While I have been in the camp pushing for an outside candidate to replace Ken Lewis as Bank of America’s CEO, the board finally has made a decision and went with inside candidate Brian Moynihan.  Moynihan, who is currently the president of the bank’s consumer and small business banking, is very familiar with all the working parts of the bank and his ascension should make for a relatively smooth transition, a positive for the selection.  Paul Davis of the American Banker wrote,

Moynihan has maintained a relatively high profile at B of A since joining the $2.39 trillion-asset Charlotte company in 2004 when it bought FleetBoston Financial Corp., where he was a top lieutenant to chairman and CEO Charles Gifford. Many observers said he appeared to be a frontrunner because Gifford and Thomas May, a former Fleet director, were on the committee charged with finding Lewis’ successor.

According to a piece in the Wall Street Journal’s Deal Journal a Citi analyst said,

He is also generally well liked by the investment community, and from our conversations with current and former BAC employees, he is consistently viewed by his peers as a very intelligent and strategic thinker.

Paul Davis wrote a story in today’s American Banker in which he quoted Anthony Polini an analyst for Raymond James Associates.  Polini said,

… Choosing Moynihan appears to endorse the business model built over decades by Lewis and predecessor Hugh McColl Jr., including coast-to-coast retail banking and market leading positions in mortgage, credit cards, brokerage and investment banking. Moynihan was picked to run the investment bank in January following the ouster of former Merrill Lynch & Co. CEO John Thain.

“The selection says that while the economy and recession have been lousy, the board still believes that the company model is intact,” Polini said. “It is a vote of confidence for the strategy.”

Moynihan has his work cut out for him.  While the bank has managed to recently pay back the government for the TARP related money many difficulties remain.  While the government will have to go along with the new choice, it is hard to imagine it was delighted with the board’s choice for an inside candidate.  The new selection comes on the heel of the announcement that the vice chairman of Bank of America Merrill Lynch, William J. McDonough would resign.Stay tuned as it all plays out.   There are likely to be more changes on the board and within the executive ranks.

The following is an excerpt from TWST‘s interview with Brian J. White, managing director of equity research for Ticonderoga Securities. Mr. White has been active in researching the technology sector in China over the past several years and hosts an annual tour for clients to cities such as Beijing, Shenzhen and Shanghai.

TWST: Do you think the effects of the stimulus plan have permanently changed the extent to which the Chinese are willing to spend more and have fewer savings?
Mr. White: No, China still remains more disciplined in their savings patterns versus the U.S. and most of the world. Many of the consumer electronics subsidies go on for four years and are primarily aimed at the rural markets. There are programs in Beijing, Shanghai and other large cities that allow residents to return their old LCD TV or a PC, or other consumer electronics and you get a 10% discount on the new one.

TWST: Cash for Clunkers for television.
Mr. White: Yes, exactly. So I think net, net, China is trying to introduce the consumer to higher spending patterns but at a reasonable rate. Remember, China’s credit system remains in its infancy and is nothing like the United States, so most people have very little debt and that’s something that the domestic consumer can tap into over time. However, I have noticed that the younger generation does not save as much as their parents before them, and this could mark the beginning of a trend.

TWST: Do you think the recovery is already built into the stock prices of these firms? Do you feel these companies are pretty fairly valued at this point, or do you think investors should be wary in the long term?
Mr. White: I mean, the Chinese market has gone through boom-bust cycles in the past. It has been historically because of big runs – it pulls back sharply and makes more big runs. That is the way the market has worked in recent years. So my general view is that you can find a lot of good Chinese companies that trade in the U.S. at very inexpensive valuations and a fraction of what you find in China. Cogo is a good example and trades at about five times next year’s earnings when excluding cash.

TWST: Do you think the valuations will come up or will there be more opportunity for appreciation to come?
Mr. White: I think valuations over time will expand. But at the end of the day, there are still many investors concerned about accounting risk in China and the quality of the management teams. Additionally, China-based companies visit U.S. investors less often, and this creates more uncertainty for investors. Additionally, most of the China-based companies are smaller. We are not talking about ADR-traded companies, such as China Mobile (CHL), but rather China-based companies that only trade in the U.S.

