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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Michael Burry who wrote (7653)	7/3/1999 4:24:00 PM
From: Michael Burry	Read Replies (1) \| Respond to of 78760

Screening has its limitations, but I've had some success with the screens I post over on my web site every few months. I just posted a new one last night. Tries to use Buffett-like numbers to find the small caps he says he can do 50% annually with. Turns out 3 of the stocks in the screen are already in my portfolio, another one (CXP) I'm considering, and another one Nautica (NAUT) was profiled in Barron's this am as being a good buy. Several of them look interesting. The list with all the criteria and results is at the site under Screening Lab. valuestocks.net No manufacturers of homes made it in. The average gain of a stock in the March screen - based on Dreman's latest contrarian tome - is 21.8%n to date, with a low gain of -3.4% (Ballard Medical Products). Mike

To: Michael Burry who wrote (7653)	7/3/1999 11:29:00 PM
From: James Clarke	Read Replies (2) \| Respond to of 78760

There's a big difference between the ag equipment and the manufactured homebuilding industries and that is that there is a major recession going on in ag right now. Homebuilders of any stripe are going to enjoy the strong consumer economy even if interest rates turn up a bit. Barring a recession, I don't think we see another major leg down in the Claytons or Champions. The others in the industry are much weaker players and are by nature more speculative. In a recession, could we see something closer to book value? Of course. But that is where Clayton really shines - they have recurring revenue streams on the financing and community businesses. It would have to be the kind of downturn that breaks through Clayton's conservative credit margin of safety. And in that case, you're dead in just about any other stock as well. I am waiting with interest to see whether Clayton and Champion make their quarters. For Clayton at least, missing a quarter is a very unusual event. And Mike, I like the spirit of your screen, and I do something very similar but with one difference I consider a major one. Rather than last five years return on capital, I use last ten years. Sounds like a minor quibble, but this weeds out much of what you're finding - cyclical companies that have had a great five year run but which got murdered in the last recession. When I screen for good businesses that are cheap, I generally look for three things in the business: 1)ROE through a cycle greater than 15%, 2) High profit margins, 3) Significant free cash flow - then on valuation: 1) P/E less than ROE; 2) Free cash flow yield greater than the long bond yield. I don't know if these came out of this particular screen, but things like Herman Miller, Hon Industries, Payless Shoesource and Lancaster Colony might be attractive if you look for similar criteria. Jim