Académique Documents
Professionnel Documents
Culture Documents
MacAllaster: Hub International. It's a Canadian company that transferred its home office from
Toronto to Chicago. Hub buys insurance brokers. It pays a dividend of C$0.28, which is about 18
cents U.S., and has 31 million shares outstanding. It's listed on the New York Stock Exchange and
the Toronto Stock Exchange, but trades on the Big Board and has a market value of $400 million.
The stock's 52-week high was 18.60 a share, and the low was 11.45. The shares were selling for
13.50 Friday [Jan. 3].
http://online..../0,,SB1043459686648397144-search,00.html?collection=barrons%2F30day&vql_string=Zulauf%3Cin%3E%28article%2Dbody%2 17.02.2003
Barron's Online - The Vision Thing -- Roundtable Part III Seite 2 von 19
Q: How so?
MacAllaster: In March of '04, it has to refinance Williams Communication, now WilTel Communications Group [which emerged from
bankruptcy on Oct. 15, and began trading on the Nasdaq Dec. 5.] Williams Cos. has about $3.5 billion in debt coming due in '04,
but by the end of this year they'll be showing solid earnings and will have no trouble refinancing. If they had to, they have lots of
assets to sell. Williams is the largest natural-gas producer in the U.S. By the end of this year, it will have 60 to 80 cents a share in
earnings. It's going to be at least a $7 stock within 18 months.
MacAllaster: The company has about $14 billion in debt and tangible book value of $8.50 to $9 a share. On a yearly basis,
Williams has never shown a loss.
http://online..../0,,SB1043459686648397144-search,00.html?collection=barrons%2F30day&vql_string=Zulauf%3Cin%3E%28article%2Dbody%2 17.02.2003
Barron's Online - The Vision Thing -- Roundtable Part III Seite 3 von 19
MacAllaster: No, they still have a problem. They're trying to sell their energy-trading operations, or find a partner.
Gabelli: The prices for pipelines have started firming. Southern Union is buying the CMS Panhandle Cos. in a very nice deal.
Multiples are going up. There is an opportunity to make a lot of money.
Subscribe
Digital Delivery MacAllaster: Agreed. Last year I recommended Radian Group, which did everything I said it would. It will report earnings of $4.45-
Advertise $4.50 a share for 2002. [Wednesday Radian reported earnings of $4.41 a share.] The stock was 41 last year, and it is now 37-38.
Customer Service
Reprints Roundtable Participants Q: So it did everything but go up.
MacAllaster: The market was down 20%-25%. This stock was down 5%-6%, so it held in
Corporate Reports pretty well. This year they'll make $5 a share. Radian is in the mortgage-insurance
BARTON BIGGS business, but it also guarantees tax-exempt bonds for cities. The company has much
Other Sites from
Dow Jones better balance than in the days when it did just one thing. Growth has averaged about
Founder and chairman, 12% a year for the past few years, and the company hasn't had a down year in 10 years.
CareerJournal Morgan Stanley Dean Witter
CollegeJournal Investment Management,
New York City Q: What has ailed the shares?
OpinionJournal MacAllaster: Worries that the boom in mortgage refinancings is going to end. The stock
Personal Technology moves in sympathy with stocks like Fannie Mae, which trades for about 10 times earnings.
SCOTT BLACK But this one trades for only eight times this year's earnings.
RealEstateJournal
StartupJournal Founder and president,
Last year I recommended Wells Fargo, and it was actually up. [The stock rose 7.06% from
Delphi Management; portfolio
MORE Jan. 7 through Dec. 31, 2002.] It trades for about 45-46 a share. It's got about 1.7 billion
manager,
Delphi Value Fund, Boston, shares outstanding, and is the fourth largest bank in the U.S. in terms of assets. Wells
Massachusetts raises its dividend every year. It pays $1.12 a share, and yields about 2.2%. The dividend
could go up 8-12 cents this year. Last year the company was expected to earn $3.30 a
share, and this year it's likely to earn $3.70. [Tuesday Wells reported 2002 earnings of
ABBY JOSEPH COHEN
$3.32 a share.] Here's a really telling figure: It makes almost 20% on capital, year after
year. You ought to buy the stock, pay cash for it, take it to the safe-deposit box and leave
Chair, investment policy committee, it alone.
