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

To: Jurgis Bekepuris who wrote (248)	8/15/1998 11:03:00 PM
From: James Clarke	Read Replies (1) \| Respond to of 4691

With the market down 10%, but the average stock down much more, it seems time to revist some Buffett stocks to see whether they might be at buy prices. They are down. Disney and Gillette are well off their highs. Even Coke is down 15% from its high. But I considered these so overvalued at their peaks that even 20% off those highs doesn't begin to offer a margin of safety in my opinion. What I have found is some unrecognized Buffett type stocks that have gotten creamed. One is not a stock Buffett would be likely to buy, but rather a Berkshire clone trading at 15 times earnings. A $5 billion+ market cap company. I think it is undervalued by 40% and would make an excellent long term buy now. I don't mean to tease, but I have recommended this to my firm and have to wait for a decision, then for us to buy it. I look forward to posting an analysis of this puppy, but only when it is ethical. My point is not this one stock - I have a smaller cap Buffett stock falling to my price now too - my point is that frustrated Buffett investors who have just given up should revisit what they have looked at in the past to see whether they make sense now. A month ago I had given up finding anything interesting at a reasonable valuation, let alone a buy price. Selling has been very irrational in many lower profile stocks and some high profile stocks as well. Jim

To: Jurgis Bekepuris who wrote (248)	8/26/1998 2:17:00 PM
From: Jurgis Bekepuris	Read Replies (1) \| Respond to of 4691

James and Mike, >SJK. 22% This one is a former high-flying >clothing company. The usual risk is change of fashion >(as NKE, etc.). I did not see any permanent slowdown >mentioned, though they had some production (?) >problems last quarter. I'll try to look at this one. Looks like SJK got itself into overproduced inventories debacle. In addition, there is a whole mess of family politics in company management. CEO Bob Gray is close to retirement. There are different opinions about him, but he definitely built a company, even if, as some claim, he's a dictator. Apparently, the company is being left to be run by his daughter Kelly Gray, who is not well regarded. The recent problems include quality control for 3 quarters in a row. Now, we have overproduction and markdowns. Like "Motley Fool" says today, the investment thesis in SJK was that their outfits are timeless, not subject to fashion trends, and not subject to markdowns. Now this has changed. Apparently, some clothes lines became more trendy. In addition, we got markdowns. That's all negatives. On the positive side, we have a cheap valuation of a company that produced >24% ROE for 10 years. The valuation approaches 1 PSR. We have a franchise, brand name. It's a Buffett company deluxe. Where we will go from here? One possibility is that the management continues to deteriorate. The company loses its franchise value and becomes a skeleton. This is definitely possible. On the brighter side, they could see the light and restructure. The ideal way would be Buffett See's Candies approach - don't grow, just milk cash, buy back shares and pay dividends. They don't even need to come up with new "fancy" lines, just sell the old-good-timeless clothes. But the management egos probably won't let that happen. If this is an era of "new Coke", we may wait for the "Coke Classic" before we invest. :-)))) Other two possibilities is that the company is going to sell itself or to take itself private. The new guy on the board was lauded as a consolidation expert. Anyway, SJK is definitely worth watching from here. Do you guys have any insight in the company? It would be great if someone could talk to the management and hear their story. Good luck Jurgis P.S. Reading list: SEC info, recent news releases, Motley Fool comments, Yahoo board (bearish!).