BBS: The Executive Network Information System - New York 914 667-4567 Date: 04-19-93 (17:10) Number: 20492 To: ALL Refer#: NONE From: DAVID CUMMINS Read: NO Subj: Agressive Buy List Status: PUBLIC MSG Conf: Misc.Invest (1291) Direction: FORWARD By request I am reposting my agressive buy list. below is the list, unchanged. The only note I would make is the Novacare is now around $12 per share, making it an even more incredible buy. The out of favor health care sector is hitting great companies as well as not so great ones, even ones that should be helped rather than hurt by the Clinton admin. Okay, here it is: ---------------------------------------------------------------------- Hey folks, here is my list of stocks that I have marked as Agressive Buys. Your comments are appreciated. I am working on a list of Moderate Buys I may present next. I do have one specific question, about Rollins Environmental. A recent article in Barrons said that the current price of $8.25 for the stock is what their five incinerator plants alone are worth, i.e. the cost if the five plants were to be replaced. I happen to have their 1992 annual report, so I looked through it, and I couldn't see how Barron's was getting that figure. What I saw was very plainly written: Property and Equipment: 169,285,000 Other assets : 8,878,000 Adding this up and dividing by number of shares outstanding, I get $2.96 per share. Can anybody clarify this apparent discrepancy? Okay, so anyway here is my list: AGRESSIVE BUY LIST EXPECTED PRICE, VALUE LINE EARNINGS DIVIDEND BOOK STOCK 3-19 TIMELINESS P/E GROWTH YIELD VALUE ------------- ----- ------------- ---- ------- ------- ----- Rollins Envir. $8.25 1@$11, 3@$12 13.1 23.5% .8% 3.43 Business: Environmental cleanup services. NOTES: The stock is down from a high of $14 in 1992. The company is very profitable; demand for its services exceeds supply and is growing as federal and state regulations further restrict land disposal as an acceptable hazardous waste disposal option. In september 1992 Value Line ranked REN 1 for timeliness, when the price was $11. In December 1992 Value line ranked REN 3 for timeliness, with a price of $12. At the time Rollins had just done a study on costs which revealed they had been underpricing some of their services and overpricing others. With pricing back in line, profit margin is expected to go up. The Clinton administration will be a boon to this industry. Insiders own 30% of stock, institutions own 45%. Debt to Equity: .5% PRICE, VALUE LINE EARNINGS DIVIDEND BOOK STOCK 3-19 TIMELINESS P/E GROWTH YIELD VALUE ------------- ----- ------------- ---- ------- ------- ----- Novacare $16.5 3@$23, 2@$16 15.2 30.5% 0 4.61 Business: Rehabilitation services. NOTES: The price of NOV is way down from its high of $30 in 1992, yet Novacare is doing extremely well; demand for services is high, earnings are up, NOV is expanding through acquisitions and increases in its staff of therapists. Two things in its favor: rehabilitation of patients is cost-effective, and Nova- cares fees are in the middle of the range of its competitors. This places it in a position to benefit from Clinton's plans. The Value Line analyst described NOV's 3-5 year prospects as "Superlative". Insiders own 6.2%, institutions own 50%. Debt to Equity: .4%. PRICE, VALUE LINE EARNINGS DIVIDEND BOOK STOCK 3-19 TIMELINESS P/E GROWTH YIELD VALUE ------------- ----- ------------- ---- ------- ------- ----- Beverly Ent. $10.875 1@$11, 1@$14 16.5 32% 0 7.35 Business: Nursing home chain (largest in the nation). NOTES: Beverly Ent. has been reorganizing, consolidating, and expanding. Sales, earnings, AND profit margings are increasing. BEV is trying harder to win contracts with managed care operators. The changing patient mix should widen profit margins. Their large debt makes BEV a less safe investment. Increasing aged population insures the nursing home business a good niche. Insiders own 3%, institutions own 65%. Debt to Equity: 126%. PRICE, VALUE LINE EARNINGS DIVIDEND BOOK STOCK 3-19 TIMELINESS P/E GROWTH YIELD VALUE ------------- ----- ------------- ---- ------- ------- ----- SciMed Life $36.5 3@$55 11.7 20% 0 11.50 Business: Maker of coronary catheters for minimally invasive procedures. NOTES: This