John: Since NTK has been purchasing most of their shares back here
recently between $14 and $15 per share, 500,000 shares will only cost
them about 7.5 to 8 million dollars, so that will not drain their cash
reserve that much, which,I think,is at least 40 to 60 million dollars.
The company has long term debt of about 250 to 280 million dollars,
of which 200 million is financed at 9 7/8%, and significant amounts
of repayment are not due for at least several years out from here.
Since the company feels their shares are significantly undervalued,
and I agree, especially when you look at how eagle hardware and garden
(EAGL) was recently run up to $30 per share before it dropped back down
to $20 per share recently, I think it would be very worthwhile if
someone could call Richard Harris, the VP who handles investor relations
for NTK at (401) 751-1600 on Monday, and try to find out from him what the
company thinks is a fair value for their shares in this market. My
guess would be easily from $20 to $25 per share at peak stock price.
I don't know if he can or would be willing to answer such a question,
but if someone has the courage to call on Monday and were willing to
post the reply here, it would be extremely valuable and reassuring.
Another question would be: "what happens after the company completes
buying back 500,000 shares and announces so in a news release?" Will
this cause investors to start selling, or might the company buy back
more shares?
But a more fundamental question which nows needs to be addressed is the
market risk to all stocks, growth and value. Since the market is
starting to show signs of cracking, could profit taking on the big
cap stocks cause pneumonia for all stocks, big and small cap. My
concern is that if the big cap stocks in the DOW 30 start to get hit
by profit taking, since the DOW 30 has such a powerful psychological
impact on investors, will it turn them into nervous wrecks that will
start selling all stocks or start to seek redemptions from their
mutual funds?
We can not take it for granted that the institutions will simply shift
their investing into the smaller cap stocks, it would be nice if they
did so. Also, I hope this overall market holds up at least until the
end of the first quarter earnings reports near the end of January,
1997, as NTK will report record earnings for the fiscal year ended
December, 1996, and their earnings should be reported near the end of
January, 1997. With these low interest rates, they should have an
excellent year in fiscal 1997, unless interest rates spike back up
significantly.
Does anyone have an opinion how long before a market correction starts
in earnest? After the earnings report near the end of January, there
is a vacuum until the next earnings report near the end of April, and
the market risk factor goes up significantly. However, that is normally
a period of heavy IRA money flowing into the market.
I don't think we can entirely ignore Alan Greenspan's remarks about
the market being overvalued, although that is a broad statement and
many of us feel that lots of it is overvalued, but some parts of it is
not overvalued.
Harlan |
