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

To: James Clarke who wrote (9113)	12/3/1999 3:05:00 AM
From: Paul Senior	Respond to of 78746

Hounding? I certainly didn't intend to. Sorry if the discussion read that way to you. You missed nothing in your analysis. I certainly can't determine the "earning power" of this company. And you stated the negatives too. You could've also added their potential asbestos liability. They are selling "non-core" assets of $700M in rev. There is some insider buying starting to show up. 7 of 10 analysts rate it a buy. Their consensus earnings for this year and next year (12/99, per Yahoo)are $4.20 and $4.66. I'll just lop off about 15% for their '00 earnings, on the assumption that if you can't calculate earnings, then they can't either. Still, at $4.00 if it were to happen, that's a pe of 5. You're maybe right about PSR. Before all the debt accumulation and before all the acquisitions, the stock was right around it's current price. And psr was .38 or .34. Now, psr at.22, -- while it's the lowest figure I've seen, perhaps, as you point out, I haven't well enough factored in the outstanding $3-4 billion in debt. Maybe about .15 (just a guess) on $73/sh in sales (assumes $740M revs. lost in divestitures) That makes it about $11/sh = fair value. (Lot different from $19-20). But $11 seems too low to me. I just don't know what to pay for a dollar of sales. The business is getting more competitive it seems, and the large car companies are consolidating. And in turn, they want their suppliers to be big, global, and provide much more engineering/design capabilities than in earlier years (imo). This has forced supplier companies to broaden their scope of work but concentrate on areas where they might sustain some competitive advantage (e.g. design, develop, manufacture everything related to suspensions but not be a number 3 player in trim.) Again, all imo. The benefits are closer and longer worker relationships with the car companies, but perhaps being more tied-in even closer to the sector's ups and downs. You look at the financials and conclude they're too messed up to be able to determine earnings or scope out what happens when the auto cycle turns down. So you've moved on. Which is fine. My way is different. I look at FMO and see a $6 billion sales/yr company with a hundred year history. It employs more than 50,000 people in plants worldwide. To manage, they are using (or they say they are) EVA, of which I am a big believer. The management is a scrappy bunch (as with the large number of acquisitions). But they overextended themselves. Now they apparently realize this and are trying to extricate the company from this predicament. Its stock is selling at a multiyear low. (As are some other comparable stocks in the sector.) I don't see that there's a cyclical downturn coming. Coming it may, but I don't see it. I assume that the company will not spin into oblivion in the next few years. I assume at some point the selling will stop and at some point perceptions will change. I'm willing to make a small bet now that I will see $30 in 18 months. I see it also as hedging my Dana bet a little. If Dana rises I'll bet that FMO will too. Maybe there's a problem with FMO and it won't. But rather than jump up my bet on Dana, I'd rather diversify a little and start with a small amount in another company.