Welcome to the major leagues of debt. Collateralized debt obligations, almost always referred to as a CDOs, are horrendously complicated deals that often leave anyone without a MBA wondering what was put into these CDOs.

The first thing to understand about bonds, (aka debt) is that bonds are often backed by something else. Think about your home mortgage. If you don't pay your mortgage, the bank can take the house. You end up homeless, and the bank sells the house to pay off the rest of that mortgage. There is something "backing" that mortgage; something lender can fall back on, if you don't pay your bills like a good human being. That's called collateral.

CDOs are one flavor of an entire sector of investing called structured finance, and they are also backed. CDOs, in the simplest concept, are just bonds backed by something else. In most cases, a CDO is backed by a collection of various types of debt. CDOs can be home mortgages, or other types of debt like credit cards, auto loans, and personal loans. Most of these types of debt are usually considered a bit more risky and they don't have the backing that a home loan does. So, if you think it through, you can imagine that CDOs are usually considered a risky investment.

To take a step further, understand that CDOs have multiple flavors within each CDO. These flavors are called tranches. If you've taken French, you might recognize the word, it means "slice" or "portion." Each slice of that CDO you invest in is a little different and carries different amounts of risk.

You could invest in the lowest risk tranche of the CDO, which would provide you lower risk. But, you don't get a good return on that investment. Or, you can be the heroic adventurer of bonds and invest in the lowest-grade tranche of the CDO. You'll make an amazing return, but if the economy even looks at you wrong, you might lose the entire investment.

CDOs aren¿t easy, and are almost always invested in by mutual funds, insurance companies and hedge funds. As an individual investor, you will probably not come across a CDO you can participate in.

Home / Markets / Industries / Industrials

Thursday, July 03, 2008

Zacks Analyst Blog Highlights: Philip Morris, Altria Group, Houston Wire, NL Industries and Grupo Aeroportuario.

Email this Story | Respond to Editor | Print

Comtex

CHICAGO, Jul 03, 2008 (BUSINESS WIRE) ----Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Philip Morris International, Inc. (NYSE: PM), Altria Group Inc. (NYSE: MO), Houston Wire & Cable Company (Nasdaq: HWCC), NL Industries Inc (NYSE: NL) and Grupo Aeroportuario del Sureste, S.A. de C.V. (NYSE: ASR).

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=4579

Here are highlights from Wednesday's Analyst Blog:

Risks for Philip Morris Continue

Philip Morris International, Inc. (NYSE: PM) has a history of strong operating and financial performance. The management has a credible strategy of growing EPS in the range of 10% to 12% and returning a substantial portion of the company's cash flow to shareholders.

The stock of Philip Morris International has only been trading since the end of March. Having followed the tobacco industry for two decades, PMI's stock should trade at a slight premium to Altria Group Inc. (NYSE: MO), which has traded in a P/E multiple range of 6 to 18 over the last 10 years.

The stocks of tobacco companies have maintained a low P/E due to tobacco-related litigation issues and have been pressured down to a single-digit P/E during times of court case losses and of excise tax increases. We expect PMI's stock to trade in a P/E multiple range of 10 to 17. The target price of $54 is 16.5 times our year-end 2008 earnings estimate of $3.27.

Houston Wire & Cable Discounted

Houston Wire & Cable Company (Nasdaq: HWCC) reported first quarter EPS of $0.37, above our estimate of $0.33 and the year-ago level of $0.35, due to the impact of share repurchases. Sales continue to grow from HWCC's continuous penetration in its target markets in the Utility, Infrastructure and Industrial Sectors.

Given its investment in expanding the sales force, the private label business and the penetration of three key end markets off a smaller sales base than its peers, we believe HWCC can grow faster than the industry. In the near term, though, we expect the 2008 sales growth rate to decelerate compared to 2007 and the company's long-term growth rate in light of a weaker U.S. economy. Our price target is $21.00, based on about 12.4x our 2008 EPS estimate.

NL Industries with Some Concerns

Stronger volumes for TiO2 with a superior technology process, along with new products and pricing power in the component products business drive our positive outlook on NL Industries Inc. (NYSE: NL). However, contracting margins in both the TiO2 and components business present a major concern. As a result, we take a neutral view on the stock, and set a six-month target price of $11.00. This is 10.1x our 2008 estimate.

The TiO2 industry is highly competitive. Raw material and energy costs are expected to stay elevated in the near future. Margins are under pressure in the Components business as well. This segment is facing a tough raw material pricing environment, with commodity prices for steel and zinc on the rise.

Cancun Airport Merge Affects ASR

We are reiterating our Hold recommendation on Grupo Aeroportuario del Sureste, S.A. de C.V. (NYSE: ASR). First quarter operating results were better than expected and the outlook for the very short term remained encouraging since passenger traffic continued to increase.

Nevertheless, the continued increase in oil prices, higher inflation and interest rates throughout the world and the difficult economic environment in the U.S. are important sources of concern. Finally, the stock's valuation is not particularly attractive.

Want more from Zacks Equity Research? Subscribe to the free Profit from the Pros newsletter: http://at.zacks.com/?id=2649.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=2677

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=4580.

Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

SOURCE: Zacks.com

Zacks.com Mark Vickery Web Content Editor 312-265-9380
   Visit: www.zacks.com

Copyright Business Wire 2008 **********************************************************************
   As of Sunday, 06-29-2008 23:59, the latest Comtex SmarTrend� Alert, an automated pattern recognition system, indicated a DOWNTREND
   on 04-29-2008 for ASR @ $57.07. As of Sunday, 06-29-2008 23:59, the latest Comtex SmarTrend Alert, an automated pattern recognition
   system, indicated a DOWNTREND on 03-17-2008 for MO @ $70.34. As of Sunday, 06-29-2008 23:59, the latest Comtex SmarTrend Alert,
   an automated pattern recognition system, indicated an UPTREND on 08-08-2007 for NL @ $11.27. For more information on SmarTrend,
   contact your market data provider or go to www.mysmartrend.com SmarTrend is a registered trademark of Comtex News Network,
   Inc. Copyright � 2004-2008 Comtex News Network, Inc. All rights reserved.