Rogers: Value Plays

11/21/2003 12:00 am EST


John Rogers

Chairman & CEO, Ariel Capital Management, Inc./Ariel Mutual Funds

"The Oakland A's manager, Billy Beane, lacks a lush payroll to buy top talent; he hires unloved players with hidden skills," says John Rogers,  chairman and CEO of Ariel Capital . In a column written for Forbes magazine, Rogers notes, "Beane's baseball wisdoms have an uncanny connection to value investing." Here are some excerpts from that article.

"Just like the value investor who shuns the popular and expensive growth stocks in favor of misunderstood, ignored and underfollowed issues-solid companies that are under a cloud for whatever reason- Billy Beane searches for the most unloved and unwanted baseball players. His view is that 'great prospects flame out, sleepers become stars.' And the sleepers don't cost very much. While Wall Street is preoccupied with the fanfare of fast pitches and home runs, these companies are quietly walking their way to home plate:

"Interpublic Group (IPG NYSE) is a holding company for a large and talented collection of advertising and marketing firms (Foote, Cone & Belding; Golin/Harris; McCann-Erickson). As one of the few dominant, established global ad giants left, following years of industry consolidation, Interpublic offers one-stop shopping for a long-standing roster of blue-chip clients. The ad company, in the red for 2003's first half, is well positioned to profit from better times. Interpublic sells for 18 times forward 12-month earnings and at a 33% discount to my $21 estimation of its intrinsic worth.

"Since its 1931 founding, Baxter International (BAX NYSE) has been an innovator. It pioneered intravenous solutions in glass bottles, helping transform hospital medicine. Baxter's short-term problems have pulled the stock down from a five-year high of $60 in early 2002. Patient investors can take a page from Billy Beane, who bases his drafting decisions on a player's potential: 'There is a tendency to be overly influenced by a guy's most recent performance. What he did last was not necessarily what he would do next,' says Beane. I am sure Baxter can overcome its problems. Baxter sells for 15 times trailing earnings, 13 times forward earnings, and at a 28% discount to intrinsic worth."

Excerpt republished by permission of Forbes magazine © 2003. To view the full article, please go to


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