A Trio of Picks

11/24/2006 12:00 am EST

Focus:

Jon Markman

Editor, Trader's Advantage

Always on the hunt for strategic opportunities that have the potential to bring substantial profits, Jon Markman-in his latest missive to subscribers-recommends three diverse companies poised to benefit from unique events in their niches.

"Mittal Steel (MT NYSE), and its $33.4 billion takeover target Arcelor, recently announced that they expect their merger to be completed by June. The combined company will be the world's largest steelmaker. Unfortunately, there are a few untidy details left to settle. You may remember that during Arcelor's vicious defense against the takeover offer, it acquired Canadian steelmaker Dofasco. German steelmaker ThyssenKrupp attempted to buy the Canadian steelmaker as well, which set off a bidding war.

"After winning, Arcelor locked Dofasco into an independent Netherlands-based trust in an attempt to foil Mittal's takeover plans. Now, this independent Dutch foundation is refusing to sell Dofasco-which Mittal must sell off before the merger can be completed to comply with US antitrust laws-to ThyssenKrupp.

"Mittal, however, has already agreed to sell Dofasco to the Germans. Legal action may ensue. Mittal's spokespeople said the company will be in touch with the U.S. Justice Department. To satisfy the Feds, Mittal may be forced to sell other assets such as a plant in Weirton, West Virginia.

"This outcome could actually be better: Dofasco is a high-quality asset, with low-cost, non-unionized facilities. Shares have slid a bit over the ruckus. Continue to buy MT on dips for my 2008 target of $60 and maintain the protective stop at $38.

"Genco Shipping & Trading (GSTL NASDAQ GS) continues to benefit from an extremely strong dry-bulk shipping market. Not only is continuing economic growth in India and China bolstering shipping rates, but the build-up of infrastructure in the Middle Eastern states around the Persian Gulf is also helping to keep rates firm. In addition, a drought in Australia-a big grain exporter to China-is forcing grain to be shipped in from longer distances. This is limiting the supply of available bulk carriers; moreover, shipyards worldwide are fully booked until 2010, and 30% of the global dry-bulk fleet is over 20 years old.

"40% of Genco's fleet is up for charter renewal over the next six months. Renewals amid this environment should allow the company to lock in high rates, providing better revenue visibility and insulating it from any global economic slowdown. Buy GSTL for my $31 target. Keep the stop at $23.

"Franklin Electric (FELE NASDAQ GS) has moved up nicely. Use this opportunity to buy FELE, our play on the demand for water. My target for late 2007 is $72. Keep the stop at $49.95."

Related Articles on