TIP SHEET: Cooke & Bieler Manager Eyes The `Three C's'
By FRANK BYRT
Of DOW JONES NEWSWIRES
BOSTON -- Cooke & Bieler L.P.'s fund manager James Norris finds prospects "with the three C's: competitive advantage, cash flow and conservative management."
Despite the markets' turmoil, Norris says he's finding plenty of candidates.
"It's a strange (investing) environment. There's so much panic out there, but frankly it creates opportunities" for those with a long-term outlook, he says.
Norris says that by using his long-term value approach, for example, he's even finding attractive stocks in the battered technology and pharmaceuticals sectors.
"We're bottoms up managers, so we go wherever we find good businesses" with a clear competitive advantage, says Norris, co-manager of the C & B Large-Cap Value and Midcap Value Portfolio funds of Philadelphia.
The Midcap Value fund, with assets of $67 million, has a year-to-date negative return of 4.6% through July 31, compared with the 7.2% decline of its benchmark - the Frank Russell Mid-cap Value Index - for the period. As of Aug. 13, the fund has year-to-date decline of 8.9%.
Drugs, Tech, Niche Retailing Favorite Sectors
In pharmaceuticals, he likes IMS Health Inc. (RX), which provides marketing data for pharmaceutical companies.
"Basically they're a database company. They gather information from doctors and health-care providers and channel it back to the pharmaceuticals companies, and when investors thought (the pharmaceuticals) were having troubles the stock sold off," he explains
Shares of the Fairfield, Conn., company have been trading in the high teens, off a 52-week high of $28.23 reached Sept. 4. Shares recently traded up at $17.18.
"No one else can come close in terms of data gathering and product creations," and the company has an 85% market share, he says.
It also has strong cash flow in a non-capital intensive business and as a result, earnings drop to the bottom line, Norris says. Analysts expect it to earn 99 cents a share in 2002.
In technology, Norris favors Parametric Technologies Corp. (PMTC), of Needham, Mass. It is attractive to him for many of the same reasons as IMS Health.
The company is the "the largest player in the high end of mechanical computer-aided design or MCAD," Norris says. "The great thing about MCAD is it is a software business, so it's not capital intensive, and second, the installed base becomes a competitive advantage as a natural barrier to entry" for potential competitors.
That's because "if a company has its engineers trained on Parametric software, they're not going to take it out and put in some other, because the retraining costs would be prohibitive. So the installed base is very, very stable," Norris notes.
The engineering software maker has a strong balance sheet, with no debt, about $200 million in cash and decent cash flow, he says.
Shares were trading at just over $10 a share last December, but have traded recently at around $3. The stock hit a 52-week low of $2.55 on Tuesday.
Norris has a number of eclectic choices in his now, 36-stock portfolio.
Take Big Lots Inc., (BLI), of Columbus, Ohio, a company in what he calls the "close-out segment of retailing." It buys other retailers' out-of-favor or out-of-season merchandise in bulk and resells it cheaply through its more than 1,300-store chain.
"It's well established, but not many people have heard of it," says Norris.
But in its niche, it has a 75% market share and a national footprint, which gives it massive buying power.
Shares have risen from a 52-week low of $7.15 on Oct. 19, to a 52-week high of $19.90 on June 28, and Norris has done some profit taking on it. The stock recently trade up at $17.65.
Big Lots was the C & B Mid Value fund's largest holding at June 30, making up 5.7% of the portfolio.
In an altogether different spectrum of retailing, fashion clothing, he likes Tommy Hilfiger Corp. (TOM).
"The fashion cycle can be violent but it creates opportunity in our view," he says. "Tommy missed the last fashion cycle" and that's why the stock chart over the past two years looks like a roller coaster.
But Norris got in at about $8 a share. Shares were trading recently at $13.40, near the 52-week high of $16.65 hit April 17.
"Tommy Hilfiger is a name brand young people have heard of and respect. If (the brand) is well managed, it's very valuable and we know eventually they're going to get it right," Norris says of the Hong Kong company.
The company carries very little debt, has great cash flow and is trading at seven times projected earnings for 2003, Norris says.
-By Frank Byrt, Dow Jones Newswires; 617-654-6742; frank.byrt@dowjones.com
URL for this article:
online.wsj.com
Updated August 15, 2002 3:00 p.m. EDT
Copyright 2002 Dow Jones & Company, Inc. All Rights Reserved
Printing, distribution, and use of this material is governed by your Subscription agreement and Copyright laws.
For information about subscribing go to wsj.com
Used with permission of wsj.com |
