Robert Marcin
Fight the Good Fight -- Against This Tape!
By Robert Marcin
Special to TheStreet.com
11/12/2001 07:05 AM EST
URL: thestreet.com
"Don't fight the tape" is a common investment aphorism. It is especially pronounced in the current market rally. Bulls use the phrase to justify their belief that expensive stocks will continue to march higher despite poor fundamentals.
Me? I fight the tape. That's how value investors make money. I purchase decent companies at very low valuations after large stock-price declines. "Fighting the tape" is part of my formal buy discipline. I am the antithesis of the "mo-mo" investors and the chart monkeys. Call me a "no-mentum" investor.
I do not enter a battle without reason or information. Purchasing shares of companies at compelling valuations is my strongest line of defense. Fundamental research plays a significant role in my preparation. Diversification of my holdings into different market sectors prevents overconcentation disasters.
Do I win all of my battles with technically challenged stocks? Not a chance. There are many more fundamentally challenged, chart-infatuated players out there than value portfolio managers. Because they control the short and intermediate term, my first purchase or short sale is frequently early. Price momentum is a powerful foe. Occasionally, low valuations provide little support for unforeseen fundamental problems. I have experienced a few "value traps." But, more often then not, a valuation-driven investment philosophy provides limited risk and ample reward opportunities.
On the long side, I still think small- and mid-caps represent the best value. HealthSouth (HRC:NYSE - news - commentary) , a leading provider of rehabilitation and outpatient surgery services, looks compellingly cheap. At $12.20, the shares trade for 10 times 2002 cash EPS and 6.5 times EBITDA. (Editor's note: All stock prices are from Friday's close.) Sensient (SXT:NYSE - news - commentary) , a leading flavors and color company, closed at $16.22 Friday and trades for the same valuations as HealthSouth. The savings and loans, including large-cap Washington Mutual (WM:NYE - news - commentary) (at $30.91), trade for attractive valuations, yield generous dividends and have meaningful share repurchase programs. Black & Decker (BDK:NYSE - news - commentary) (at $34.30) trades for 12 times depressed 2002 cash earnings and should benefit from lower interest rates and a stronger economy next year.
The apparel stocks, despite significant rallies since late September, appear cheap and will benefit when investors want more economic sensitivity. One of my favorites is Liz Claiborne (LIZ:NYSE - news - commentary) , an exceptionally well-managed and cash flow-positive company trading at $49.15. The shares trade for 12 times next year's cash earnings.
On the short side..."
Robert Marcin, the principal of Marcin Asset Management, a private investment firm. Formerly, Marcin was a partner at Miller, Anderson & Sherrerd and a managing director at Morgan Stanley, where he managed the MAS Value fund (currently Morgan Stanley Institutional Value)... |
