Strong Fundamentals at Simon Property

Simon Property Group, Inc.'s (SPG), in-service portfolio continues to perform well. Sales and rent per square foot increased at a healthy pace in 2007 at the company's malls, outlet centers and lifestyle centers. The company also continues to create significant value through its domestic and international development activities.

The company recently raised its payout, and the dividend, while still below sector averages, is covered with operating earnings. The retail environment will get worse in 2008 as consumers are cutting back spending. We still think the company will post above average results and the current sell-off provides a good value opportunity in the country's largest mall owner.

Simon is currently trading at 13.7x 2008 projected FFO, a 6% premium to weighted sector The company is also trading at an approximate 12% discount to our calculated NAV. Considering its geographic breadth, quality of assets, stable balance sheet, and quarterly earnings growth, we feel Simon has the potential to outperform its sector. We think releasing spreads will soften in the coming quarters as retailers are becoming more cautious in a weakening retail environment.

Although, with a strong balance sheet and plenty of free cash flow, SPG is better positioned than peers as the economy heads toward recession. Holiday sales were weak this year, and January was one the weakest retail months in decades. The share price has declined substantially over the past year and at the current valuation, we still think the company represents good value. We rate the shares as a Buy and setting our price target at 15x 2007 FFO estimates or $96 per share.

Corrections Corp. Upped to a Buy

We are raising our rating on shares of Corrections Corporation of America (CXW) from Hold to Buy based primarily on valuation. The company holds a significant market share advantage over its peers, with a substantial pipeline of additional capacity scheduled to be added to the portfolio over the next two years.

The company is the clear leader in an industry with a strong outlook, supported by favorable economic and demographic trends. The shares have pulled back approximately 15% over the last two months, despite the company's favorable outlook. We consider a premium valuation afforded to shares of CXW to be appropriate.

The company holds a significant market share advantage over its peers, with a substantial pipeline of additional capacity scheduled to be added to the portfolio over the next two years. Only 7% of detention and corrections facility beds in the country are currently outsourced to private companies, indicating the potential for significant growth in the overall market.

Given the current uncertainty regarding the general economy, we view the company's high level of visibility regarding future operations favorably. We consider the current price to represent an attractive entry point, and maintain our $33 price target. Our target price equates to multiples of 26x and 22x our 2008 and 2009 EPS estimates, respectively.

Hold China-Based Wonder Auto

Wonder Auto Technology (WATG) is a beneficiary of a high market share in alternator and starter production in China, along with strategic positioning in the faster growing sub-segments in these markets. On February 5, 2008, Wonder Auto Technology reported fourth quarter and full year 2007 results. In the fourth quarter, earnings per share were $0.17. Net income was $4.3 million, reflecting an increase of 81.6% to $2.4 million. Net margin was at 14.5%. Total revenues increased 55.4% to $29.7 million.

Export sales more than doubled to $3.3 million on account of the acquisition of Jinzhou Wanyou. Sales revenue increased 41.5% to $102.1 million due to a rapidly growing Chinese auto market and increased production capacity in the second half of 2008. Of this, alternator sales were $59.8 million, starter sales were $35.1 million, and rods and shafts contributed $7.3 million. Management expects total revenues in 2008 to exceed $140 million. Net income is expected at $20 million.

Currently, Wonder Auto is valued at 12.6x our 2008 earnings of $0.74. Wonder Auto is a beneficiary of a high market share in alternator and starter production in China, along with strategic positioning in the faster growing sub-segments in this market. However, weak product pricing, high customer concentration, and an unusually low tax rate force us to rate the stock a Hold with a target of $10. This is 13.5x our 2008 earnings estimate.

Strong Fundamentals at Simon

Simon Property Group, Inc.'s (SPG), in-service portfolio continues to perform well. Sales and rent per square foot increased at a healthy pace in 2007 at the company's malls, outlet centers and lifestyle centers. The company also continues to create significant value through its domestic and international development activities.

The company recently raised its payout, and the dividend, while still below sector averages, is covered with operating earnings. The retail environment will get worse in 2008 as consumers are cutting back spending. We still think the company will post above average results and the current sell-off provides a good value opportunity in the country's largest mall owner.

Simon is currently trading at 13.7x 2008 projected FFO, a 6% premium to weighted sector The company is also trading at an approximate 12% discount to our calculated NAV. Considering its geographic breadth, quality of assets, stable balance sheet, and quarterly earnings growth, we feel Simon has the potential to outperform its sector.