Given their strong fundamentals and likely upside coming out of pending health care reform, pharmacy benefit managers (PBMs) represent one of the strongest subsectors within the health care services investment universe.

“If [after health care reform] more people have insurance and they get it through the private sector, there is probably a better chance that the PBMs will ultimately be a part of that equation, and they could see their membership go up, which would obviously be positive,” said Tom Gallucci, senior health care services analyst at Lazard Capital Markets. “To the extent in the long run that there is sort of some type of a public option, then it’s more of a question of would PBMs help administer the pharmaceutical benefit for the public option?”

According to Gallucci, only if more Americans received health insurance through a public option in which PBMs did not participate would a serious risk of decreased membership and downside affect the PBMs. However, the analyst does not foresee such a strong public option taking place in the near future.

“We’ve actually got buy ratings on all three of the major publicly traded names, CVS (CVS), Express Scripts (ESRX) and Medco (MHS),” said Gallucci, explaining the major benefits reaped by PBMs in this weak economy are attributable to the economic incentives they offer consumers to buy lower-cost drug alternatives.

“So the primary way that you incentivize people is through economic incentives, tiered copays and things like that,” Gallucci said. “And I think that right now, the flip side of a weak economy is – to the extent your existing membership is more economically sensitive – they’re more and more willing to go toward that lower-cost alternative, and that saves their customers’ money as a PBM.”

Ed Whitacre, GM’s chairman and now interim CEO, appears to be in the mold of Lee Iaccoca who took charge of Chrysler back when the government saved it the first time around.  While Whitacre, a former head of AT&T, is no car guy like Iaccoca, he has quickly taken charge of the firm and instituted a number quick and major changes.  He has already made a number of major changes in management, he has also been taking great strides to build up employee morale throughout the company.  Automobile workers are beginning to get the sense there might be some light at the end of the tunnel.   Today’s New York Times has a story by Bill Vlasic entitled, In the Changeover at G.M., a New Hands-on Attitude.   Vlasic writes,

In his new role as chief executive of G.M. as well as chairman, a post he has held since July, Mr. Whitacre is focusing on shaking up the automaker’s famously bureaucratic culture by singling out individuals and giving them both the responsibility and authority to make things happen.

“The only place there was any really solid accountability here was right at the top,” said Mr. Whitacre, 68, delivering his blunt assessment of the corporate culture at G.M. in his soft-spoken Texas drawl.

“I want to make sure people understand that the responsibility for this company to be successful is not just with the C.E.O.,” he said. “It’s them.”

“My style is really just to say, ‘let’s get going,’ ” he added. “Let’s do something, let’s move, and let’s not be constrained by something that has happened in the past. Nobody is going to be fired for trying something new around here.”

Whitacre is showing CEOs around the country possible ways to make changes at companies faced with inertia and growing problems.  His management style may have some inherent risks and his lack of automobile related expertise is a potential problem but he has shown what a strong and savvy CEO can do in a little amount of time.  Stay tuned.

Despite a reduction of almost half the number of rigs that were in operation in 2008, drilling continues in the country’s unconventional natural gas shale plays, where rig counts are not only active but in some cases improving.

According to Ethan Bellamy, senior vice president of natural resources within the equity research department of Wunderlich Securities, the current rig count in the United States sits at 1,078, down 914 from the same time last year. However, fewer active rigs has not translated into less supply, as the gas market continues to be fed by the prolific and low-cost shale plays.

“It’s very geography specific, places where finding and development costs are very low are being drilled. And then secondarily, I would say that the places where operators have leases that will expire unless they hold them by production, those are being drilled,” Bellamy said. “For both of these trends, we are talking specifically about plays such as the Marcellus Shale in Pennsylvania, the Haynesville Shale in Texas and Louisiana, Fayetteville Shale in Arkansas and Eagle Ford Shale in South Texas.”