company has had its problems, but it is a fast growing, innovative company, the price is down from a high of $92 in 1992. It owns 40% of the coronary angioplasty market, and is involved in development of a number of new products. Current lawsuits with Pfizer have driven the stock price down, but SMLS stands to benefit from Clinton's plans also, as minimally invasive procedures are cost-effective. It is a 20% grower with a P/E of 12! Insiders own 4%, institutions own 78%. Debt to Equity: zero! no debt! PRICE, VALUE LINE EARNINGS DIVIDEND BOOK STOCK 3-19 TIMELINESS P/E GROWTH YIELD VALUE ------------- ----- ------------- ---- ------- ------- ----- Omnicare $19.625 1@$30 31.7 31% .5% 9.75 Business: Provider of pharmacy management services to nursing homes. NOTES: With P/E higher than earnings growth, this seems a little pricey. However, the company has great potential and consider that Value Line gave it a 1 even at a price of $30. OCR has rid itself of several subsidiaries, allowing it to focus its expertise in pharmacy management service on the rapidly expanding nursing home pharmacy market. Contracts are expanding. However, because acquisitions are agressive and the P/E is a little high, this may not be a stock for conservative investors. Insiders own 6%, Institutions own 80%. Debt to Equity: 9%. PRICE, VALUE LINE EARNINGS DIVIDEND BOOK STOCK 3-19 TIMELINESS P/E GROWTH YIELD VALUE ------------- ----- ------------- ---- ------- ------- ----- Chris-Craft $32.125 2@$33 11.9 14% 0 42.20 Business: Independant TV stations. NOTES: CCN is the company I keep pinching myself about. It is very unusual indeed. It has good earnings momentum (12% increase), sure, but it has something else: cash and assets! CCN is managed by a very patient, frugal CEO. The stock is a great asset play. Cash minus debt is $27, so you are paying only $5 for the company! But that is not all: CCN's 64% stake in BHC plus its small manufacturing unit is worth $30 per share, so now you get the company Chris-Craft for -$25! A $32 price for a stock that is worth at the very least, $27 + $30 = $57. I talked with the public relations officer at CCN the other day, who said he felt the stock was worth $80. We can thus assume that the stock is not worth as much as $80, so some- where between $57 and $80. Somebody please slap me in the face if there is something I am missing. Insiders own 42%, Institutions own 43% (33% of which is Mario Gabelli). Debt to Equity is 1.5%. |--------------------------------------------------------------------| |Internet: cummins@stat.ncsu.edu Department of Statistics | |When it comes to predicting the stock market, the important skill | |is not listening, it's snoring. Peter Lynch | |--------------------------------------------------------------------| BBS: The Executive Network Information System - New York 914 667-4567 Date: 04-19-93 (19:46) Number: 20512 To: ALL Refer#: NONE From: LARRY WATANABE Read: NO Subj: Re: Agressive Buy List (d Status: PUBLIC MSG Conf: Misc.Invest (1291) Direction: FORWARD Maybe we should wait until these stocks become even more incredible buys :) The companies don't appear very well diversified. 4 of the stocks are in the health-care industry, 1 in waste disposal, and one in communications. This is only 3 industry categories, and if one were to buy equal dollar amounts of each stock it would probably have the approximate risk of a 1.5 stock portfolio because of the heavy weighting in the health care industry. In other words, a very risky portfolio, without compensating higher return since the risk comes from lack of diversification. > >I do have one specific question, about Rollins Environmental. A recent >article in Barrons said that the current price of $8.25 for the stock is >what their five incinerator plants alone are worth, i.e. the cost if the >five plants were to be replaced. Several of us other posters have answered this question previously. An asset is not worth on the open market its replacement cost. It does not take into account wear and tear, or supply and demand. A 10-year-old car may cost $15,000 to replace, but is not worth $15,000. Further, if the car was a Trabant, lack of demand might make it worthless. >I happen to have their 1992 annual >report, so I