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Strategies & Market Trends : Value Investing

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To: Paul Senior who wrote (20726)	2/23/2005 3:38:36 PM
From: E_K_S	Read Replies (3) of 78744

It's interesting that you mentioned SJW in your list as I had researched this company extensively a few years ago. It was extremely undervalued back then (a few years before their 3for1 split) at $55/share. At the time they held a huge position in American Water Works stock which was acquired by RWE AG in late 2003. My interest was in their land holdings and I found out that a substantial of their free flow cash flow back then was generated from a parking lot operation located on land they had for decades and now services the San Jose HP Pavilion (Ice Hockey Sharks)parking needs. The company got a buy out offer in the $80's in the late 90's or early 2001 period which they rejected. I noticed that they trade around $35 which would be the equivalent of $105 pre split. Since then I moved on and bought SWWC (http://finance.yahoo.com/q?s=swwc) a water treatment contract operator servicing small municipalities. In no way are they a value play and in fact sell at a quite high PE. I am buying long term growth with this company. I think IP is a good candidate if it falls back to the $33 area or lower. SPI is also interesting but as a foreign company the dividends are not "qualified" and subject to a higher tax rate. The most interesting on your list is NCC. I am doing more research on this company. I like what I see except but Spekulatius got me thinking about how one should "evaluate" banks, specifically regional or special entity banks. NCC appears to have an operation that generates and packages loans and then resells them. This is typical of most operations and they limit their exposure to loans they carry in their own portfolio (aka as a "portfolio" lender). NCC also has a servicing operation that is not subject to interest rate risk but a good generator of free flow cash flow. You provided a good list of financial ratios you use to initially scan bank candidates. I want to buy value but I also want to limit my exposure to specific company risk due to (1) changes in the yield curve, (2)specific portfolio loan risks (are they a portfolio lender or do they package and sell their loans) and (3) buying lots of goodwill (book value can be overstated due to booked goodwill from previous acquisitions). Sometimes it is easier to dig down in a small bank's operation to see all of the divisions and revenue streams than with a conglomerate (like C or JPM). EKS

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