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Strategies & Market Trends : Value Investing

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To: Brendan W who wrote (13214)	10/24/2001 1:45:05 PM
From: Brendan W	Read Replies (2) of 78671

Enron, etc. Bought Enron (ENE) at $15.60. This is 50% off of prices earlier this week. Management credibility has been gutted based on a lack of transparency. Management says S&P and Fitch have reaffirmed bbb+ ratings. Prudential issues "sell" based on "not what we know" but "don't know". The worst case scenario seems to be the company having to issue $1 - 2 billion in equity to maintain their investment grade rating. At 7.3x re-affirmed 2002 eps of $2.15 and 8.7x 2001 eps of $1.80 and the company trading at 5 year lows, I am stepping up for some uncertainty. I don't know the facts and am relying on the market and the credit agencies not being this stupid for this long about Enron. Added to Owens Illinois (OI) in the $4s. The company says unexpected strong US glass demand from the Smirnoff Ice type beverages will force them to source production from Canada. Company reported 44c versus 41c expected. Asbestos gross payments still flattish around $240m annually... insurance proceeds seem to be ending. The CEO again expressed confidence that energy price increases will go into effect Jan 1. The company expects to be cash-flow positive next year and is trading at 3.2 times 2002 eps of $1.40. Management believes that the market is not looking at OI because of the asbestos taint. I accept their presentation of the asbestos problem and am encouraged that management thinks this is the story and there is no greater liquidity/business performance issue. I've started positions (mostly underwater now) in mutual fund managers (Stillwell (SV), Franklin Resources (BEN), and Amvescap (AVZ)). I have never owned them before but was impressed with Marty Whitman's description of the basic business model. Revenues are based on a straight percentage of assets under management in the 1 to 2% range. Even in a down market they get their cut. As the markets improve, profitability improves. These stocks can be bought with earnings yields of 6 to 7 percent. Apparently, historically the earnings yield can go to 10 percent, but I am not waiting for that given the 10 year bond yielding 4.6 percent.

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