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

To: Steve168 who wrote (20332)	12/24/2004 11:25:57 AM
From: E_K_S	Respond to of 78570

Hi Steve - Several good points in your post. One of the items that I have noticed for companies that have "hidden value" are those much older survivors that have been run into the ground by bad management. They have not invested in new technologies to make operations more efficient, or just have continued to get by with running the operation "like we always have". With the Internet, computers, integrated JIT inventory systems, expanding global markets and outsourcing, many new management options are now available that make an operation more efficient and profitable utilizing their cheap capital asset base (in most cases w/ no debt and all paid for). I ran across an example of this recently with Amerco Inc. (UHAL), the old UHAUL company. The parent company went into bankruptcy in June 2003. Management basically screwed up getting into other business operations they did not understand (like insurance & special purpose entities as suggested by their "consultants"). Here is an article that the Motley Fool authored September 2003 regarding Amerco's recovery. netscape.fool.com. From the article:"...Amerco Chairman Joe Shoen noted that the company has more assets than liabilities. Moreover, the process of bankruptcy offers an interesting view into what is actually a healthy corporation. Stated book value of corporate assets are based upon accounting laws, and can distort actual value. Shoen noted, "real estate appraisals showed the market value of Amerco's unencumbered owned real estate is $550 million higher than stated book value." In other words, the company had some substantial value not captured under accounting standards....". From my observation, the company survived because it's original "core" business was sound and somewhat profitable. More importantly, their booked assets were less than their "actual current" market value or "potential economic" value. Because the company has been around for over two decades, many of their fixed assets were significantly undervalued and NOT being utilized for the best overall economic return. Management got lazy and screwed up! How's this for a turnaround - finance.yahoo.com. The average investor probably would not have known all of the sour deals that the Parent company entered into especially these "Special Purpose Entities" accounting tricks. The moral of this story is shareholders (like Benjamin Graham did) must rock the boat from time to time so management does not get lazy and "under utilize" the company's core assets. Also, management must stick to their knitting and innovate as technology and markets change. =============================================================== From the companies you track, do any meet this criteria (i.e. bad and lazy management, company 25 years or older)? I think a good start is to look at those operations that are 25 years or older and just surviving. I am still looking for the magic formula for uncovering these hidden "value" companies. This has been a good starting point for me. Happy Holidays and healthy New Year to all the SI investors. EKS

To: Steve168 who wrote (20332)	12/24/2004 4:13:55 PM
From: Spekulatius	Read Replies (1) \| Respond to of 78570

Steve, i would just chip in that the well performing Piotroski screen looks at the value of the underlying business just as much as it does at book value: Piotroski's solution wasn't rocket science. He figured that the companies with the best prospects might show some early signs of a turnaround. So he devised a nine-point rating scale based on balance sheet analysis. First there's profitability, which can earn a company up to four points: one point for positive return on assets (a hurdle that eliminates almost half of all value stocks), one for positive cash flow, one if return on assets improved during the past year and one if cash flow exceeds reported income (a measure of earnings strength). Then comes capital structure, three points: one if the ratio of long-term debt to total assets declined over the past year, one if the current ratio (current assets divided by current liabilities) improved and one if the company didn't issue any more common stock. Finally, there are two points for operating efficiency: one if gross margins improved over the past year and another if asset turnover (revenue divided by total assets, a measure of productivity) improved. smartmoney.com