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Strategies & Market Trends : Value Investing

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To: Terrapin who wrote (5156)	10/18/1998 11:12:00 PM
From: James Clarke	Read Replies (3) of 78812

I was not pleased at all with USEC's announcement in its first conference call that it will fall short by 40 cents a share its first year. But they reiterated that the dividend will still be $1.10 and that much of the shortfall is of a one-time nature. I think more important than the financial loss was the loss of credibility. Management really annoyed institutional investors and sellside analysts by waiting until the quarterly announcement to admit to a signficant problem that they have known about for three months. You should take comfort in the fact that the stock held at a level around the offering price. You won't find many IPOs that blow their first quarter and only drop 10%. I think many investors already understand there is something special here. That said, the economics are virtually the same as they were before. What changed is investor psychology. I bought a good story that nobody understands and figured that one by one investors would jump aboard. Now the first thing a new investor is going to see is a major earnings disappointment and a lot of excuses. I have no intention of selling my shares, but the chance of a quick payoff is virtually shot. The dividend allows me to live with that and wait for the 2-3 year payoff while collecting a big premium to a bond return. And Mike, that Deswell thing looks unbelievably cheap. I was just doing the "what's wrong with this picture" analysis. All I can find is that they are HQed in Hong Kong. I guess an Asian company now is about as popular as Hillary Clinton at a Fallwell rally. Is there some other big issue out there that should concern me? Does it really matter that they are in Asia - except of course, their costs have fallen. The company has no debt, so its not like they are some Korean conglomerate or Japanese bank tottering on the edge of bankruptcy. And their product does not seem particularly high-tech. So you tell me, what's wrong with this picture? I see the bull case - if you really want to convince me, tell me what people are so scared of. Jim

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