Goldman Sachs,
New York City
Q: What do you think of banks generally?
MacAllaster: I liked them last year, and I still like them. They pay great dividends, and the
MARC FABER stocks are cheap. They trade for 12-13 times earnings. Actually, a lot of bank stocks are
cheaper than that. My next stock is FleetBoston Financial. Everything in the world went
Managing director, wrong with this company last year, and it still ought to make about $1.70 for the year. [On
Marc Faber Ltd., Jan. 16 Fleet reported net income of $1.44 a share from continuing operations.] It pays
Hong Kong $1.40 a share in dividends.
Chairman, Gabelli MacAllaster: A lot of people say no. I say yes. I estimate they'll earn $2.60 a share for the
Asset Management,
year. If they come anywhere near $2.60, they are not going to cut their dividend. The
Rye, New York
http://online..../0,,SB1043459686648397144-search,00.html?collection=barrons%2F30day&vql_string=Zulauf%3Cin%3E%28article%2Dbody%2 17.02.2003
Barron's Online - The Vision Thing -- Roundtable Part III Seite 4 von 19
http://online..../0,,SB1043459686648397144-search,00.html?collection=barrons%2F30day&vql_string=Zulauf%3Cin%3E%28article%2Dbody%2 17.02.2003
Barron's Online - The Vision Thing -- Roundtable Part III Seite 5 von 19
MacAllaster: I am not sure. The new auditors said, "Look, we're going to go through this before we get ourselves in trouble." You
can't blame them after what happened to Arthur Andersen. So that's what they've done. As I say, it's a speculation. But it's 7 a
share, and sales are 40 times market value.
Q: Meaning what?
Cohen: That it's okay for us to import inexpensive manufactured goods from China,
because we'll use our most precious resources, our people and our capital, to produce
higher-value-added goods and services. That's why one of my biggest concerns is poor
economic conditions in Europe and Japan, the natural markets for our more expensive
items.
Fourth, there's been a great deal of discussion about the problems in U.S. accounting.
But 2002 was the year of inflection. The bad guys did the perp walk, and other
companies that should have been more conservative in their accounting made some
significant adjustments. This year there will be a lot of discussions between the FASB
[Financial Accounting Standards Board] and the International Accounting Standards
Board [IASB] about harmonizing standards. Outside the U.S. there currently are no
international standards for pensions and consolidation-accounting.
Q: Your energy pick, we should mention, was selling for 89.72. Now it's about 66.
Abby Cohen's Picks
Cohen: While the spot markets have moved higher, investors are not treating the shares
as if commodity prices are going to stay at those levels. In particular, ChevronTexaco had
Company Symbol 1/6/03 some merger-related disappointments.
http://online..../0,,SB1043459686648397144-search,00.html?collection=barrons%2F30day&vql_string=Zulauf%3Cin%3E%28article%2Dbody%2 17.02.2003
Barron's Online - The Vision Thing -- Roundtable Part III Seite 6 von 19
Cohen: The workforce at Delta is about 90% nonunion, so it could put some pressure on the company.
But before I go further, I neglected to do mention something on behalf of my legal department. No. 1, I am not the analyst on any
of these stocks. No. 2, one should presume that Goldman Sachs either had, has or would like to have an investment-banking
relationship with any company I mention.
Q: Is there any company that Goldman wouldn't like a banking relationship with?
All: WorldCom!
Zulauf : If you do business in the U.S., you have one businessman and 10 lawyers. If you do business in Asia or Europe, it's just
the opposite.
Cohen: My next stock is Waste Management, which was held in low regard for a long period of time. There were concerns about
management controls and activities. There were concerns about accounting, which our analyst believes has now been cleaned up.
Waste Management has about a 25% market share and fairly high SG&A [sales, general and administrative expenses], which the
analyst views as positive. They boosted SG&A as they tried to get controls in place. This now creates an opportunity to lower
costs. There is also an opportunity for price increases, if economic activity picks up and more solid waste is generated. Waste
Management has an ROE and long-term earnings growth of about 15%.
