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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: porcupine --''''> who wrote (562)	7/29/1998 6:29:00 PM
From: Axel Gunderson	Respond to of 1722

Semi-random Musings To All: The opinions that follow are based on what are necessarily limited observations, and should be considered as data points, not strong arguments. Also as the heading suggests, they are not complete or organized. They are offered in the hope that they will challenge currently held perspectives, and perhaps stimulate conversation. Re: Vallen. I am not familiar with the company. My non-statistically-significant survey of safety officers suggests that they have little name recognition, and I do note that they seem to have low margins. I might speculate that offering a "total safety package" - which would allow companies to essentially out source to them - could be a means of differentiating themselves. Given the way POs and SOs operate, I would guess that penetration would be slow, but that once established they could reasonable expect a sizable amount of customer loyalty. Re: Deere. I've gotten some feedback that used agricultural equipment on the auction block has been rising. I need to verify this and if true, find out why. As for AB's comment on Deere's forward PE vs anticipated growth, we should keep in mind that this tends to be average for DE. Unless DE can maintain its recent sales momentum, this doesn't suggest great returns, though it does suggest some level of safety. Re: Boeing. The thematic argument for Boeing is of course that it is the largest producer and that it has a huge backlog. The weakness in this argument is that for the most part these conditions have been in place for some time now. The backlog has been rising, but as with small companies, this can lead to production and cash flow problems. It is my opinion that swallowing M-D was of little if any benefit as regards airplanes, though it may well be of benefit as regards military products. While H. Stonecipher struck me as a good thinker, M-D seemed to have too many chefs and not enough prep cooks. Meanwhile Boeing has been following the pattern of so many US companies and basically developing its own competition. They have done this by acceding to Chinese demands that they teach the Chinese to build their products as a condition for sales. As far as airplanes go, eliminating a relatively inefficient minor player would seem to make less impact than creating a new competitor. Meanwhile people deride the Airbus consortium as inefficient, but at least the German member of that consortium seems more aggressive in embracing new technologies and efficiencies than does Boeing. No doubt getting production more efficient should lead to improved cash flow. The question is how long this will take, and how much will the financial problems of Asia affect demand. It also bothers me slightly that Boeing management has cited improving stock performance as a priority. Not to suggest that it is in any way bad to try to reward owners of the company, but my perspective is that if you take care of the business, the stock will follow. Buying stock back is great with surplus free cash flow, but doesn't strike me as good when there are cash flow questions. Boeing itself has been guiding expectations downwards, so on a quantitative basis I do not see a tremendous margin of safety. On a qualitative basis I am much more impressed with United Technologies. I know they are not exactly direct competitors across the board, but for a similar thematic argument (and sticking with a DOW component) you get a greater margin of (qualitative) safety in my opinion. A more diversified manufacturer and seemingly a better run company. It has been interesting to see that Sikorsky and Otis do a surprisingly good (given their rather different businesses) job of sharing intellectual resources, better than that of even closely related departments at other companies. If somebody wants to play the aerospace theme, I'd be inclined to investigate suppliers as well as the major producers. Two that I would look at (I have not looked at them myself from a quantitative angle) are Precision Castparts (PCP) and TIMET (TIE). Axel