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Politics : Idea Of The Day -- Ignore unavailable to you. Want to Upgrade?

To: IQBAL LATIF who wrote (29700)	11/12/1999 10:03:00 AM
From: IQBAL LATIF	Read Replies (3) \| Respond to of 50167

Baker Defends a Pair of Battered Picks November 1, 1999 1:19 PM EST By David H.M. Baker CFA Columnist "You could not have been more wrong on Elan; you were WRONG, WRONG, WRONG!" So read an email I received last week after my column on Ireland's Elan. While this feedback is colorful and to the point, it totally misses the purpose of my column. The goal of the Hidden Value column is to unearth undervalued companies that for one reason or another are ignored by the markets or fall under its radar. The most important aspect of my selections is that they are long-term in nature. I recommend them with an average holding period of three years in mind. This is not a column for day traders or investors looking to make a quick buck. In fact, any short-term pop in any of my recommended stocks is related more to luck than any insight on my part. In the last couple months I have written about a mix of companies, with a general bias towards technology-related firms. These companies include Independent Energy (INDYY: Nasdaq ADR) Elan (ELN: NYSE ADR) Cinar (CINR: Nasdaq), MGM (MGM: NYSE) , LM Ericsson (ERICY: Nasdaq ADR), Global Crossing (: Nasdaq ADR) and Medeva (MDV: NYSE ADR). The short-term winners are easy and these are often forgotten by readers: as Independent Energy is up 65%, Global Crossing is up 40%, LM Ericsson, up 32%, Medeva, up 13%, and MGM, up13%. However, I would like to focus on the short-term losers like Elan, down 19%, and Cinar, down 40%. Shares of these companies should be purchased aggressively at current levels and their stumbles should be viewed as a rare buying opportunity and not a chance to capture a tax loss. Elan fell five points a few days after I recommended it at 32 15/16 and today it is off 19% from the day of my column. The market reacted negatively to Elan announcing a delay in the launch of a migraine drug, frovatriptan, which would cut expected earnings per share for 2000 by around four cents. It's remarkable that a stock can fall 20% on a future 4-cent shortfall, despite posting record revenues and a 37% jump in third-quarter net income. However, my point is that investors should use these overreactions by the markets as a buying opportunity. This stock will remain volatile and be plagued by rumors as there is a large short position and a number of people with a vested interest in pushing the stock down. But Elan will become a major stand-alone pharmaceutical company over the next five years and it's a rare opportunity to own the shares of a future market leader at current valuation levels. This stock is a buy at current prices and I would aggressively add to the position on continued weakness. Cinar is another great company that has been caught up in the market's short-term maelstrom. Several days after I penned a column on the company it was accused of violating Canadian tax laws. The charges hit the stock like a ton of bricks. It's off 40% from its price the day I mentioned it and off 33% from my recommended $26 purchase price. Canada provides tax breaks to its film production industry if it uses Canadian writers to create the content. The crux of Cinar's alleged wrongdoing supposedly stemmed from its use of US writers several years ago on a few productions. Such a reaction by the market on something that will result at most in a small fine is a monumental opportunity for investors. Cinar is one of the tightest operations I have seen with a fantastic business model. The company recently reported a 78% hike in its third-quarter net and announced that it had added 38 new half-hours to its programming library, which now stands at 1,570 half-hours. This is one company where you back up the truck and load as much stock as you can afford at current prices. I am very confident that investors that buy the stock under $20 will double their money in a year. There are few other companies with as attractive a business content model and as well positioned to benefit from the rapidly evolving broadband digital economy. One of the keys to being a successful long-term investor is to have the courage to bet against the market and the herd mentality. You must be willing to accept a perceived negative as a positive and always be prepared to take advantage of panic selling to pick up undervalued shares like Elan and Cinar. Of all the stocks I have written about this year MGM remains one of my favorites. As I mentioned it has a one-of-a-kind franchise in its gigantic movie library, a fantastic management team whose compensation is tied to the share price and its success will mirror the meteoric growth of the digital economy. Of all my winners MGM still is the most undervalued. Long-term investors must own this company. Buy it aggressively at current prices and you can comfortably pay up to $25 for these shares. David H.M. Baker CFA is an analyst for worldlyinvestor.com and president of Rivendell Capital Management.