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

To: jeffbas who wrote (6177)	3/3/1999 6:09:00 PM
From: James Clarke	Read Replies (3) \| Respond to of 78464

<<Jim, could you speculate as to why NH is materially weaker than DE, AG, and CSE? It has much higher yield, lower price to book, less exposure to North America, the huge Fiat buyback program (if active), etc?>> This same thing is happening in industry after industry after industry. The large cap industry leader is hanging in there while the smaller companies' shares are just getting thrown in the trash. A couple things about NH are very interesting - first, this is no tiny company - New Holland is significantly bigger than Deere in Europe and Latin America. New Holland's balance sheet is more than strong enough to ride out a recession. Two points I would make: 1) This is a classic example of a market inefficiency. Portfolio managers with a one quarter time horizon will just dump things like New Holland. There is no reason it can't go lower. But the secret of value investing is to buy what nobody else wants. Before you play this game, though, just ask yourself whether or not you are willing to hold NH for 3-5 years if that's how long it takes for the ag sector to turn around. I don't think it will take that long, but it could. I can say with some confidence its not going to be this year. 2) A 6% yield makes the wait much more palatable. Will the dividend be cut? I don't think so. The company has the balance sheet to pay the dividend, and remember that Fiat which owns 70% of the company wants that cash flow and controls the board. Do your homework, but if you aren't finding any explanation for the price, I'll just tell you I don't think you're missing anything and I have been following this company closely for two years as an institutional investor. I know management and these are honest, conservative people who are every bit as baffled as we are at the stock price. I averaged down at a little above 10 and will again when I can scrape two nickels together. Just remember that in this game we could be completely right about the future return and the stock could still go to 5. JJC