We are not enthusiastic about the consumer. We are not interested in consumer staples, and we recently became much less
enthusiastic about autos, housing and retailing because this area of the economy already has done reasonably well. We're looking
for things related to consumer service. Delta falls into that category, as does Viacom, which I mentioned last year. To update you,
our analyst thinks Viacom has low-double-digit long-term earnings growth. Most of its cash flow comes from the cable and radio
businesses. The stock was 43 on Friday [Jan. 3].
http://online..../0,,SB1043459686648397144-search,00.html?collection=barrons%2F30day&vql_string=Zulauf%3Cin%3E%28article%2Dbody%2 17.02.2003
Barron's Online - The Vision Thing -- Roundtable Part III Seite 7 von 19
Schafer: They have a big exposure to electronics, too. If that turns around, it should be good.
Cohen: Exactly. The company and stock have been under pressure in part because of the electronics business and because of
rising energy prices. But investors are cognizant of the risk.
Cohen: Rohm & Haas sells for 16 or 17 times estimated earnings, which is high relative to commodity chemicals but not relative to
specialty chemicals stocks. With regard to capital-goods stocks, our analysts also like Parker Hannifin and Danaher. These
companies will benefit should there be some modest improvement in capital-goods spending, but we may not see this for the next
few months.
In 1982, I was invited to a seminar in Hong Kong. I had to speak about bonds in the afternoon. In the morning, there was a
session about energy and oil stocks, and gold and gold shares, and attendance was approximately 500 people. In the afternoon I
had one attendant, and he stayed out of politeness.
Faber: I should have asked for his signature. Today, if you go to investment seminars,
even where people traditionally have been positive about gold, and ask how many have
more than 1% of their assets in gold, only one or two hands go up in a crowd of 200-
300 people. The world is grossly underweight gold.
http://online..../0,,SB1043459686648397144-search,00.html?collection=barrons%2F30day&vql_string=Zulauf%3Cin%3E%28article%2Dbody%2 17.02.2003
Barron's Online - The Vision Thing -- Roundtable Part III Seite 8 von 19
somewhere else. Once the bubble bursts, there is always a change in leadership. But
the change can occur over many years. Bonds bottomed in the U.S. in September 1981,
and then rallied strongly into 1983, before totally collapsing once again. There was huge
upheaval in the bond market, and Lehman Brothers almost went bankrupt. But then the
market started to turn around, and bonds rallied for years, until recently.
Q: And gold?
Marc Faber's Picks
Faber: There has been a great increase in paper money per unit of gold and silver in the
world. That's why gold is becoming relatively rare, along with other hard assets. Asian
Company Symbol 1/6/03 central banks have practically no gold holdings. Japan has 1.8% of its foreign exchange
Price reserves in gold, China 2.1%, Taiwan 3%, Singapore 1.7%, Thailand 2.32% and Malaysia
1%.
PRECIOUS
METALS
Also, when we talk about future dollar weakness, what is the implication for Europe? I am
Gold - $351.25
much more positive about the future of Euroland than most people are. The inclusion of 10
Silver - $4.90 new countries, and the eventual inclusion of Russia and Turkey, will be very beneficial. It
Newmont Mining NEM $29.25 will create a huge economic zone and kill the unions in the West and enlarge the market
dramatically. There will be a dramatic conversion play. In 2002, Romania's market went up
Harmony Gold HMY rand 100%, Bulgaria's more than 50% and Slovakia's around 50%. The real estate in these
Mining 15400 countries is very cheap compared with Western Europe. There will be an arbitrage similar
COMMODITIES to that between Chinese real estate and real estate in Hong Kong. People living in
Western Europe should consider buying real estate on the Dalmatian Coast in Croatia,
Merval Argentina MAR 508.26
because it is much closer to Germany than, say, southern Spain. If you look at what's
Idx
happened to real-estate prices over the past 20 years in Mallorca and southern Spain,
IRSA Inver. IRS $5.82 you can imagine what will happen in some of these eastern European countries. There are
Cresud CRESY $5.20 very dramatic opportunities in real estate in emerging economies, not just in Europe but
Asia.