With natural gas futures at $3-4, Bellamy explains it won’t be hard for operators to see a 10% rate of return for some of these new shale plays.

“Devon (DVN), for example, just drilled a well that came on at a 30 million cubic feet a day rate in the Haynesville Shale, and that is a pretty sizable well. That’s what you would have seen in the past from a big offshore well,” Bellamy said. “So depending on where you are drilling, those costs and how prolific these wells are, the breakeven costs can be pretty low.”

The following is an excerpt from TWST‘s interview with William R. Ferara, director in corporate and government ratings and the sector specialist for the integrated gas team of the utilities and infrastructure group within Standard & Poor’s, based in New York.

TWST: I know you look at this from the credit side. What’s going on in this space from your perspective at this point?

Mr. Ferara: The biggest issues right now for the natural gas space is, on one hand, you have the supply/demand structure, whereby you clearly had a decline in prices sustained for a number of quarters. And that has resulted in a lot of producers laying down drilling rigs, which leads to less of oil gas supplies. On the other hand, because of macroeconomic conditions, you have systematically less demand, primarily from a lot of the industrial companies as well as power generation facilities. So you really have a situation where demand is declining and the decline in production has not kept up at the same pace; so you’ve also seen lower gas prices as an effect. Gas prices bottomed to some degree late this past summer, but we’re still generally well below historical averages.

TWST: Are we getting close to a balance here?

Mr. Ferara: It seems as if we could be getting a little bit better, although gas prices have been very volatile lately. The natural gas forward curve is back well into the $5 range for next year, so that’s a bit better. What we’re looking to see, and what a lot of the market is looking for, too, is to see how we come out of this upcoming heating season, which essentially has really just begun. Over the next few months, we’ll see the range of basis spreads throughout the country, the level of gas prices and their outlook for 2010, where gas production is expected to ramp up and whether it will continue to remain strong in the various shale plays within the country, and how production reacts in the more conventional traditional drilling basins, which on average have higher cost structures.

TWST: As you talk to the companies, what are expectations going forward?

Mr. Ferara: Generally, what they’re doing is ensuring that they have a stable platform to move into 2010. I think they’re looking for better fundamentals in the sector in terms of better demand, better pricing before they move forward with some of their larger capital projects. Clearly some of the smaller, quick-return, higher-return projects still make sense, such as a small pipeline lateral or other similar types of capital projects. I think a lot of the larger projects, let’s say a new gas pipeline build, have been put off for now, given not only the fundamentals that I mentioned, but also the concern that the capital markets need to be there for a sustained period of time beyond just a couple of quarters or a 12-month period to ensure that they can have adequate and appropriate financing for the asset on a long-term basis.

Jim Lawrence, Unilever’s UL (NYSE) CFO is leaving the company.  Lawrence, who was appointed CFO back in August of 2007, has chosen to resign his position.  He leaves the job less than a year after CEO Paul Polman was put in place. Lawrence is one of many changes that have occurred in the executive ranks since Polman took the reigns of the firm. According to a story by Clementine Fletcher and Jeroen Molenaar for Bloomberg,

Lawrence, 57, chose to resign and won’t receive severance pay when he leaves at the end of 2009, spokesman Flip Dotsch said. The executive will keep his “significant” stake in Unilever, Dotsch said. His holding is worth about 14 million euros ($21 million), data compiled by Bloomberg shows.

Speculation has been around that Lawrence had hoped to get the CEO position.  Whatever the reason, Polman has been making real strides to the company back on track to compete more effectively with its key rival Proctor & Gamble.The Bloomberg reporters went on to write,

The first reason for the departure is “probably personal, the second is probably because he wants to become a CEO,” said Marco Gulpers, an analyst at ING Groep NV in Amsterdam with a “buy” on the stock. “They go their separate ways in harmony, as I understand. I think his successor will be an outsider.”

