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

To: Bob Rudd who wrote (1642)	7/5/1999 1:57:00 AM
From: Michael Burry	2 Recommendations Respond to of 4691

From my site: "A word about the notion that one may "screen" for great stocks. Screening is a great tool, but realize that everyone has it. When I say everyone, I mean that whatever great screening package you have, the professionals on Wall Street have a better one. And, unlike your package, the fundamental data is up-to-date and deadly accurate. This is not to say that there are no good screening packages for the individual investor. There are. But individuals must take extra care to confirm that the data is accurate, to devise screens that Wall Street doesn't use, and to limit expectations. The great failure in screens boils down to failed expectations. For the most part, screening for low price/earnings ratios and high growth rates is being done everywhere on a wide scale. And when you find a company with a low PE and sky-high growth rate, then there's usually more to the story than meets the eye. The lone exceptions will typically be ultra micro-caps, under $50 million in market capitalization. Value investors have it good, though. We know a lot about fundamental analysis, and can devise screens that are unusual but effective. We also can use the screen as merely a starting point for intensive research - confirming the data, searching SEC Edgar, etc... In the Screening Lab, VSN uses various screening tools from around the web to screen for stocks on value-based criteria. Which criteria to use are determined in large part by the market environment, and are modeled after the methodology of a value investing guru or two." FWIW, I track my screens this year on Yahoo. They've actually done fairly well, both in terms of the occassional home run, good average performance, and little downside. I try to go out of the way to find screens that combine different attributes in ways that will get the desired results. Jim notes that somehow I use 5-year data but don't get a bunch of cyclicals at their tops. Most cyclicals have not been rallying for a full five years, so I knew using high 5 year avg return figures would weed most out. Most cyclical companies just don't have a high return on assets, let alone a five-year average greater than 12%. Some got through. For instance, Centex Construction Products has been riding the boom in wallboard for just about 5 years now. Mike

To: Bob Rudd who wrote (1642)	7/7/1999 11:35:00 PM
From: James Clarke	Read Replies (1) \| Respond to of 4691

Not a textbook Buffett stock because it is cyclical, but Paccar is one interesting company. A leading producer of class-8 trucks, this company has made money in each of the last 40 years in a very cyclical business. I don't think now is the time to buy it as the truck cycle is coming off a peak, but it might be one to get to know and put in a mental buy order at 40. It will get there sometime in the next twelve months when the truck cycle breaks. In brief, they do about 16% on equity averaged through a cycle. At peak they are earning about 22% on operating assets and even earning 9% on the ASSETS of their finance sub. They have 600 million of net cash on their balance sheet. The most conservative management you will ever find. Right stock, maybe the wrong time. The stock looks very cheap now, trading at 3.8 times EBITDA, but it probably takes a leg down when the earnings outlook deteriorates. For the next two quarters though, I think they blow out estimates with growth of about 25% off pretty good '98 numbers. Another industrial cyclical it is time to watch is John Deere. Corn, wheat and soybean prices are all testing record lows again, and I think Deere is ready to drop again. It bottomed at 30 last year, and 30-31 looks like another good entry point to look for in about a month (Deere tends to get decimated in July-August, then rebound strongly in the fall). I think the stock could get as low as 25, but I think the risk of missing it is worth paying 30-31 with the possibility of not quite getting the bottom. Deere at 31 August 15th. You heard it here first. JJC