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Strategies & Market Trends : Value Investing

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To: Michael Burry who wrote (2578)	12/1/1997 11:58:00 PM
From: James Clarke	Read Replies (1) of 78648

UST...I fight with my boss on this one all the time. I don't know why you'd want to buy UST and take tobacco risk when you could own Philip Morris at 14 times earnings. The big issue on this stock is that they are flirting with a price war. They hold something like 80% market share. There are important competitive advantages, but there are competitors and they're getting more and more aggressive. I don't think UST can hold them off forever. When market share is 80% it can only go down. And when you're selling a product for three times what it costs to make, there's a lot of downside to pricing too. Also, management has a reputation for living well. Maybe all this is in the price, maybe not. On the other hand, the business is a cash flow machine like very few others. There is very little debt. It would be an incredible LBO at 45 a share. There is a case to be made that portfolio managers don't look favorably on a company that makes a product they don't understand or use. Thus golf stocks and Tiffany's fly high, and things like UST get no respect. This has all the characteristics of a deep value stock. What do you think?

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