Keep a close eye on who Unilever selects to replace Lawrence and also where he ends up and what he ends up doing.

China’s health care and agriculture sectors should reap lasting benefits from the country’s stimulus program, which will pump $586 billion into the Chinese economy to stimulate domestic consumption and increase China’s fixed-asset investments.

According to Ping Luo, vice president and senior analyst of the China Group for Global Hunter Securities, these two sectors will continue to perform well and be driven by domestic consumption in the long term, representing structural changes rather than short-term Band-Aids for the country’s waning exports.

“The government has realized they need to provide a safety net to the people for the long term. The household savings rate is over 35% in China compared to a negative or flat savings rate in the U.S. The reason people are holding back spending is because they don’t feel safe for the future,” Luo said. “They feel they need to save money for the time when they get old, when they get sick and when their kids go to college. With a safety net that the government is trying to provide, hopefully people can free up some of the savings and actually consume right now.”

Under the Chinese government’s stimulus program, $120 billion will be spent over the next three years to provide more accessible and affordable health care, developing a universal primary service web to cover China’s entire population, and building more hospitals and clinics in rural areas.

“These new hospitals and clinics will need medical equipment, devices and medicines. So both medical device companies and pharmaceutical companies will benefit from this health care reform,” Luo said. “There are 40 to 50 China-based health care companies listed in the U.S. Many of them have annual growth of over 30% and gross margins of over 50%.”

Likewise, China’s agriculture sector will reward companies that are able to increase yield and improve efficiency to meet the country’s tremendous internal demand and 1.3 billion mouths to feed. Because the sector is still inefficient and fragmented, it’s prime for growth as industrialization and consolidation take place over the next several years.

“China’s agriculture sector is feeding almost one-fifth of the world population. Those companies who have the technology, capital and management resources will benefit from the tremendous demand,” said Luo, who is keeping a close eye on companies Chaoda Modern Agriculture (682.HK) and Yongye International (YONG) as likely benefactors of this growth.

Public home health care companies may be heavily impacted by pending U.S. health care reform, as many serving Medicare beneficiaries leave themselves open to reimbursement risk.

According to Analyst Tony Perkins, who covers health care services for First Analysis, the Medicare Payment Advisory Committee (MedPAC) included a 5.5% payment reduction to the home health care industry for 2010 and an additional 5% cut for 2011 in its recommendations to Congress earlier this year. While the Senate Finance Committee chose to make more modest cuts to the home health care sector in its proposal, the House bill closely follows MedPAC guidelines.

“Valuations for the entire industry are down and have been down almost the entire year, mainly on the unknowns of what will come out of health care reform,” says Perkins, who likes the home health space despite the obvious risks.

“It is a more cost-effective way to manage a sick, elderly population; it is much more cost-effective than long-term care or skilled nursing facilities,” He says, mentioning Amedisys (AMED) and LHC Group (LCHG) as two of his top industry picks. “Also due to the demographic trends driven mainly by the Baby Boomers approaching Medicare age, we think demographics will aid in promoting the usage of home health, so we like the sector over the long run.”

TWST: I know we’ve pulled a lot of rigs out. Where do we stand and what’s the outlook there?

Mr. Horowitz: The total domestic rig count is down about 40% year-over-year, per the Baker Hughes Rig count as of Nov. 27, 2009. Putting that into context, we are about 44% below the peak experienced during September 2008 but are about 30% off the bottom, which we experienced during June 2009. More specifically, when looking at just the domestic natural gas count, we are currently at 748, which has been roughly cut in half since its peak in September 2008 and has only rebounded about 10% from its lows. Clearly this tells us domestic natural gas rigs have been put back to work at a slower pace. However, we can’t forget that producers continue to drill in an attempt to hold leased acreage positions. As such, we expect the rig count to sequentially improve into the end of this year and into 2010. We are estimating the total rig count exits 2010 around 1,450, with the natural gas rig count exiting 2010 around 1,050.