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Buckingham: Optimal Value

01/09/2004 12:00 am EST


John Buckingham

Editor, The Prudent Speculator

John Buckingham 's 2003 top pick exemplifies his value and growth approach to investing. The stock, Toll Brothers, was showing strong growth while trading at a low valuation in the unpopular homebuilding group. It has since gained an astounding 101%. For this year's pick, he looks at a high-tech checkout counter.
"While we always advocate broad diversification and would prefer to buy at least two dozen of our recommendations, we have selected Optimal Robotics (OPMR NASDAQ) as our top pick for 2004. Optimal is a leading North American provider of self-checkout systems to retailers and field services to retail, financial services, and other third-party accounts. Its primary product, the U-Scan automated self-checkout system, enables shoppers to scan, bag, and pay for their purchases with little or no help from store employees.
"The U-Scan system also benefits retailers by reducing the cost of checkout transactions, freeing up employees for other tasks and solving labor issues (a machine needs to be serviced occasionally but it does not strike, require expensive healthcare, or get time-and-a-half on Sundays). In fact, one employee can supervise up to six unmanned stations. While the systems are still not seen in a lot of places as supermarket chains remain cautious on capital spending in what has been a downtrodden economy the past several years, we note that ATM machines were slow to become commonplace, as were pay-at-the-pump filling stations.
"A product that saves a company money and a customer time will succeed more often than not. As investors wait for critical mass to develop they can take comfort in Optimal's strong financial health. Its balance sheet at September 30, 2003, shows a current ratio of better than five to one, little debt, and about $5.12 per share in cash. It seems the market is valuing a business with considerable upside at only slightly more than the cash on its balance sheet. We love it when that happens! Our three-to-five year price target for OPMR is $17."
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