Tech and Advisory Firms Offer Better Prospects.
The real impact on the CSCO bottomline will only begin in 2010 third quarter but it is mission critical as Cisco Systems rollouts the global infrastructure for IP video, after the Tandberg acquisition and introduction of TelePresence I am reluctant to buy CSCO above 27 (remember the shares have almost doubled since I recommended CSCO as a networking must own in successive columns last summer) as CSCO already trades at 17 times estimated current earnings.
I am certain that the 100 G trials by ATT and Verizon, Google's fibre optics network and TelePresence/CSR-3 suggest that bandwidth growth and next generation network capacity are compelling investment themes for 2010. However, Cisco is not the ideal share to bet on terabit speed core routers, barely fiver per cent of global sales. Note that Juniper Networks (JNPR) has surged from 24 to 31 as most of its revenue derives from high speed packet-optical switching technologies. Yet while I can easily envisage CSCO at 28-30 and JNPR at 30-33, because rises in valuation multiples and share repurchase plans will do their magic, the easy money in both Cisco and Juniper has long been made.
If Huawei provokes a price war on routers and switches, service provider router growth falls and new product launches stumble, a brutal correction in CSCO and JNPR will become C inevitable.
Goldman Sachs might be the most maligned Wall Street investment bank in the world but Obama/Uncle Pauly (Volcker) created a lovely opportunity to pick up the 20 point snapback in Goldman since March. While I admit that GS is usually a high beta, surrogate call on a bullish market view in my routine trading book, it is significant that the catalysts for investment banking profit cycles have now begun to fire on all cylinders: global merger deals, restructuring pipelines, IPO exuberance, narrow corporate/high yield spreads and debt issuance, the Fed on hold on interest rates for an extended period, higher global indices goose asset management/performance fees.
While bid/offer spreads are no longer as wide as a Tata truck and the Chicago VIX (and other asset vols) have plunged since their heights last March suggest Goldman's FICC will not deliver blowout trading revenues, I see no reason why GS cannot deliver $20 EPS for 2010. So Goldman Sachs trades at below 9 times earnings and 1.4 times book value.
This is a cheap valuation metric because Goldman Sachs has historically traded above 2 times book value. I estimate end 2010 book value at $130. I believe Goldman Sachs will gain global market share in the decade ahead thanks to the ghosts of Bear, Lehman, Mother Merrill, Citi, even if the regulatory witch hunt against Wall Street Masters of the Universe escalates in the left wing/populist Obama White House, Congress and Senate.
Goldman Sachs, mark my words, will trade above $200 this summer. Call me a Goldman groupie (since the IPO when Corzine/Paulson ruled the partnership roost!) but I think Goldman trades in a 150-220 range next year.
The world's largest companies in the US, Europe and China have hoarded more than a trillion dollars in cash that has now begun to drive a new global merger and acquisitions (M&A) wave. The pure play on global M&A is the House of Lazard, the merchant banking boutique of the David-Weill clan in Paris transformed into a listed Wall Street investment bank (symbol LAZ) by the late deal maestro Bruce Wasserstein. Lazard shares have fallen from 44 to a recent 37 on investors fears of a dilutive secondary share offering.
Lazard shares are also hit by fears that the family trust of Bruce Wasserstein will sell his shares Several Lazard partners will also sell restricted shares in the open market.
So I expect Lazards (LAZ) to trade lower but probably no lower than 33-35, where Lazard would trade at 13-14 times 2011 EPS of $2.70. With $130 billion AUM and a global icon in M&A/corporate restructuring, Lazard would be a beauty below 34 or a $3 billion C market cap.
Who is the Goldman Sachs of the future, a bank that is publicly traded so can deliver exponential return to the prescient, visionary, hairy chest beating, cynical, jaded, maverick investor? As the legendary oilman J. Paul Getty once observed, the meek may inherit the earth but they rarely inherit its mineral rights, at least not when the project is cancelled. My bet is Evercore Partners (EVR).
Evercore is a M&A deal advisory boutique Evercore's founder and CEO Roger Altman is a legendary Wall Street merchant banker. Evercore has also bought stakes in a number of asset management and expanded its cook equities/private placement boutique since its IPO four years ago. Evercore traded as high as 25-30 times earning during the credit bubble in 2006 -- 2007 and as low at 6X earnings in 2009.
Evercore shares have more than tripled from 10 to 32 and now trade at 15 times earnings. Altman aggressively recruits managing directors from the Wall Street bulge bracket firms, each with a $10 million revenue target and has won many trophy mandates in TMT deals. Unlike Lazard, the asset management business is neither critical mass nor profitable, so Evercore is definitely a boutique M&A deal making play.
However, as the M&A cycle matures, Evercore could trade as high at 40. For now, I would only be a buyer below 18 times 2010 EPS estimates of $1.5. This means new money will regret going long on EVR anywhere above 25. Patience, alas, is an undervalued virtue in investing.
(Views expressed by the author are his own and do not reflect the newspaper's policy)
Copyright 2009 Khaleej Times. All Rights Reserved.
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|Publication:||Khaleej Times (Dubai, United Arab Emirates)|
|Date:||Mar 17, 2010|
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