Schlumberger SLB $42.40
Diamond Offshore DO $22.05 Q: What do you make of silver? It has hardly moved by comparison with gold.
http://online..../0,,SB1043459686648397144-search,00.html?collection=barrons%2F30day&vql_string=Zulauf%3Cin%3E%28article%2Dbody%2 17.02.2003
Barron's Online - The Vision Thing -- Roundtable Part III Seite 9 von 19
Pohang Iron and St. O549 KS won Faber: Silver has very good potential. The fundamentals near term are more favorable
124500 than for gold, because you don't get central-bank selling in silver.
BHP Billiton (ADR) BHP $11.55
Zulauf : There is a production deficit in silver, and inventories around the world have been
Tatneft (ADR) TNT $15.27 coming down. The supply/demand situation is presenting a pretty bullish picture for the
ASIA coming years.
People's Food PFH SP S $.735
Faber: Everyone says we'll need less photography paper as digital photography takes
Brilliance China 1114 HK HK $1.53 hold. But if people print out their photographs, they need silver-coated paper. If anything,
Auto
that is rather positive for silver.
Travelsky 696 HK HK $5.55
Next Media Ltd. 282 HK HK $1.74 Anyway, you can play commodities through the purchase of physical gold, and I would
encourage every responsible citizen in this world to buy physical gold and silver and store
Singapore Telecom ST SP S $1.22
it in a safe-keeping box in a country that is friendly to gold and silver holdings. You can
PT Telekom TLKM IJ rupiah also buy gold shares, although they have not performed well recently, considering that
Indonesia 3550 gold has made a new high. Gold shares are lower than they were last summer, which is a
Siam Commercial SCB TB baht 30.25 negative technical signal. Nonetheless, if you want to buy stock in a company with huge
Bank exposure to gold, consider Newmont Mining and Harmony Gold Mining. Harmony is run by
my friend Adam Fleming. It has acquired assets at very low prices over the last few years,
Thai Farmers Bank TFB TB baht 27.75 and it is unhedged.
Reliance Industries RIL IN rupee
284.85 The other way to play commodities is to buy the Argentine stock market. Argentina is the
State Bank of India SBIN IN rupee purest play on grain prices. If they recover, Argentina will do extremely well. Its stock
279.00 market was overpriced before, but now it is undervalued.
Dr. Reddy's Labs DRRD rupee
IN 921.60 Black: The country's middle class has been wiped out, and there is a huge exodus of
people from the country.
The India Fund IFN $10.62
India Growth Fund IGF $9.96
Faber: Argentina is a boom and bust economy par excellence. I went there for the first
Asia Pacific Fund APB $9.27 time in 1988. Everything looked grim, and valuations were extremely low. The bankers in
Greater China Fund GCH $9.07 Geneva said: 'This is a country where we only take out money. We will never invest a
penny.' Then the market went up more than 30 times. Argentina's stock market won't go
Apollo Fund APOL CY CYP .17 up thirtyfold from here, but it can easily double in dollar terms. Both the property and
Source: Bloomberg share markets are incredibly inexpensive. There are two commodities-related companies
listed on the New York Stock Exchange. IRSA Inversiones y Representaciones has a
market capitalization of slightly under $100 million. Cresud is the largest agricultural land
owner in Argentina. Both are controlled by Eduardo Elsztain, a very successful fund
manager. Both own office buildings in Buenos Aires. As for the country's currency, in 1997 per capita income in Argentina was
almost twice as high as in Mexico. Now per capita income is lower than in Nicaragua and Bolivia.
It is very bullish for Argentina and for all emerging markets if they default on their debts, because then they're essentially debt-
free and can start anew. Don't forget that well-to-do Argentines probably have about $60 billion to $80 billion outside the country,
which they will bring back if they see the opportunity arise.
http://online..../0,,SB1043459686648397144-search,00.html?collection=barrons%2F30day&vql_string=Zulauf%3Cin%3E%28article%2Dbody%2 17.02.2003
Barron's Online - The Vision Thing -- Roundtable Part III Seite 10 von 19
Last year, incidentally, the South African rand was the strongest currency against the U.S. dollar. The next strongest were the
Norwegian krona and Swedish krona, the Swiss franc and the euro. The net liabilities of the U.S. to the rest of the world are now
25% of GDP. If the current rate stays at 5% of GDP over the next five years, the net liability will increase to 50%. This is not
sustainable. Until 1997, the current account deficit ran at only 1.5% of GDP. America's overall market share in export markets fell
from 25% in 1998 to around 21% now. If the U.S. really focused on sectors where it has a comparative advantage, this wouldn't
have happened. The U.S. is not very competitive.
