WASHINGTON – When war broke out in Iraq, we spoke with David Cooley, manager of J&W Seligman’s Global and International Growth equity funds. At the time, he liked prospects for Israeli stocks, particularly generic-drug maker Teva Pharmaceuticals.

Since that conversation, Teva shares have jumped 15% while Israel’s benchmark TA-100 index has increased 14%. From a 52-week low set in February, the index is up 29%. “Buying in front of a big geopolitical event is a scary ticket to write,” Cooley says, “but it’s often the right one to send to the trading floor.”

Cooley’s contrarian tactics don’t just apply to emerging economies or regions addled by conflict. In the wake of Gulf War II, he gives us a pick from none other than the Federal Republic of Germany.

Full story at Forbes.com

Stocks of companies doing business in medical equipment and supplies are often described as “defensive” or a “safe haven.” Truth is, they’re not all that safe.

“You can be a long-term investor in this business,” says analyst Ryan Rauch of Boston investment bank Adams Harkness & Hill. “You just have to be able to stomach volatility.”

One example is Inamed, a Santa Barbara, Calif.-based maker of products for cosmetic procedures, such as saline-filled breast implants, collagen implants for wrinkles and silicone bands used to reduce the stomach capacity of obesity sufferers.

Like many of its peers in the medical equipment business, Inamed stands to benefit from a demographic tailwind as millions of baby boomers head toward their golden years. In 2002, Inamed’s facial aesthetics sales grew 10%, to $74 million.

Moreover, Inamed’s business extends well beyond the U.S. and Canada. In fact, the company pulls in one-third of its revenue from outside North America. Should the dollar continue its recent weakening trend, Inamed’s results will get a boost.

Not surprisingly, expectations for the company’s financial future run high. Analysts reporting to Thomson First Call think the firm will enjoy an annualized earnings growth rate of 17% over the next three to five years.

So what’s wrong with the “safe haven” argument? In a sense, medical supply companies may suffer from their own success. Since 1998, health care equipment stocks in the S&P 500 have risen 39%, versus a 19% drop for the entire index. With those results, however, come rich valuations and high hopes. At the first sign of something amiss, these stocks often get dumped.

Full story at Forbes.com

Sometimes it pays to search troubled regions for investment ideas. Last year, for example, with Israel suffering through suicide bombings and a deteriorating political situation, we suggested a few Israeli technology firms (FORBES, July 22, 2002). At last check that portfolio was up 33%, versus the S&P 500′s 10% decline.

“I think you do need to be a contrarian on the geopolitics to a certain extent,” says Christopher D. Alderson, head of emerging-market equities with T. Rowe Price. Alderson notes how Turkey’s reluctance to contribute to the U.S. military effort, which led to the country’s failure to win an aid package, has hurt its financial markets. As such, Alderson says, some Turkish stocks, like NYSE-listed Turkcell Iletisim Hizmetleri, have begun to look attractive. Driven down by concerns about the finances of a big shareholder, Turkcell has a price-to-sales multiple of 1.4.

Full story (reg. required) at Forbes.com

A little over a year ago Duke Energy declared it had finished its “best year ever,” despite Enron’s collapse and the other problems afflicting the energy business at the time. It reported revenue of $60 billion, by that measure making it the 13th-largest U.S. corporation.

But the “best year ever” didn’t look so great the following June, when a task force at the Financial Accounting Standards Board reached a new consensus on how to account for energy trading. Reversing a position taken in 1998, it decreed that energy trades should be recorded on a net, not a gross, basis. In other words, if a company trades an energy futures contract for $100,000 and makes a $2,000 spread on the trade, it should recognize as revenue only the $2,000.

Whoosh. Duke Energy restated its revenues going back to 1997. With 2002 sales of $15 billion, the company ranks 115th on this year’s Forbes Sales 500. The stock has fallen from $37 to $13 over the past year.

A lot of puffery has been going into the top line. According to the Huron Consulting Group, a Chicago firm focused on corporate finance and restructuring, revenue recognition problems were behind 85 of the 381 accounting restatements of public companies in 2002. Typical mischief: recording a sale without accounting for the fact that the buyer has the right to return the goods, or, worse, hasn’t even taken title to them; counting revenue from deals with unfulfilled obligations (such as future consulting services).

In February the Securities & Exchange Commission filed fraud charges against eight past and present employees of Qwest Communications. The SEC says that, among other things, Qwest cooked up false internal documents to justify treating a $34 million equipment sale as something that could be booked in its June 2001 quarter. Qwest has overstated revenues in other ways, for example, by swapping fiber-optic capacity with other telecom companies. As of the latest tally the company had restated its 2001 revenues downward by $1.3 billion, or 7%.

From July 1997 to July 2002 the SEC launched 227 investigations of suspected financial misreporting, 126 of them relating to revenue recognition. Improper timing of sales is the biggest offense–borrowing from the next quarter in a desperate effort to make the analysts happy for this quarter. The SEC also found 80 cases of utterly fictitious revenues and 21 cases of improperly valued revenue, such as the right-of-return cases mentioned earlier.

Full story (reg. required) at Forbes.com

Ever taken the train from Atlanta to Birmingham? It’s a pokey affair. The train, part of Amtrak’s New York to New Orleans run, makes the Atlanta-Birmingham trip in a leisurely three hours. Driving the 150 miles between the two cities takes half an hour less.

In the U.S., such a situation is typical when it comes to traveling by rail. But the era of the slow train could be nearing its end. Spurred on by frustrated business leaders, state governments around the country are developing big-ticket plans for high-speed rail, and Congress looks likely to play ball.

Take the Southeast, for example. The chambers of commerce from no less than 14 Southern cities have banded together in a coalition known as the Southeastern Economic Alliance (SEA). The group, whose leaders include top executives from the likes of Bowater and Bank of America, has proposed a plan to upgrade freight lines and build new tracks to form a network of reasonably fast passenger trains (ones that would travel at 85 mph). With the improvements, that ride from Atlanta to Birmingham would shrink from three hours to under two.

Why such interest in rail? For one, Southerners drive more miles than anyone else in the U.S., and traffic congestion in Southeastern cities is expected to increase 400% from now until 2020. Air travel, too, has its share of problems. Last year, a quarter of all flights in the Southeast were delayed.

“Our population growth continues to be very strong,” says Charles T. Hill, a co-chair of the SEA and a Richmond, Va.-based executive vice president of Atlanta’s SunTrust Bank. “We’ll end up with a bottleneck if we’re not careful.”

In its literature, SEA underscores a new “business approach” to developing rail travel. For example, the alliance advocates getting rid of the long-haul rides that Amtrak now loses so much money on. Instead, the SEA plan would connect cities within 300 miles of each other, an idea that squares with expert thinking on the subject.

“Rail can play a role as a short- and medium-distance carrier,” says Hank Dittmar, co-director of Reconnecting America, a transportation policy think tank.

Full story at Forbes.com