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Strategies & Market Trends : Value Investing

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To: Paul Senior who wrote (15196)	8/15/2002 1:07:05 PM
From: Jurgis Bekepuris	of 78673

Paul, >Do you have a way to relate ROE to price to book value for these three companies? I don't use p/book so I don't have a way to relate ROE to p/book. I use Mike Burry's Buffetology spreadsheet which uses ROE to estimate future earnings, market cap and subsequently expected return. >DOV. Current price 28 in a range roughly between 26 and 43. >I'll superficially guess ROE is about 20-23%. >Sells about 2.45x its approx. $11 book value. It's a buy with expected ~17% annualized return if the ROE remains at 20% for the next X years. However, note that 2001 ROE dropped to 9.9% and equity has been dropping for last couple of quarters. I did not investigate more closely yet. If you assume 15% ROE going forward, it is not a buy. I may investigate it further. >HRB. Current price about 48 in a range roughly between >32-51. Maybe 20-25% ROE. Selling at 6x book value of $7.56. It's not a buy with expected ~9% annualized return if the ROE remains at 21% for the next X years. >NKE. Current price about 44 in a range about 41-64. > Past few years' ROE roughly 12-18%. Selling at 3x book > value of 14. It's not quite a buy with expected ~12% annualized return even if the ROE is expected to be 18% for the next X years. So it looks we mostly agree with our opinions on these three stocks. Jurgis

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