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Strategies & Market Trends : Value Investing
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To: jeffbas who wrote (7458)6/8/1999 12:57:00 AM
From: James Clarke  Read Replies (1) of 78659
 
Steelcase...no catalyst. Clayton Homes...no catalyst. I agree fully. I like catalysts if they're free. They usually aren't.

And I don't know what you'd want as a catalyst on Clayton. This shareholder has no desire for a change of management or a takeover. Clayton as is earns 17% on equity year in and year out. As long as earnings continue to go up 12-15% every quarter, I am very very happy to own a small piece of the business. In time I will be well rewarded for that, and I bet it will happen way too fast for those waiting for catalysts to participate.

Steelcase is another story. This is one where you want to watch for catalysts. You correctly pointed out the biggest issue with the stock. 90% of it is owned by insiders - there is no liquidity for institions to buy, so they pass it by. This is one of the rare cases where a secondary offering would be a positive. If you want to follow Steelcase and look for things to change, just watch return on capital. The reason I own Steelcase is that I think return on capital should double, which still would trail the level of its competitors (HNI, MLHR). These two are excellent companies, and value investors, especially of the Buffett variety should be calling and ordering their annual reports. But Steelcase is #1 in the office furniture industry. There is no reason why they can't earn the same return on capital once they get the discipline of being a public company. There is nothing wrong with management - now they have new incentives. And if that happens, the share price triples. This is a 3-5 year investment for a triple. You heard it here first.

JJC

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