Let Your Fingers Do the Walking

08/18/2006 12:00 am EST


Gordon Pape

Editor and Publisher, The Income Investor and the Internet Wealth Builder

Value investing is resurging in popularity. Also touting the “value” of value investingbut with an income twistexpert investor Gordon Pape continues to find this yield-generating fund very attractive, especially at its current beaten-down price…


“The efficient market theory holds that prices reflect all available information and adjust quickly to any new input. I agree that they adjust to new databut not efficiently. Very often they overshoot the mark, either up or down. Sometimes the distortion is corrected in a matter of hours or days but occasionally it persists for months or even years.


“There’s no doubt that mass psychology can move markets in ways that are clearly inefficient. It can also do the same thing with individual stocks and the recognition of that basic fact is precisely why great value investors like Sir John Templeton became billionaires. Value investors constantly search for situations in which a stock is underpriced, sometimes because of investor overreaction, sometimes due to a failure to properly analyze assets, and occasionally because people just don’t like the company, for whatever reason. When they find such gems, they fill their portfolios and when sanity returns and the price rebounds to a realistic level, they pocket their profits and move on.


“We know that, historically, stock markets will always experience cyclical ups and downs but the long-term trend is up. So if you want a dead easy way to make money, here it is: buy top-quality companies during the darkest days of a bear market and then wait. The odds are that you will double or triple your stake within three years.


Yellow Pages Income Fund (YLWPF Other OTC) recently announced good second-quarter results. Consolidated revenue (adjusted) grew by 55.7% to $340.5 million while adjusted EBITDA grew by 46.4% to $184.1 million compared to the same period last year. Management said the increase was largely due to the full quarter contribution from the ADS operations (acquired last year), as well as from recent investments in Trader Corporation.


“Online revenues reached $22.1 million. Distributable cash increased by 41.5% to $150.5 million. Growth was 11.1% from 27c in 2005 to 30c this year, per unit. Management also issued guidance for the rest of the current fiscal year and for 2007, projecting increases of 4% to 5% for adjusted revenues and 4% to 7% for adjusted EBITDA for the Directories part of the business. For Trader and related operations, the guidance is for 6% to 7% growth in revenues and 7% to 9% in adjusted EBITDA.


“Despite these good results, the shares dropped slightly on the day and ended the week at $14.98. With a yield of 6.9%, they represent good value at that level. Buy.

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