Enzon Pharma Risks Balanced

Enzon Pharmaceuticals? (ENZN) key product Abelcet, a treatment for fungal infections, sales continued to deteriorate in 2008. Further, another major source of revenue, Royalty, is also under pressure from competition. However, sales in two other products, Oncaspar (for acute lymphoblastic leukemia) and Adagen (for severe combined immunodeficiency disease) are picking up momentum and offsetting the sales decline from Abelcet and Royalty.

We are impressed with strong sales growth of Oncaspar. We expect total revenue to remain stable or experience modest growth in the coming years while the company is progressing well with its clinical developments. Enzon is also advancing its pipeline to drive long-term growth. We maintain our Hold rating on the shares. We see a balanced risk/reward profile for Enzon. In our view, there are limited near-term catalysts to drive the shares higher.

We believe the company?s pipeline is in a show me mode, and we do not see Enzon shares getting the benefit of investor enthusiasm over the near term. We don?t see great value creation with the split of its biotech business and the sale of its specialty pharmaceutical business to its shareholders.

Our $10 price target assumes a total market capitalization of $440 million, or 2.2x the total fiscal 2008 revenue of $199 million. From a peer valuation standpoint, this seems very cheap. However, if we consider the week outlook of the company, the target price is warranted.

BHP Reports Record Profit

Taking a page from integrated oil companies and making the most of high demand for commodities, BHP Billiton (BHP), the world's largest mining company, has reported a record quarterly profit of nearly $15.4 billion.? This amounts to an annual net profit of 14.7%, according to an AP report on the Australia-based firm this morning.

However, as Eli Hoffman at Seeking Alpha states in his blog this morning, "BHP's $131 billion bid for rival Rio Tinto (RTP) may be in trouble. Rio is expected to release strong earnings later in the month, and some investors see no reason to combine companies doing so well individually."? This follows RTP's rejection of an earlier bid to take over the London-based mining conglomerate.

Zacks senior analyst Mario Ricchio has recently issued Hold recommendations on both companies, though we will check for adjustments forthcoming based on today's news.? Bigger than the proposed merger, however, are macro concerns: "(F)ear of a global economic slowdown leads us to maintain a cautious outlook on (both stocks)."

Lincoln Electric Sparks Mildly

Lincoln Electric (LECO) is a leading manufacturer and reseller of welding and cutting products. The company spent the last couple of years shifting manufacturing facilities to low-cost countries and expanding production capabilities to fast growing markets in China and India.

The company has high-technology product leadership. We expect LECO to benefit from the welding product demand created by the boom in infrastructure spending, especially in the oil & gas sector. However, despite LECO?s strong competitive position and clean balance sheet, we maintain a Hold rating due to certain macro risks.

The global economy could slow sharply, which would undermine commodity prices and potentially delay or postpone previously planned infrastructure projects. This could hurt the demand for the company?s welding equipment and consumables. The other risk is that inflationary pressures continue amid a weaker global economy and LECO may not be able to pass entire input costs to the customer.