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

To: James Clarke who wrote (846)	12/28/1998 8:18:00 PM
From: Harry Landsiedel	Respond to of 4691

James Clarke. Re: Grey Advertising. See the following article from this Sunday's NY Times. I have only included a brief bit on investment philosophy and the section on Grey, but the rest is interesting. HL Investing With: Scott M. Black of the Kobren Delphi Value Fund By CAROLE GOULD INTRODUCTION: For years, Scott M. Black, president of Delphi Management, a Boston money management firm with $915 million in assets, has preached the merits of deep value investing. With his thick Down East accent, Black, a native of Portland, Maine, was always ready to pull out a passel of research showing how small-capitalization value stocks outperform other equities. INVESTMENT PHILOSOPHY: In looking at companies, Black watches for growing earnings and revenues, for example, along with returns on equity of 15 percent or more. Often, that means passing up restructuring plays. "We don't like cost reductions, which only work short-term," he said, adding that he likes to keep turnover in his portfolio to below 50 percent a year. He also favors cash-generating companies with solid balance sheets. Cash exceeds debt in 40 percent of the companies he owns. With an overall P/E ratio of just 14, based on anticipated 1999 earnings, the stocks in Delphi Management's accounts have some of the lowest valuations in the small-cap universe. "We're absolute value players, not relative value," he said. GREY ADVERTISING: Black has been adding to his holdings in Grey Advertising, which he started buying in 1982 at less than $5 a share. Grey now sells for $348.50 a share, less than 13 times Black's 1999 earnings estimate of $27 to $28 a share. That compares with P/E multiples of more than 29 for two rivals, Interpublic and Omnicom. Grey has yet to recover from the August selloff, is illiquid and not closely tracked on Wall Street. He likes the pricing flexibility of advertising companies. "It's what Warren Buffett used to refer to as a 'royalty rent franchise,' " he said. "There's not another business in the U.S. that can mark up its prices 5 percent every Jan. 1." Black thinks Grey's return on equity will be 18 percent going forward.