looked through it, and I couldn't see how Barron's was >getting that figure. What I saw was very plainly written: > Property and Equipment: 169,285,000 > Other assets : 8,878,000 >Adding this up and dividing by number of shares outstanding, I get >$2.96 per share. Can anybody clarify this apparent discrepancy? Their accounting firm would probably refuse to sign the report if they put down the value of their property and equipment at replacement cost. > .. lot of health care stocks follow .. I don't know what is going to happen as a result of health care reform and don't have any comments about these stocks except to say too many eggs in one basket. Chris-Craft is probably also a reasonable buy, but what are the company's prospects? What are the estimated 1993 and 1994 earnings? How are they going to make money in the future? It is always nice to have a company that sells for less than book/cash/assets, but that is only useful if the company promises to liquidate itself and give that cash and assets to you. With a dividend yield of 0%, it doesn't sound like that's in the works :) Question: what is the rational price for the stock of a company that will never pay a dividend and never go bankrupt? Answer: zero. (From some textbook on portfolio evaluation) -Larry Watanabe watanabe@cs.uiuc.edu BBS: The Executive Network Information System - New York 914 667-4567 Date: 04-20-93 (02:20) Number: 20515 To: ALL Refer#: NONE From: DON KATZ Read: NO Subj: Re: Agressive Buy List (d Status: PUBLIC MSG Conf: Misc.Invest (1291) Direction: FORWARD >Maybe we should wait until these stocks become even >more incredible buys :) It's hard to know when cheap stocks have bottomed. It's no shame to buy at 17 and sell at 35 two years later, even if the stock sold at 9 two months after you bought it. Sure it would have been better to wait and buy it at 9 - but crystal balls are in short supply. The health care industry is getting clobbered indiscriminately. There are going to be values there, but the risks are significant, since noone knows what effect the political changes will have on existing companies. However, some smart investors (Michael Price, Albert Nicholas) are putting money there. Albert Nicholas said in a WSJ article last week that he expects to increase the weighting of healthcare in Nicholas Fund to 25%. With respect to Novacare, I own it, and like the company. However, they announced last week that earnings last quarter are going to come in 4 cents below expectations of 25-27 cents. Last year was 21 cents. The company says there was a restructuring charge, but the news report I got had too little info. Analysts are downgrading the stock up and down the street (although at least one company downgraded from aggressive buy to buy). Earnings estimates from one analyst were cut to $1.01 this year, and $1.30 next. (Note that still indicates 30% growth rate, pretty good for company selling at 11 times this years earnings.) Too little info to tell what's really going on, but the stock is setting new lows daily. There is a convertible, newly issued, with a couple years of call protection and a 6.4% current yield selling at 86% of par - near bond value, so little downside risk. >The companies don't appear very well diversified. >4 of the stocks are in the health-care industry, 1 in >waste disposal, and one in communications. This is >only 3 industry categories, and if one were to buy equal >dollar amounts of each stock it would probably have the >approximate risk of a 1.5 stock portfolio because of the heavy >weighting in the health care industry. In other words, a very >risky portfolio, without compensating higher return since the >risk comes from lack of diversification. I agree that these 5 stocks do not make a portfolio. On the other hand, I find that stocks that are good values tend to be clustered in out of favor industries. So you buy banks and thrifts in 1990 when everyone said they would all go out of business, you buy semiconductors in 1991 when noone would touch 'em, you buy oils and gas stocks in 1992 when gas was cheap and getting cheaper, and you buy companies in the medical business now. (I wish I was this smart, but you get the idea...) You end up with a diversified portfolios in the long run.