A transportation analyst with J.P. Morgan Chase, Jill Evans follows weekly railcar loadings. Lately, she likes what she sees. “Metal shipments were up by double digits in the past three weeks,” she says, “That hasn’t happened in years.”

Evans suggests this uptick in activity bodes well for railroads, as increased shipments will dovetail nicely with the railroads’ efforts to improve pricing. The rails will also benefit, says Evans, from the productivity gains resulting from the heavy merger activity of the late ’90s.

Better still, costs related to those mergers, such as spending on new terminals and connecting lines, have eased off. “The huge swing from negative to positive cash flow is coming back to the shareholders in the form of debt reduction and share buyback programs,” Evans explains.

Signs of an economic rebound have kept investors interested in rail companies since last summer. Over the past 12 months, railroad stocks in the S&P 500 have gained 2%, versus a drop of 25% for the overall index.

Full story at Forbes.com

Wall Street has taken BellSouth’s stock to the shed lately. Since topping out at $43 in September, shares of the Atlanta-headquartered Baby Bell have lost nearly half their value.

Insider activity, however, tells a less grim tale. Over the past six months, insiders have scooped up 10,000 BellSouth shares. Amount of insider selling: none.

That’s a drop in the bucket–BellSouth has nearly 1.9 billion shares outstanding–but it’s an encouraging sign. Contrast that to another Baby Bell, SBC Communications, where insiders have also bought 10,000 shares but dumped 211,000 during the same period.

Of course, the motives for insider selling aren’t always ominous–an insider may be financing a kid’s college education or building a new house. Still, a predominance of insider buying is at the very least reassuring, if not a positive reflection of the company’s outlook.

Moreover, net insider buying often signals an undervalued stock. BellSouth, for example, goes for 1.8 times latest 12-month sales versus a five-year average price-to-sales (PSR) multiple of 3.3. And BellSouth shares sell for just ten times projected 2003 earnings.

Full story at Forbes.com

Oakmark Funds, a chicago-based unit of Harris Associates that oversees $15 billion in assets, calls value investing its cornerstone. With the Nasdaq down 70% from its March 2000 high, the technology sector has drawn Oakmark’s attention. On its shopping list: Israeli stocks carried on U.S. exchanges.

Why look for a stock pick from a place like the Middle East? Robert Taylor, an investment analyst with Oakmark’s $1.5 billion (assets) International Fund, points to as good a reason as any: low taxes. Under Israel’s “approved enterprise” program, Israeli firms spending certain amounts of money locally on research and capital expenditures get their tax bill chopped by up to two-thirds.

Its favorable tax environment helps explain why Israel, a country with a population of just 6.4 million, attracted more venture funding ($3.3 billion) last year than Italy ($2.7 billion), Korea ($1.6 billion)and Taiwan ($1.1 billion), according to PricewaterhouseCoopers.

The tax rate of Check Point Software Technologies, a maker of encryption software for computer networks, is just one example. In its latest fiscal year, ended last December, Check Point’s effective tax rate was 15.6%, up slightly from 14.4% in 2000, but still well under the standard Israeli tax rate of 36%.

Christopher D. Alderson, head of emerging-market equities with T. Rowe Price, likes Check Point’s 95% gross margins and $500 million in cash and equivalents. “That’s pretty extraordinary for a company that’s only been going seven years,” he says.

Full story (reg. required) at Forbes.com

One investing rule of thumb says to look for companies with high returns on equity. The approach is perfectly logical.

Return on equity (ROE), calculated by dividing net income by shareholder equity during a particular period, measures the return that management has produced on the money invested into the business. It makes sense that investors, i.e. shareholders, would seek out companies with healthy double-digit returns on equity.

So, why would anyone consider a company with low ROE? For starters, companies with low ROE may get overlooked or beaten down more than warranted because of their lackluster returns. And, sometimes, a slump in profitability may not be representative of long-term potential.

Take, for example, Andrew Corporation, a maker of cables, antennas, power amplifiers and other equipment for wireless and fixed-line communications. On a latest 12-month basis, return on equity for the Orland, Park, Ill.-based company stands at 9%, down from a three-year average of 11% and a five-year average of 15%.

Given the ongoing drought in capital spending and the ugly overall situation in telecommunications, it’s not difficult to understand why Andrew’s profits have suffered. The market, however, may have treated the stock a bit too harshly. At a recent $13, Andrew shares have fallen 47% since hitting a 52-week high in January.

If investors warm again to wireless stocks, Andrew looks poised to benefit. The company has taken advantage of its healthy balance sheet to make acquisitions and shore up its market position. In early June, the company completed its $470 million acquisition of Celiant, thereby becoming the leading U.S. maker of wireless-signal amplifiers.

To assemble our list of companies with low ROEs but promising prospects, we screened for companies with the following characteristics: ROE in the single digits and below their three-year and five-year averages; latest 12-month price-to-earnings multiple of 30 or less; and market capitalization greater than $500 million.

Full story at Forbes.com

Despite a 31% drop since the beginning of the year, it still may be premature to call a bottom for the Nasdaq Composite. The index managed to lose 5% last week and was off another 3.4% through midday on Monday. But, whatever the market’s immediate direction, some Nasdaq stocks look pretty attractive.

We screened for Nasdaq-listed stocks that have held up well relative to the overall index but still look cheap relative to their estimated earnings growth potential.

Example: Clearwater, Fla.-based Lincare Holdings (nasdaq: LNCR – news – people ), the country’s No. 2 provider of home respiratory services. The company delivers oxygen supplies to home-based patients suffering from such ailments as emphysema, chronic bronchitis and asthma.

Lincare, which has nearly 600 operating centers in 44 states, has been steadily increasing its share of the fragmented $4.5 billion home respiratory market through acquisitions and internal growth. In 2001, for example, the company acquired 18 smaller outfits, thus adding 15 operating centers to its roster.

Analysts reporting to Thomson Financial/IBES expect more such growth ahead for Lincare, forecasting that the company’s revenue will increase to $958 million in 2002 and to $1.1 billion in 2003, from $812 million for its latest fiscal year (ended December).

As for earnings, analysts predict Lincare’s profits will show annualized increases of 21% over the next three to five years. This means the stock, trading at just 17 times estimated next 12-month earnings of $1.76 per share, has a 12-month forward price-to-earnings growth (PEG) ratio of 0.8.

An investing rule of thumb says that stocks with PEGs less than 1 are undervalued. To assemble our table of Nasdaq picks, we started with stocks that carry low PEGs. For the group, 12-month forward price-to-earnings multiples average 17, while 2003 estimated P/Es average out at 14.

Full story at Forbes.com