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

To: Paul Senior who wrote (25923)	2/17/2007 2:46:41 AM
From: Spekulatius	Read Replies (1) \| Respond to of 78751

I agree on GE - i bought back the small position i owned before after the recent price detraction. The stock is cheap relative to the market. I am planning to add more, should the opportunity arise.

To: Paul Senior who wrote (25923)	2/24/2007 10:20:46 PM
From: Paul Senior	Read Replies (1) \| Respond to of 78751

OT: Secretive defense contractor company SAIC (SAI) recommended in an interview in this week's Barron's: "Our ratio of short sales to long ideas is about 3 to 1, but we like to do long ideas. We published a report on SAIC (SAI) in January. SAIC is the largest pure-play federal information technology services company. It has about $8.1 billion in revenue. Until recently it was 100% employee-owned, and it went public in October at $15 a share. It's four times the size of its nearest pure-play competitor. It has huge expertise and more than half of its 44,000 employees have security clearances. Security clearances are extremely valuable. They are very hard to get and this creates a very high barrier to entry for companies competing with SAIC. As a result, SAIC wins many contracts with the Department of Defense and the U.S. Intelligence community. It has a very nice business model because it has very low capital spending requirements and generates lots of cash flow. Why did it go public? It gives the employees a chance to cash out, which is one of the problems with the stock: there is going to be an overhang weighing on the shares as employees sell the stock. However, this is a company with 37 consecutive years of revenue growth and profitability and it wins about two-thirds of the contracts it bids on and wins about 90% of its re-bids. As a public company, they have an opportunity to substantially increase their Ebit (earnings before interest and taxes) margins, which have run about 6.8% whereas the other players in the industry have margins more like 8% or 9%. There is a strong incentive to drive the margins higher. We project that Ebit margins should reach about 8 1/2% in the next three years. Is there more to the story? It also has about $600 million worth of real estate on the books. It has a $14 billion backlog. We think they'll earn about $1.02 a share for this year and about $1.30 in free cash flow. Next year they'll show a decline in earnings because of dilution from stock options. We estimate they'll earn 90 cents a share for the year ending January 2008 and then the following year $1.17 a share in earnings. It has extremely stable growth characteristics and it should get a premium." -------- Still looks like an iffy gamble to me though. Their size and clout (with their secret clearances and record of winning repeat orders) may already be adequately reflected by the current p/e (i.e. it's no obvious bargain stock.) I'll hold on to my recently purchased few shares though for a while longer.