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PhillyDeals: After mergers and layoffs, look for bargains

It's not surprising when firms that sell investments issue bullish reports early in the year, urging investors to buy more stocks.

SCVNGR was founded in Philadelphia before it moved, and took with it a lot of talent, to Massachusetts.
SCVNGR was founded in Philadelphia before it moved, and took with it a lot of talent, to Massachusetts.Read more

It's not surprising when firms that sell investments issue bullish reports early in the year, urging investors to buy more stocks.

But it's still interesting to see just what the pros who follow companies, prices, and markets are peddling, and how the list mutated since last time.

Janney Capital Markets, the investment and research arm of Philadelphia's Janney Montgomery Scott L.L.C., the largest locally based brokerage, is pitching 24 "Best Idea" stocks for 2011, some of which fall into a category we might call "post-recessionary."

As these analysts see it, all the merging, the closing of plants, and throwing people out of work in this grinding recession have left some companies ready to boost profit now that the economy is slowly recovering.

There's Ralcorp Holdings Inc. (ex-Ralston Purina Co.), the cereal giant that absorbed archrival Post, creating what Janney's Jonathan Feeney concedes were yesterday's "regrettable" merger disruptions. Now they make possible today's gains in cash flow and profit.

Similarly, merged toolmaker Stanley Black & Decker Inc. slashed expenses, and it is now boosting sales as industrial demand goes up overseas, notes Janney analyst James C. Lucas.

Locally, the firm's analysts like Voorhees-based water-systems owner American Water Works Co. Inc., Philadelphia's Beneficial Mutual Bancorp Inc., King of Prussia-based online-sales giant GSI Commerce Inc., Center City-based but New York-oriented hotel operator Hersha Hospitality Trust, and Oaks mutual funds manager SEI Investments Co., among others.

Why should we care what Janney's pushing? The firm's research director, Gary Schatz, says its inaugural "Best Ideas" list, for 2010, yielded returns of 23 percent, besting the S&P 500's 15 percent.

Last year's list was boosted by especially high returns at Apple Inc., Compass Diversified Holdings, Cognizant Technology Solutions Corp., Herbalife Ltd., Intuit Inc., Las Vegas Sands Corp., South Jersey Industries Inc., and Yum Brands Inc. (the Taco Bell people).

Those companies are off this year's list, except Apple and Cognizant.

Janney stumbled with some of its 2010 picks, losing 10 percent or more on RadioShack Corp., Tetra Tech Inc., and TiVo Inc.

That the market mostly went up last year worked to the stock-pickers' advantage. So did the fact that the firm dumped weak companies and added more attractive ones as the year wore on, making it easier to beat the less-pliant S&P benchmark.

Still, you'd like to believe all that tire-kicking, number-crunching research sometimes makes the pros more successful, or at least luckier, than amateur civilians, or the proverbial monkeys with darts. And that bigger profit will finally mean more hiring.

Scavenger's gold

Three-year-old smartphone games-maker SCVNGR ("Scavenger"), founded by Princeton University dropout Seth Priebatsch, has raised $15 million from London-based Balderton Capital, along with previous investors Google Ventures and Highland Capital Partners Inc.

SCVNGR, which counts Coca-Cola Co. and American Eagle among its clients, is run from Cambridge, Mass., but was born in Philadelphia, and is run day-to-day by Philly grads and expats, including operating chief Michael J. Hagan (Drexel '03), Philadelphia office chief John Valentine (Villanova Law '09), and Philadelphia-trained programmers and designers.

The new cash infusion, which implies a market value at least in the mid-tens of millions, is a proud moment for the firm's Philly godfathers, the crew at University City Science Center-based DreamIt Ventures. They gave Priebatsch seed money, start-up space, advice, and adult supervision, when the then-teenage founder asked for help way back in 2008.

What did DreamIt's Steve Welch and his partners, who have backed their share of duds, see in Priebatsch?

"He's a lunatic," Welch said admiringly, citing the self-taught engineer's 18-hour days, passion, joy, and his "conflicting" qualities of "being relentless and willing to run through walls, but at the same time listen" to older heads like Hagan.

"They applied to DreamIt with an idea and a very rough product. We loved it," Welch told me. He just wishes SCVNGR hadn't taken all these bright, young, hardworking people away to Massachusetts.

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