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

To: Mark Adams who wrote (12009)	2/14/2001 12:03:19 AM
From: Q.	Read Replies (2) \| Respond to of 78516

OCA turned up when I sifted through the Forbes 200 Best Small Companies list. I looked for attractive multiples for companies with stable businesses that aren't going to disappear (this led me to eliminate a couple of one-product tech stocks, for example). OCA operates the only nationwide chain of orthodontics centers. This should be a nice recession-proof business, and compared to other healthcare stocsks, it's not as sensitive to changes in government-driven health reimbursement policies. The p/e on TTM is 18. It's a steady non-cyclical grower, with 32% annual revenue growth in the last 12 mos. Analysts expect about 24% growth in eps in 2001. It's the cheapness of this multiple in comparison to growth rate, and the stability of the business, that attract me to the stock. The present buying opportunity arises because the stock has been beaten down lately. The company attributes this to reports published by shortsellers. Apparently shortsellers have focused their criticism on the company's revenue recognition scheme, which results in a significant asset every quarter for "unbilled patient receivables." I've looked into it, and I think this isn't a big deal. The co. is using a slightly aggressive scheme in its accrual accounting by recognizing revenues a quarter or two earlier than they would if they were very conservative, but there's otherwise nothing to be excited about. If you try to adjust eps to what you would get with a much more conservative accounting scheme, you can just replace the two most recent quarters of revenue with those a year earlier. This knocks the eps for TTM down by 13% and correspondingly makes the p/e 15% higher, giving you an adjusted p/e of 20.8 rather than 18. This is still well below the growth rate.

To: Mark Adams who wrote (12009)	3/18/2001 4:48:30 PM
From: Mark Adams	Read Replies (1) \| Respond to of 78516

FYI; The carnage in the wireless-equipment sector has grabbed the attention of Marty Whitman, who runs the Third Avenue Value Funds. He's been buying stocks of companies that make cell-phone components, realizing he may have to hold them three to five years. His favorites: AVX which, at 17.29, is down from a 52-week high of 50, Kemet, which closed Friday at 17.71, down from a high of 44.23, and Vishay Intertechnology, which was once at 50 but now stands at 18.01. All three are flush with cash and have good long-term growth outlooks, Whitman contends. And they trade at just seven-to-eight times expected 2001 calendar year earnings estimates, making them much cheaper than the companies they supply. interactive.wsj.com