MARKET TALK: Go Long Canadian Lifecos, Short Banks

MARKET TALK: Go Long Canadian Lifecos, Short Banks


10:06 EDT Wednesday, March 18, 2009

Edited by Paul Vigna
Of DOW JONES NEWSWIRES

MARKET TALK can be found using N/DJMT


10:06 (Dow Jones) Martin Roberge at Dundee Securities has an idea for a pair trade based on valuation: go long Canadian life-insurance companies and short Canadian banks. Lifecos have deeply underperformed banks, he notes, and are trading at a 30% discount on a P/BV basis. Also, in a historic first, lifeco dividend yields are above those of banks. Meanwhile, Canadian banks have rallied back to their 100-day moving average, while lifecos are still 19% below theirs. "If our view of an 'above-average' bear-market rally materializes, lifecos have more room or torque on the upside," he says. (MAG)

9:59 (Dow Jones) BMO Capital Markets starts coverage of Canada's Biovail (BVF) at market perform, saying new management has made "solid progress" in turning the company around. However, the stock is up 70% from its recent lows and a lot of the hard work remains ahead. "Additional licensing should occur, but we need to better recognize the asset and price paid to gain more enthusiasm," firm says. In New York, BVF up 1.3% at $11.98. (AMG)

9:49 (Dow Jones) Eli Lilly's (LLY) anti-clotting drug Effient is on track for a 2Q launch, Citigroup says, and it should command a premium price over Bristol- Myer's (BMY) Plavix due to an apparent lower chance of stent blood clots versus Plavix. Citigroup says Effient's progress is a leading indicator for LLY stock and upgrades it to buy from hold - firm expects Effient to be priced at $5 to $ 5.15/day and to contribute $2B in risk adjusted global sales by 2015. Firm raises LLY's target price to $41 from $36. LLY up 2.3% to $32.47. (EBW)

9:43 (Dow Jones) Meritage (MTH) is well positioned to weather the current downturn and emerge stronger, UBS says, citing liquidity, asset-light operating strategy and geographic exposure, especially in Texas. MTH expects to generate free cash flow this year, enhancing financial flexibility and allowing it to take advantage of the growing number of opportunities to acquire distressed lots at attractive prices. MTH down 2.8% at $11.20. (DWH)

9:39 (Dow Jones) Bringing Sun Microsystems (JAVA) under the IBM umbrella would be a challenge, analyst Shannon Cross of Cross Research says. "Sun is undergoing a significant restructuring and you are going to have to finish that restucturing and then likely do some pretty significant cuts as well," Cross says. She compares the integration of JAVA into IBM to the deal between H-P ( HPQ) and Compaq, in that the JAVA acquisition means meshing many similar product lines, such as servers. JAVA up 64% to $8.16; IBM down 2.2% to $90.84. (JDC)

9:34 (Dow Jones) Merck (MRK) CEO Richard Clark says drug maker hasn't made final decision on what will become of its 50% stake in animal-health joint venture with Sanofi (SNY), in light of planned acquisition of Schering-Plough ( SGP), which has its own animal-health assets. He tells Cowen conference that based on early discussions with SNY, there was "misunderstanding" in recent media report that MRK might sell its stake to SNY. (PDL)

9:31 (Dow Jones) Warren Buffett is "is known for piquant and unsparing criticism of his own performance, as well as the institutional flaws of Wall Street," says New York Times' DealBook. "But on the subject of the conflict of interest built into the rating agencies' business model, Mr. Buffett has been uncharacteristically silent - even though that conflict is especially glaring in his case because one of the companies that Moody's rates is Berkshire." Buffett owns a stake of roughly 20% in Moody's, parent of one of the three rating agencies that grade debt issued by corporations and banks looking to raise money, blog notes. (KNN) (http://dealbook.blogs.nytimes.com/2009/03/18/buffett- is-unusually-silent-on-rating-agencies/)

9:28 (Dow Jones) Thomas Weisel raises Leap Wireless (LEAP) to overweight from market weight, noting prepaid wireless carriers appear to be prime beneficiaries of the severe economic conditions. Firm says LEAP has forecast continued growth and appears on track with the successful launches in the Chicago and Philadelphia markets. LEAP's flexpay programs exhibit solid prepaid net additions, attracting customers drawn to the affordability of the plans and the short contracts. LEAP up 1% premarket at $35.49. (AMC)

9:22 (Dow Jones) Credit Suisse notes General Mills' (GIS) adjusted 3Q EPS of 79c was below its expectation of 85c and below consensus of 88c. The company raising fiscal-year forecast is a positive sign, firm says, even if it is still below consensus. The company's US retail results were not bad, relative to peers, firm says. The problem, firm says, was in the "volatile" bakeries and foodservice divisions. GIS down 6.9% premarket at $49.95. (AAC)

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(END) Dow Jones Newswires
03-18-09 1006ET
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