Faber: That's not true. Cotton is subsidized. A lot of U.S. agriculture is subsidized.
Gabelli: Some $55 billion of our exports are agriculture. The next big thing is movies and entertainment.
Q: If commodities prices rise, won't that act to the advantage of the U.S. trade balance? If China demands more, won't we be the
breadbasket for China?
Faber: The Chinese will be buyers of some agricultural products from the U.S., but the main beneficiaries will be other countries in
Asia. For oil, Indonesia. For agricultural products, Australia and New Zealand. And for coffee, Vietnam. The Chinese will become the
largest customers of other Asian countries. And, as such, they will have more and more political power around Southeast Asia.
The main beneficiaries of rising commodity prices are Argentina, Brazil, Russia, Indonesia, Malaysia and to some extent Thailand
and the Philippines, Australia, Canada and New Zealand. If you believe that the bear market in commodities ended sometime
between 2001 and 2002, you should be long currencies such as the New Zealand dollar, which actually performed very well since
the start of last year. That also holds for the Australian dollar and probably the Canadian dollar.
Q: The Australian and New Zealand dollars are both up about 20%-25%. They're almost becoming noncompetitive, especially Australian
wheat versus Argentine wheat.
Faber: That's why I recommended Argentina. But currencies in Australia and New Zealand are relatively cheap compared to the
U.S.
Earlier [in the first installment of the Roundtable, in our Jan. 13 issue], I said oil would go to $90 a barrel. That is not an actual
forecast, but in the long run the demand for oil will rise dramatically in Asia, in South Korea and in Japan. In the case of Japan,
between 1950 and 1978, per-capita consumption increased from one barrel to 15 barrels. In the case of South Korea, it increased
http://online..../0,,SB1043459686648397144-search,00.html?collection=barrons%2F30day&vql_string=Zulauf%3Cin%3E%28article%2Dbody%2 17.02.2003
Barron's Online - The Vision Thing -- Roundtable Part III Seite 11 von 19
Q: Wouldn't such a huge rise in the price of oil have an impact on demand?
Faber: If the Chinese and Indian economies continue to grow at, let's say, 6% a year, the demand for industrial commodities will
be very strong, especially for oil. In China, consumption has doubled over the last seven years. In Asia, it could easily double over
the next 10 years, and double again. I agree that near term the price is vulnerable. Maybe you short oil if the U.S. goes into Iraq.
But I am not sure the war will be won.
Faber: The battle will be won, but whether the war will be won is a different story. One way to play the oil market is to buy oil-
service companies in the U.S. -- Schlumberger and Diamond Offshore. In Korea I would look at Posco [Pohang Iron and Steel], a
very efficient steel producer, though the price has gone up a bit. In Australia, there's BHP Billiton. In Russia, Tatneft. Also,
machinery companies and capital goods companies that produce machinery for both agriculture and mining equipment. Now, I have
some specifics about Asian companies.
Anyway, Asian markets have grossly underperformed the U.S. and the industrial markets of the West. Since 1990, in dollar terms,
most markets in the region are down by 80%. Now, the opening of China is both a threat and an opportunity for the other Asian
countries. It is a threat in the export markets, as most Asian countries are not competitive with China in manufacturing. Besides,
China is implementing huge improvements in its infrastructure.
Schafer: With the Olympics coming in 2008, they're really going to improve their infrastructure, which will make them even more
competitive.
Faber: So, how do you play China? In addition to the commodity markets, you buy companies that will benefit from the rising tide
of Chinese tourists into Southeast Asia. The Chinese will also have a Palm Beach and an Aspen and a C ôte d'Azur one day. You
buy real-estate and construction companies in China. A beer company, Tsingtao, has had some past problems, but has been
increasing its market share. In the past few years, it's gone from 2% to 12%. The P/E is 13, it yields about 5% and it is listed in
Hong Kong under the symbol 168. But I don't like Chinese companies, by and large.
