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Canaccord Genuity on Facebook, GE, and Dow Jones Industrials


Facebook is bashed by Barron's; GE wants to grow its mining equipment and services business; and Standard & Poor's may change the Dow Jones Industrial Average.

The following are excerpts from Canaccord Genuity analysts' commentaries.

Facebook (NASDAQ:FB): Read Barron's?

Facebook's 40% plunge from its initial-public-offering price of $38 in May has millions of investors asking one question: Is the stock a buy? The short answer is no, says Barron's. The stock trades at high multiples of both sales and earnings, even as uncertainty about the outlook for its business grows, the newspaper noted over the weekend. The rapid shift in Facebook's user base to mobile platforms (more than half of users now access the site on smartphones and tablets) appears to have caught the company by surprise and CEO Mark Zuckerberg must find a way to monetize its mobile traffic because usage on traditional PCs, where the company makes virtually all of its money, is declining in its large and established markets.

Facebook currently trades at 47 times projected 2012 profit of $0.48 per share and 36 times estimated 2013 earnings of $0.63. Compare that with Google (NASDAQ:GOOG) and Apple (NASDAQ:AAPL), two proven technology growth stories, which both trade for about 16 times estimated 2012 earnings. Facebook is valued at $61 billion; that's more than 10 times estimated 2012 revenue of $5 billion. Google trades for half that valuation. What are the Facebook shares worth? Perhaps only $15, Barron's concludes. That would be roughly 24 times projected 2013 profit and six times estimated 2013 revenue of $6 billion.

General Electric (NYSE:GE): Starting to Dig.

Shares of global mining equipment and services companies were higher after GE commented that it wanted to grow that side of its business within the next couple years. The division should reach $5 billion in sales "within a few years," said Lorenzo Simonelli, chief executive officer of GE Transportation, of which the business will be a part. GE's current mining offerings generated about $2 billion last year. Mining and construction equipment makers around the globe with a market value of $1 billion or more trade at a median of 12.6 times earnings, according to data compiled by Bloomberg. That compares with a 13.9 multiple for the MSCI All Country World Index. Joy Global (NYSE:JOY) looks "increasingly likely" to be a GE acquisition target, said a Wall Street broker.

Dow Jones Industrials (INDEXDJX:.DJI): iComplicate.

According to The Financial Times, Standard & Poor's (S&P) is considering changes to the Dow Jones Industrial Average because the index is supposed to be a measure of US industrial titans and doesn't include three of the biggest US companies: Apple, Google, and Berkshire Hathaway (NYSE:BRK.A). Calls to shake up the Dow have been making the rounds forever. S&P expects to test investor interest for changing the Dow at its next consultative meeting with index users. Currently, there are only a couple of rules for selecting members of the Dow: Index constituents cannot include transport companies or utilities, and the editor of the Wall Street Journal must sit on its steering committee.

However, index watchers also note that adding Apple or Google (or any other high priced stock), would be difficult, given the way the index is calculated. The Dow weighs its 30 components based on the absolute price of their shares. Without a share split, Apple and Google would have large weightings in the index. Index watchers say the three most likely stocks to come out of the Dow are Alcoa (NYSE:AA), Bank of America (NYSE:BAC) and Hewlett-Packard (NYSE:HPQ). Earlier this month, UnitedHealth (NYSE:UNH) replaced Kraft Foods (NASDAQ:KFT) in the index. General Electric remains the only member from the Dow's original constituents.

Editor's note: For more information on Canaccord Genuity, click here.
No positions in stocks mentioned.
Canaccord Financial and its affiliated companies may have a Corporate Finance or other relationship with the companies mentioned and may trade in any of the Designated  Investments mentioned herein either for their own account or the accounts of their customers, in good faith and in the normal course of market making. The authors have not received, and will not receive, compensation that is directly based upon or linked to one or more specific Corporate Finance activities, or to coverage herein.
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