Great Turnaround Plays

[The_Free_Nebula]

Looking at ABB and GM as two potential GTPs

ABB Ltd. (ABB) - $8.78

ABB, Inc. is a large Swiss electrical engineering firm that
manufactures electric motors, robots and other types of automation.
In June its American Depository Receipts
(ADRs) were priced around 7.

The stock "appears" to be breaking out of a two-year trading range.
There's still a lot of risk surrounding a company that suffered for
years with slipshod management, but the good may outweigh the bad
and it "could" reward those willing to invest a few "speculative"
dollars.

With a new management team in place, in the third quarter ABB
returned to profitability after four years of losses. Orders
increased 15% and revenues jumped 13%. Margins improved although
they remain below the level of competitors.

This year's boom in oil prices was a boon for ABB since the oil and
gas industry accounts for a significant part of its business via
electrical motors, robots and transformers used in refineries and
pipelines. Highly profitable energy companies ramped up investments
to increase capacity, employing the services of firms like ABB.

Its products allow utilities to efficiently run their power plants.
With crude oil in the $60-per-barrel range, efficiency is critical.
ABB's robotics and other forms of automation help run plants and
keep shutdowns to a minimum.

The explosive growth of the Asian economies is increasing demand for
power and ABB products. Booming China and India are becoming
important customers as ABB has interests in 100 countries. At one
time, ABB considered itself the European version of General Electric
(GE).

There are other positive signs for investors. This month there was
news that the company's debt status may be returned to "investment
grade" by Standard and Poor's and Moody's after many years in
the "junk" category. The ADRs have benefitted from recent upgrades.

What can hold back ABB? Well, asbestos lawsuits could be a major
drawback. In litigation that has dragged on for years, ABB faces
more than 100,000 US lawsuits from workers who have come into close
contact with asbestos-insulated boilers produced by the company's
U.S. unit Combustion Engineering.

According to recent reports, ABB has proposed a $1.43 billion
settlement which has only to be OK'd by two U.S. courts. That $1.43
billion is real money but not nearly as much as years of litigation–
and possible huge judgments–would cost the company.

ABB officials express hope that the asbestos issue will be resolved
by early 2006, giving Wall Street a reason to take a fresh look at
the company. The market hates the uncertainty of impending
litigation.

Also of concern is an enormous debt load, the result of a spending
spree in the 1990s by the old management regime. The huge load had
the company teetering close to collapse in 2002. The response was a
series of cutbacks as ABB shed non-core businesses and thousands of
jobs. That helped a lot although a hefty debt load of almost $6
billion remained at the end of 2004. With cash reserves of $3.6
billion and growing revenues, however, the threat to the company's
finances is minimized.

The other hangup is the immense ADR float, at one time more than 2
billion shares. It will take major attention from the institutions
before ABB's share price can appreciate.

That appears to be occurring, as volume has become much stronger in
recent weeks. That helped push ABB to a series of 52-week highs in
recent sessions.



The key is the solution to the asbestos-settlement issue. If that is
resolved, money "could" flow into ABB from institutions banking on
increased revenues from a power-starved world.