Enterprising Investor Forum

Come back next Monday for more investing humor!

We decided to use the MSN Deluxe Screener to see what kind of value we could find in the S&P at this present time. Our main focus was to try and find a company that was outperforming the industry average in a very efficient manner. And especially, one that was doing so through solid fundamentals.

Our screen consisted of:

• Current P/E Ratio < Industry Average
• EPS Growth Yr vs Yr > S&P Average
• Debt to Equity Ratio < Industry Average
• Net Profit Margin > Industry Average
• Return on Equity > Industry Average
• Income per Employee > Industry Average
• Current Ratio > Industry Average
• MSN Rating > 9

Out of the five companies that passed this screen, Coach Inc. (COH), was that one that most caught our attention. The others were: ENSCO International (ESV), Haliburton (HAL), Illinois Tool Works (ITW) and Manitowoc (MTW).

Apart from the strength shown by passing the above mentioned screen (we love their margins!), we really like how the management has manged to reposition the brand. Not only have they done so in the US but despite some skepticism, the brand seems to be catching on abroad, especially in Japan.

We definitely think that the company is worth a closer look and that they are well positioned for future growth.

Please read our disclaimer.

It was about time that Gordon Gekko picked on someone his own size…. two classics meet: Wall Street vs. Family guy!

Enjoy!

We remain cautious about recent developments and skeptical about the apparent bottom some say we have hit.

We still feel that there are too many open issues that haven’t been fully answered:

• one week ago everyone thought that we were on the verge of a massive meltdown - has this changed simply due to the rate cut, discount window and intervention on Bear?
• is Bear going to mark the beginning of the turn-around or merely the first of a number of high profile collapses?
• if things do not get better, can the Fed still maneuver? Do they have enough ammunition?
• how will the US economic climate continue to effect the world scenario and confidence?
• what will happen once the crisis starts to hit Europe and European financial institutions - to the same extent as the US?
• etc…

Naturally, we will never have all the answers but one shouldn’t be too early to call the bottom.

After our review of One Up on Wall Street (link) we had to do Peter Lynch’s follow-up. This book is similar in terms of strategy and what he preaches but it offers a more in-depth look on how to picks investment products and screen the market place (whilst taking the reader through his full experience at Magellan).

As usual, the book is a very easy read and quite amusing. What is refreshing is that the reader really gets a feel about the psychology of money management and not only the technical/strategic side of the business. As he says, “In dieting and in stocks, it is the gut and not the head that determines the results”. N.B. remember: you are getting this advice from one of the most successful track records of any money manager.

A quick overview:

• You can’t see the future through a rear view mirror
• If you are going to pick a fund or stock, you might as well take the time to pick a good one
• As Buffett also notes, the extravagance of any corporate office is directly proportional to management’s reluctance to reward the shareholders
• Not all common stocks are equally common
• The best stock to buy may be the one you already own

If you want good results, you have to invest only in companies you have researched and do not be afraid to take big positions if you have done your homework.

Enjoy!

We are posting our weekly Dilbert cartoon before the weekend as we will be out until Tuesday.

Come back next Monday for more investing humor - Enjoy the long weekend!

As we have been repeatedly saying, focus on fundamentals - no one really knows the extent of the damage, especially in the financial sector. There are simply too many quality stocks out there trading a very distressed prices to justify taking unjustified risks.

As we saw with Bear, even great CEOs do not know what the extent of the damage is. Take a look at this recent call on Bear:

We thought that it was time to post another screen for our readers. Our aim was to try and find interesting companies to research that were trading at a discount to book value, near 52-week lows and that had demonstrated better than average performance in their respective industry.

We ran the follwoing screen on the MSD Delux Screener:

• Last price near 52-week low
• Price to book between 0.75 and 1
• Current P/E Ratio < Industry Average
• Debt to Equity Ratio < Industry Average
• Net Profit Margin > Industry Average
• Return on Equity > Industry Average

… and as you could have guessed by the title of this post and the logo, the number 1 spot was filled by Montpelier Re (MRH).

Montpelier Re is a Bermuda-based reinsurance company founded by White Mountains Insurance and British reinsurance broker Benfield Group in December 2001. The firm’s three product areas are property specialty, property catastrophe for earthquakes and hurricanes, and specialty reinsurance for aviation, sabotage, and marine risks, among others. Property specialty and other specialty products make up about two thirds of sales. Montpelier Re sells its reinsurance via brokers.

Despite conditions not being ideal, MRH is backed by significant capital and should be well placed to tackle the current economic climate. What were the other companies that came up on the screen? Well, here is the whole list:

1. Montpelier Re (MRH)
2. Aircastle Ltd (AYR)
3. CNA Surety Corp (SUR)
4. Platinum Underwriters Holdings (PTP)
5. IPC Holdings (IPCR)
6. PartnerRe (PRE)

Enjoy your research!

We just read a very interesting article on the Economist that we thought readers might find interesting.

Did you know that China, despite accounting for about 1/5 of the world’s population, uses up:

• more than half of the world’s pork and cement
• 1/3 of its steel and
• over 1/4 of its aluminum?

Read the full article here: China: the new colonialists.

Enjoy!

Markets are still experiencing a great deal of uncertainty. Unless you have a 3-5 year investment horizon and can stomach short term volatility, we recommend that you wait for clear signs of stability and turn around.

As you can see in the graph , markets have been steadily moving to the downside and despite many people feeling that we are heading for a disaster, recent activity has meant that value investors have been in a position to slowly accumulate shares of great companies at very reasonable prices.

In a recent article in Barron’s, Bruce Berkowitz talks about running a very concentrated portfolio where you keep on focusing on your best ideas. What we really liked, is that when asked about risk and difficult market conditions, he stated that he considers risk to be the chance of permanent loss of capital and not volatility.Volatile markets conditions simply imply more opportunity.

Focus on fundamentals, take a long-term view and stay away from financials or any speculative plays. There are simply too many quality stocks out there trading a very distressed prices to justify taking unjustified risks on the financial industry. As we saw with Bear, even great CEOs do not know what the extent of the damage is.

Make sure to follow the Fed announcement today as it will be interesting to see what the accompanying statements say about the future outlook and the current economic climate.