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Skousen's Triple Play

10/22/2004 12:00 am EST


Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

Despite the poor performance of the overall market this year, Mark Skousen has seen his portfolio rise 32% over the past 11 months. Here, this top-performing advisor provides an update on three of his current favorite stock holdings.

"K-Mart Holding (KMRT NASDAQ $87.75), the post-bankruptcy company is booming and we are taking full advantage. It’s up 35% in the past two months. Last month, it continued its restructuring strategy by selling off another 54 stores, this time to Sears, for $621 million. The month before it sold off 18 stores to Home Depot, valued at $271 million, and now has a cash hoard of $2.4 billion. It reported earnings of $155 million in the second quarter ending in July compared to a $5 million loss the year before when it filed for Chapter 11 bankruptcy. K-Mart is an insider’s buying story, with top officials buying K-Mart shares even now. USB just raised its target price to $101 by next year, based on its strong cash-flow generation. So we definitely have more room to run. When it hits over $100 a share, it will probably split, another bullish sign.

"Collectors Universe (CLCT NASDAQ $14.52), the premier grading and authentication service for rare coins, stamps, and trading cards, is rapidly approaching its 52-week high ($14.99 earlier this year). In fact, it has been the best performing stock in our portfolio in the past year, up over 200%. Last month it reported further financial improvement. The latest earnings report showed net revenues advancing 31% over the previous year, and earnings per share rose to 20 cents, compared to a 1.6 cent loss last year. Last year at this time they had $4.5 million in cash. Now they have $21.5 million. Clearly, new president Michael Haynes’s strategy is working. Institutions are taking notice. JP Morgan announced that it now owns 5% of the company. CLCT might well reach our goal of $20 a share by the end of this year.

"Chicago Mercantile Exchange (CME NYSE $143.30), the world’s largest futures exchange, makes its money on volume, primarily from the transaction fee it earns each time a futures contract is bought or sold. And volume is up. Last year the Merc traded 640 million contracts with an underlying value of $334 trillion--30 times more than the total GDP of the US. Earnings and volume are increasing practically every month at the Merc, and the stock price is reflecting this upward trend. It’s beating the indexes and will continue to do so. The Merc is also wisely offering more electronic trading. This is the wave of the future. The Merc benefits from both hedgers and speculators. Despite a healthy 28 times earnings, a small dividend, and stiff competition from other exchanges in New York and Europe, I firmly believe CME has a long way to go on the upside because of its premier status."

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