Faber: Yes. Most have performed badly. But if you want to invest in China, People's Food is a stock to look at. It's listed in Hong
Kong, and sells for about HK$5. It's reasonably well run and yields 5.7%. The company buys slaughterhouses in China and
distributes meat and sausages. Brilliance China Automotive is a producer of minivans. Again, it's a controversial company, but if
someone wants to be in China, this is one of the plays.
http://online..../0,,SB1043459686648397144-search,00.html?collection=barrons%2F30day&vql_string=Zulauf%3Cin%3E%28article%2Dbody%2 17.02.2003
Barron's Online - The Vision Thing -- Roundtable Part III Seite 12 von 19
The growth of tourism is a no-brainer. Only 1% of the Chinese population travels overseas currently. That's 10 million visitors. In
Japan, it's around 40%, in South Korea and Taiwan, around 13%. In China the numbers could rise to 5%-10% over the next five,
10, 15 years. Then you're talking about 50 million to 100 million travelers. Plus, a huge domestic traveling industry is developing.
Travelsky provides information-technology solutions for the Chinese air-travel industry. The stock hasn't performed very well,
moving sideways in the past two-three years. But the valuation is relatively low, at about 11 times earnings.
Neff: Why are we going through these companies if you don't think they're attractive investments?
Faber: If you want to invest in China, these names are the best of the crop. And Tsingtao, actually, could be quite a strong
performer. There are also some closed-end funds listed in Barron's that invest in China, such as the Greater China fund, run by
Barings.
I have another friend in Asia, Jimmy Lai, who came to Hong Kong at the age of 13. He produced garments for the Limited stores,
and then started a company called Giordano International and became quite famous. He was forced to sell his majority stake
because he was very critical of the Chinese government in 1989, during the Tiananmen uprisings. He then started Next magazine
in Hong Kong, and thereafter a daily paper called Apple Daily News, in which I have a biweekly column called "Sex, Investment and
Night Life."
Faber: No, Chinese. Next is now the most successful magazine in Hong Kong. But that market became a bit small for him, and he
moved to Taiwan and started a Next there. That magazine, too, is becoming very successful. His company, Next Media Limited, is
listed in Hong Kong. It sells for eight-nine times earnings estimates for 2004. Jimmy Lai has a head harder than the walls of this
hotel. He is one of a small crop of new entrepreneurs in Asia who didn't come from family wealth but built it up themselves and
succeeded in a very unusual way. You will see more and more of this Asian new guard, and they will change the political system in
due course.
Faber: It's HK$1.78. Moving on, in Singapore, I find Singapore Telecommunications quite interesting. It has performed quite
miserably. It's selling for about S$1.23 and yields 4%. The Singapore dollar will actually appreciate against the U.S. dollar, so this is
a rebound candidate that may be quite attractive. It is in fixed-line and mobile telephony and is also branching into Asia, so there
http://online..../0,,SB1043459686648397144-search,00.html?collection=barrons%2F30day&vql_string=Zulauf%3Cin%3E%28article%2Dbody%2 17.02.2003
Barron's Online - The Vision Thing -- Roundtable Part III Seite 13 von 19
isn't a huge risk. I am quite positive about Indonesia, which I mentioned a year ago. Since then, the market has gone up by more
than 30% in dollar terms. I like PT Telekomunikasi Indonesia , which is listed in New York under the symbol TLK. It sells for about
five times earnings. In a country with 200 million people, the growth prospects are reasonably good. If you get a rebound in
telecommunications stocks, this one will participate as well. It yields 4% and the market cap is about $4 billion, so it's quite a large
company.
Faber: Service. I also like pharmaceutical companies in Asia, because the per-capita consumption of pharmaceuticals is a tiny
fraction of what it is in the U.S. or Western Europe. My pick is Indopharma. The company has a market cap of about $80 million. It
trades for six-seven times earnings and yields 9%. About 50% of the company is still owned by the government, which will most
likely sell its share to a foreign pharmaceutical company. They will sell it for a significant premium to the present share price, so
there is little downside risk.
