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

To: JakeStraw who wrote (21398)	6/27/2005 1:49:02 PM
From: - with a K	Respond to of 78666

DRL - I think if you have some patience the stock could easily be a double... I picked up some DRL last week. This Yahoo post summarizes well my take on its fall: Re: value by: ghbond Long-Term Sentiment: Strong Buy 06/20/05 10:20 pm Msg: 18025 of 18054 Unlike some of the value investors who have been lead here by scans, I have been tracking DRL for years, as one of the top performing stocks in the stock market. What I do is track the great stocks/companies, and buy them when some temporary ill befalls the stock. An example is Sysco, SYY, the name you see on the food delivery trucks. SYY was beaten up in sympathy with Royal Dutch Ahold when they went through their financial scandle. I fearlessly bought the bottom, and was rewarded. In the case of DRL, there was no scandal, just a disagreement on how to best report the value of some mortgage packages sold by DRL. DRL sells fixed rate, and borrows at variable rate, puts the whole thing together as a package, and values it based on the expected life of the mortgages and the difference in the rate over the life of the mortgages. To figure out the life of the mortgages, they have the history of the behavior of borrowers, so that they can say that the average life of the mortgages will be "X" years. To figure out the rate, they take the difference between the fixed rate, which they know, and the libor rate. The libor rate is a banking standard for interest rates, kind of like the daily fix for rates. DRL was using the actual value of libor when they reported the earnings from these packages, which were reported at forward discount, meaning that the value of the money was reported in one year, even though the payments were to be spread out over several years. Enter the pesky accountants, who complained that using the current libor was giving too rosey of a picture, because rates were likely to rise over time, reducing the actual earnings of the packages. This means that the earnings stated by DRL MIGHT not be accurate, because interest rates MIGHT rise. The pesky accounting types wanted DRL to use the "forward libor curve" which takes into account the EXPECTED decay in the value of these packages. To summarize, DRL is going from an assumption of consistant interest rates going forward, to a curve which predicts rising interest rates going forward. Of course, when they do that, all the packages they sold, which were valued using the constant rate assumption, must now be revalued using the rising rate assumption. Thus, the infamous "restatement". Investors are confused and frightened by the scarey libor curve, thus the stampede out of DRL stock, and the stampede of lawyers eager to collect fees from those who don't understand their own responsibility when they undertake to invest in stock. We should see a strong recovery in DRL stock as the masses slowly realize that there is nothing wrong with DRL, just accountants jerking each other off.