More on Idearc

IAR got absolutely crushed this week. It went from $6.91 to $4.82, which is well below the $15 price I bought them at in December and much much further below the mid 30s they traded at last summer.

It didn't help that their new CEO, one week on the job, had to resign because of health. And then a major competitor, RHD absolutely imploded this week going from $17.48 to $7.09 on subpar earnings and suspension of their dividend (R.H. Donnelley Delivers Strong 2007 Results and Exceeds Free Cash Flow Guidance).

But I still think the market has way over-reacted to IARs problems. Is there risk? Yes. Is there a reasonable chance of a 100% return in the next 12 months? Yes. Barron's had a great lead story today on companies with heavy debt and suggested there may be some gold in the hills to mine. Listen to what they said:

Idearc: Any stock trading with a P/E ratio of two and a dividend yield of 25% is worth a closer look. Verizon Communications spun off its yellow-pages business as Idearc to its shareholders in 2006 rather than sell to private-equity buyers. Because it viewed the yellow pages as a stable business, Verizon put $9 billion of debt on Idearc, effectively creating a public LBO. That debt is proving a millstone amid a sudden weakening in phone-directory industry trends. The company's CEO resigned for health reasons last week, just a week into the job. Idearc's shares, which hit $38 last spring, now fetch under $5, valuing the company at less than $1 billion. At issue is whether recent troubles merely reflect a weak economy or a permanent shift by advertisers away from print directories. Despite its heavy debt, Idearc isn't going away anytime soon. This year's cash flow is expected to cover interest payments by a factor of two to one. Even with revenue declines in 2008, Idearc should have ample earnings to pay the annual $1.37 dividend. If revenue declines persist, Idearc could cut the dividend in order to focus on debt repayment. With its stock down 75% this year, Idearc could surge on any signs its business is stabilizing. No Safer Choice: Rival R.H. Donnelley (RHD) also has a lot of debt and similar business problems.

I found that very interesting. I did buy two new stocks on Friday: HBMFF and BVF. I also have decided to hold PACR for another year and bought shares to get me to my target holdings. I think the next stocks on my shopping list are DELL and HIRE. I am typing on my new Dell laptop, I think they have really improved their products. HIRE has been just pummeled and interestingly lists CPS (just bought by EFX) as a competitor in screening.

While it wasn't a great week, a bad Friday and I had my travails with IAR... my portfolio actually held up well. Not to say I am ecstatic, but it no longer seems the world is ending. I was really helped by spikes in my HR stocks such as HSII and KFY. I think they'll be placing lots of executives as IAR is showing and then TRID also had their president resign (Trident Microsystems' stock down after president resigns).

I had bought HURC at $35, so I got to enjoy their surge, thought they were not part of my MFI portfolio.

Good luck everyone.