consultant that advises both the U.S. military and its contractors.

Some background on RFID: The technology, around since the 1940s, is the same used for automated highway toll collection and key chain devices to open car doors. For years, RFID has been touted as the successor to bar codes as the best way to keep track of merchandise. Tagged with RFID chips, boxes and cases of merchandise will automatically transmit information from embedded RFID chips to “readers” throughout the distribution process. The promise: less work and better-stocked shelves–or better-equipped soldiers.

In mid-2003, Wal-Mart upped the RFID ante by asking its top 100 suppliers to put tags on cases destined for Wal-Mart and Sam’s Club stores in the Dallas/Fort Worth area by January 2005. By 2006, Wal-Mart expects all its suppliers to be on board with RFID.

The Pentagon, which had already had success with RFID in certain war zones, announced in October 2003 that its suppliers, save those in “bulk commodities,” would have to have RFID tags on cases by January 2005. About 40,000 vendors do regular business with the military.

So what makes the Defense Department’s RFID initiative tougher? Beyond the security difficulties inherent in dealing with combat operations, Grackin points out some unevenness in the military’s facilities; it has some of the best warehouses and depots in the world but also some of the worst. That’s not the case with Wal-Mart.

Full story at Forbes.com

Airline Stocks: Taking A Flyer

According to the Air Transport Association, the U.S. airline industry group, each $1 rise in the price of a barrel of oil costs American carriers $425 million per year. So it’s little wonder that investors have been ditching their airline shares lately. Year-over-year, airline stocks in the S&P 500 are down 11 percentage points, versus a gain of 16 points for the broader index.

In the stock market, however, sometimes it pays to run in the opposite direction of the stampede. “Nobody wants to own the [airline] industry,” says John Escario, manager of the Rydex Transportation Fund. “If you’re a contrarian, that’s probably the best time to start looking at it.”

The airline industry does show a few signs of coming out of the clouds, especially if you believe that the economic recovery can be sustained. Through May, revenue passenger miles (RPMs)–a measure of demand equaling the total number of passengers carried times the number of miles flown–is up 12 percentage points versus the same period last year. And oil prices have dipped below the $40 level of a few weeks ago.

Full story at Forbes.com

If The FBI Probes A Company, Do You Sell?

Certain events invite contrarian calls on stocks: a war breaking out, a chief executive being named Time magazine’s Person of the Year, and so on. But what about when your favorite stock gets knocked by a government investigation? Buying might not be such a bad idea. Consider the case of ITT Educational Services

In February, ITT Educational Services revealed that the FBI and other federal agents, searching at the company’s Indianapolis headquarters and at several school locations, had seized information relating to the firm’s placement and retention figures, graduation rates, grades, admissions and salaries of graduates.

ITT’s share price, at the time not far from a 52-week high of $61, promptly sunk to below $30. The stock–despite subsequent announcements of an SEC investigation, shareholder lawsuits, and other woes–has recovered to a recent $43. But the company, in Value Line’s words, remains “under a cloud of suspicion.” On Wall Street, 12 of 17 analysts tracked by Thomson First Call rate the stock a “hold” or a “sell.”

To get the contrarian take, we checked in last week with one of the five bulls on the stock, Richard Close, an analyst in Nashville with Jeffries. “I don’t think these guys were doing something to intentionally defraud the government,” he says.

Full story at Forbes.com

Picking Stocks By Committee

As chief U.S. investment strategist at Toronto-based CIBC World Markets, the investment banking and brokerage arm of one of Canada’s largest financial services firms, it’s up to Subodh Kumar to divine the market’s direction and which sectors are likely to lead the way. Also among his duties: boiling down hundreds of stock recommendations from the 100 equity analysts employed by CIBC into a more manageable list of 50 or so top picks.

Kumar doesn’t do the latter job alone. He is joined by five colleagues on a committee that meets each month to manage a list known as the Special Research Series, or SRS. Its mission is to identify timely, undervalued investment ideas from among the stocks rated “sector outperform” by CIBC analysts.

Full story at Forbes.com

Is Customs’ ACE In The Hole?

WASHINGTON, D.C. – Central Intelligence Agency Director George Tenet shocked a lot of folks when he told the 9/11 commission recently that it would take another five years to build a truly integrated intelligence operation. Five years sounds like an awfully long time. But if you need an example of why Tenet, sadly, probably has the timetable right, take a look at the U.S. Bureau of Customs and Border Protection and its efforts to modernize.

In April 2001, Customs awarded a projected $1.3 billion, five-year contract to bring its technology for processing imports into the Internet era. Today, the new system, known as the Automated Commercial Environment, is up and running–but only partly. ACE’s builders have yet to install a good chunk of its functionality; the project has suffered delays and now is supposed to be completed in 2007.

ACE also has money problems. Congress has appropriated $1.04 billion for the project since 2001, including $306 million for fiscal 2004. A source tells Forbes the latter sum fell about a quarter shy of what was needed.

What’s going on here? The short answer is that creating technology to integrate various government functions means walking into a technological, management and political minefield. No one expected ACE to be easy–the project is a bit like rebuilding a street in midtown Manhattan, a section at a time, without ever stopping the flow of traffic. Customs’ existing setup is a hodgepodge of various trade processing systems, each with its own acronym: the Automated Commercial System, the Automated Export System, the Border Release Advanced Screening and Selectivity, Customs Automated Forms Entry System, Free and Secure Trade and the Pre-Arrival Processing System.

