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Strategies & Market Trends : The 5% Club - Stocks down 95% from their Highs -- Ignore unavailable to you. Want to Upgrade?

To: Larry S. who wrote (158)	8/15/2002 8:56:23 PM
From: DanZ	Respond to of 202

Heck, most of the stocks that I was going to suggest are already here. Thanks, BWAC! lol Here's one more. Reliant Resources (RRI) Rationale: This stock is trading at 2.4 times this year's and next year's earnings estimate. With an expected growth rate of 9%, it is trading at a very low PEG of 0.27. They actually grew sales in the last five years by more than 300%, so the 9% estimate may turn out to be way too low. The company beat the June consensus estimate of 41 cents per share by a whopping 20 cents per share. They actually earned 61 cents per share in the June quarter. Analysts have a mean rating of 3.13, which is between hold (3) and underperform (4). I think that the potential exists for upgrades once analysts get their heads out of their butts and realize that not all energy traders are doomed like Enron. I think that this stock is down for a combination of the following factors: 1. They are in an out of favor sector due to the negative press surrounding Enron. 2. While they have $323 million ($1.11 per share) in cash, they have $5,339 million in debt that needs to be refinanced in October 2003. If they can't refinance their debt, they could be forced into bankruptcy. However, I think that the risk of this is slim to none because RRI is a solvent, profitable enterprise, and they cover their interest by 10.4 times, which is more than double the industry average, and even greater than that of the S&P 500. Why would a bank force a company into bankruptcy when they are paying off the loan and are profitable? It won't happen. The bank would just be shooting themselves in the foot. 3. RRI will soon be spun off from their parent company, Reliant Energy (REI), who owns about 80% of RRI. REI Shareholders will receive 0.8 shares of RRI for each share of REI that they own. It is my belief that REI shareholders have been shorting RRI to lock in the value of the shares that they will receive in the spin-off, and I believe that this has accounted for most of the pressure on the stock. The ratio of REI to RRI used to be about 1.5. Today it is 2.9, meaning that REI has outperformed RRI by two times just in the last couple of months. This doesn't make sense because REI still owns 80% of RRI, and the stock prices should move in tandem. When RRI goes down, the value of REI's stake in RRI goes down, and the value of REI should go down accordingly. The stock prices have done just the opposite, and I think it is most likely do to excessive shorting of RRI. The short interest nearly doubled from 5.4 million to 10.3 million shares between May and June. It will be interesting to see how much it changed from July to August. I think that this stock will be a big winner from 3.70, but it might take time for the Enronitis to wear off, and for investors to gain confidence that the company will be able to refinance their debt. Once the spin-off related shorting is over, if it exists, a lot of supply would evaporate. Well, this is probably more than you wanted to know so I'll end it here! Luck, all Dan

To: Larry S. who wrote (158)	8/15/2002 9:19:41 PM
From: Jerome	Read Replies (1) \| Respond to of 202

Dynergy and Calpine belong on your list. DYN was at $1.32 today and CPN was at $3.50. Calpine has some powerful earnings and a P.E. of 2.9..they are expected to earn $.68 this quarter. besides being 95% off their highs both companies will survive and prosper. JMO...Jerome