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Jim Stack's Bargains
06/06/2003 12:00 am EST
"Since early May, our technical indicators have continued to strengthen and we've stepped-up the invested allocation in our model portfolios, to an 85% invested position," says Jim Stack, editor of InvesTech Research Market Analyst. "In making our latest additions, we've emphasized growth-oriented investments, but not to the detriment of our core value strategy." Here are Jim's latest buys.
"Automatic Data Processing (ADP NYSE) is one of the world's largest providers of transaction processing, data communications, and information services. Its p/e of 19 and Price/Cash Flow of 15 are well below the company's historical average. The company has shown 53 years of continuous growth in revenues and earnings. Its long-term debt ($80 million) is less than 3% of capital and the company currently has $2.1 billion in cash equivalents on its balance sheet.
"Dentsply International (XRAY NASDAQ) designs, develops, manufactures, and markets dental products in over 120 countries under well-established brand names. Strong demographics of an aging population and increasing insurance coverage should increase demand for dental products. Its p/e ratio of 19 is below the ten-year median of 23. The firm has shown 12 consecutive years of earnings growth, with 5-year average annual growth in earnings and sales of 15% and 17%, respectively. Dentsply shows strong free cash flow ($107 million in 2002) in relation to market capitalization ($2.7 billion).
"Equitable Resources (EQT NYSE) is an integrated energy company with emphasis on Appalachian area natural gas assets. With EQT's 2004 and 2005 gas output hedged at attractive prices, this stock is a conservative proxy on the consolidation and improving profitability of the industry without the risk of natural gas price volatility. Its p/e ratio of 14 is less than the company's historical average of 16 and the S&P 500 ratio of 24. The firm has shown five consecutive years of improvement in operating. ROE of 20% is significantly higher than the industry average of 15%. Long-term debt ratio of 42% compares favorably with the industry average of 60%.
"Michaels Stores (MIK NYSE) is the largest US specialty retailer of arts, crafts, frames, and floral and decorative items. Michaels dominates its retail space, as the next three largest direct competitors have combined sales of $1 billion versus MIK's $2.9 billion. Its p/e ratio of 15 is far less than its historical average of 20. The company has reported six consecutive years of improving operating margins and ROE, while long-term debt is less than 17% of capital.
"State Street Corp. (STT NYSE) is a world leader in financial services primarily to the institutional marketplace. State Street is a beneficiary of the growing sense of urgency about retirement savings, as the company custodies more than $8 trillion in assets. Its p/e of 17 is low compared to the historical average of 20. The firm has shown 25 consecutive years of growth in operating earnings per share and a ten-year average ROE of 17%.
"Wilmington Trust (WL NYSE) is the largest banking institution in Delaware and the 12th largest trust organization in the US. Strong demographics should support growth, with the largest transfer of wealth ($12 trillion) from one generation to the next now underway. The p/e ratio is 14 vs. an industry average of 17. Its ten-year average ROE is 20.3%, and its yield of 4.0% has been increased for 22 consecutive years."
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