Full story at Forbes.com

Wall Street’s Top Analysts

Who are the best brokerage analysts? We teamed with StarMine, a San Francisco-based research firm, to find out. Based on StarMine’s extensive analysis of 2003 data, we learned which analysts racked up the biggest gains overall and industry by industry. We also found out who the sharpest shooters were for earnings estimates.

Full story at Forbes.com

Making Nice With Big Rail

WASHINGTON, D.C. – No one promised David L. Gunn an easy ride when he took over as Amtrak’s chief executive two years ago. The government-owned passenger railroad, which last year lost $1.3 billion on sales of $2 billion, faced financial and organizational disarray, outspoken enemies on Capitol Hill, and at least a decade’s worth of deferred maintenance projects.

But Gunn–a Harvard Business School graduate who in his career has headed up transit systems in New York City, Philadelphia, Toronto and Washington D.C.–has on the whole earned high marks for his focus on fixing Amtrak’s bookkeeping, thinning its bureaucracy and coming clean with Congress about the railroad’s needs for staying viable. Gunn, 66, seems also to have won the admiration of one of Amtrak’s most important business partners: the freight railroads.

“He has certainly tried very hard to improve relations,” says Thomas White, spokesperson for the Association of American Railroads, the freight industry group. “I think we’re all appreciative of that.” H. Craig Lewis, vice president for corporate affairs with Norfolk Southern, adds that “a lot of people from Amtrak and Norfolk Southern have had a part in improving this relationship, but the single most significant catalyst to it all has been David Gunn.”

Says Gunn: “I would characterize our relationships as pretty good.”

“Pretty good” looks downright remarkable given the evolution of freight and passenger rail in the United States over the last few decades. Amtrak, or the National Railroad Passenger Corporation, was created in 1970 when Congress, looking to save America’s inter-city passenger rail network, gave the big railroads a chance to unload their money-losing passenger operations. To do so, however, the railroads agreed not only to let Amtrak operate anywhere it wanted, but also to give preference to Amtrak trains on their networks.

Full story at Forbes.com

What the Doctor Ordered

Flip through regulatory filings for Onyx Pharmaceuticals and you’ll learn that it develops “innovative therapies targeting the molecular mechanisms that cause cancer.” The tiny Richmond, Calif. biotech hasn’t made a dime selling drugs, and red ink is all that lies immediately in the forecast for its bottom line. Still, its proposed drug to treat kidney, liver and other cancers–by blocking certain biochemical signals controlling tumor cell division and the formation of related blood vessels–looks promising. In the past year Onyx shares have rocketed from $7 to a 52-week high of $38.

Finding moon shots like Onyx, which he started buying when it traded in the teens, occupies a good chunk of Kris Jenner’s time. Jenner is manager of the $1.2 billion T. Rowe Price Health Sciences Fund. His qualifications: a summa cum laude bachelor’s degree in chemistry from the University of Illinois, a doctorate in molecular biology from Oxford University and a medical degree from Johns Hopkins. He also completed four years of a surgical residency at Hopkins, where he learned how to keep cool under pressure. “Nothing generates as much emotion as pulsating blood,” he says, recalling the gunshot and stab wounds that found their way into the Baltimore emergency room where he trained.

Jenner, 42, says that his background gives him a much better chance of success than most investors at prospecting for medical outfits, particularly speculative ones whose fate rides on one innovative product. “The complexity or nuances of that evaluation are quite significant,” he says. His investment fever chart bolsters his case. He took over the Health Sciences Fund in January 2000, after a few years as a biotech analyst. For the four years since, it shows a total return of 2.8% annualized, six percentage points higher than the S&P 500.

Jenner says he rarely uses stock screens to find investment ideas; most of the smaller outfits he goes for are off the charts in terms of traditional measures of value. Even Genentech (nyse: DNA – news – people ), a biotech “blue chip” with earnings, sells for a wild 47 times its cash flow (in the sense of net income plus depreciation).

Instead, Jenner bases his decisions on an assessment of the company’s science, the quality of its management and the commercial prospects for its treatments, as well as its valuation.

Full story (reg. required) at Forbes.com

Railroads Throw Switch On Deficit Tax

WASHINGTON – Two of Congress’ most important items of business are the energy and surface transportation bills. At least one industry has a dog in both fights: the railroads.

Near the top of Big Rail’s wish list for both pieces of legislation is ridding itself of what’s known as the “deficit-reduction fuel tax.” Huh? That might sound a bit ambitious, given that Uncle Sam’s spending this year is expected to exceed revenue by some $477 billion. But industry lobbyists argue, with some justification, that it’s an unfair tax. Provisions to eliminate it are in both bills.

Repeal “has very strong support from both the House Ways & Means and Senate Finance committees,” says Jennifer Macdonald, director of government affairs for the Association of American Railroads (AAR).

The deficit-reduction fuel tax, 4.3 cents per gallon, was enacted in 1990 when the federal government’s accounts were $124 billion in the red. Railroads and trucking companies paid the tax initially, followed by inland barges in 1993 and commercial airlines in 1995.

Two years later, however, airlines and truckers managed to get their portion of the levy diverted into airport infrastructure and federal highway trust funds, respectively. In other words, the taxes they pay are used to benefit them. But barges and railroads, which have no such trust funds, continued to pay the deficit tax, even as the federal budget moved into the black in 1999.

Full story at Forbes.com