The competitive advantages of Thailand are tourism and hospitality, as well as agriculture. The county has experienced a crisis
post-1997. The economy is expanding slowly. The housing market is ready to be strong. The property market in Thailand will
improve, and the Thai banks as a group are attractive -- Siam Commercial Bank and Thai Farmers Bank in particular. Lastly, the
Indian stock market performed well last year. I am the chairman of a fund that was up 28%. It may be easier for foreigners to
make money in India than China, because there's less competition. This is a market to focus on in 2003.
http://online..../0,,SB1043459686648397144-search,00.html?collection=barrons%2F30day&vql_string=Zulauf%3Cin%3E%28article%2Dbody%2 17.02.2003
Barron's Online - The Vision Thing -- Roundtable Part III Seite 14 von 19
manufacturer's reagents. This is what assures a steady stream of revenue and profits year in and year out.
Dade has a very strong market position in small and medium-sized hospitals where,
according to our research checks, the products and the company are very well thought
of. The company doesn't have a strong position yet in high-volume hospitals or the
reference-lab market. Dade's machines are superior to the competition's because of
their size and the number of tests they can perform. Dade's machines perform both
chemistry and immunochemistry tests, which allows a hospital to have one operator per
shift instead of two. This is a great savings, as an operator typically makes about
$80,000 a year. The machines are also very cleverly designed. They automatically divide
a sample for multiple tests, so the operator has to do very little.
http://online..../0,,SB1043459686648397144-search,00.html?collection=barrons%2F30day&vql_string=Zulauf%3Cin%3E%28article%2Dbody%2 17.02.2003
Barron's Online - The Vision Thing -- Roundtable Part III Seite 15 von 19
labs which may be superior to anything out there. The high-volume lab market is about
half the total market. Dade does not compete in the immunochemistry area in the high-volume market. Their growth should
accelerate greatly when they do. My target in two years is a 15 multiple. I'm putting a high multiple on the $1.82 a share in free
cash flow in 2005, plus the $2 they'd net in options proceeds, which yields a price target of 29.
ITG also has client-site electronic trading products that manage trades and route orders automatically. The company's products
implement trading strategies automatically. These systems trade about 900 million shares a month. The trading desk trades about
300 million to 400 million shares a month. ITG has steadily grown its share of trading volume on the exchanges from about 2.3% in
1999 to 3% in 2002. The stock has gone down recently as volume on the exchanges has fallen.
Annual volume on the New York Stock Exchange has grown from five billion shares in 1975 to 308 billion shares in 2001. Nasdaq
volume has grown from one billion shares in '75 to 471 billion shares in '01. That's 17% growth annually for the New York Stock
Exchange over those 26 years, 21% over 10 years and 24% over five years.
Q: But these numbers were swelled by the bubble, so there's really no way to normalize them.
Witmer: There have been only three years in which volume did not grow. If the market does OK this year, then volume grows
again. And ITG has kept growing its share of trading volume.
http://online..../0,,SB1043459686648397144-search,00.html?collection=barrons%2F30day&vql_string=Zulauf%3Cin%3E%28article%2Dbody%2 17.02.2003
Barron's Online - The Vision Thing -- Roundtable Part III Seite 16 von 19
technology reserves. Its computers are tied in directly with its clients' computers, so switching providers is very low on the list of
IT-department projects. And IDC is great on customer service. The company has a dominant market share. Its business is not
directly trading-volume sensitive, as it gets paid on a price-per-security basis. In the dismal environment of last year, it grew about
8% organically, and more than 12% including a small acquisition. It has a few new products that enable U.S.-based mutual funds
that own foreign stocks to price their funds accurately, and not get taken advantage of by traders who try to arbitrage the mutual-
fund price versus the foreign market.
Witmer: They price each security. It is up to the fund manager to price his overall portfolio. After-tax free cash flow per share
should be about a dollar in 2003, growing to about $1.15 in '04. IDC is trading for about 11 times free cash flow, once you back out
the cash on its balance sheet.
This is a great bargain. Reported earnings are a little lower than free cash flow per share. The stock should trade at 17 times free-
cash-flow multiples, plus its cash. I have a $22 target in about year, and it's currently 14. Pearson owns about 60% of the
company.
Witmer: I first bought it at 5, and it has been as high as 20. Now it's at 14, and the numbers have grown a lot in the interim. It
should never have been at 5.
The company has an investment portfolio whose cash value is listed on the books at $360 million. Some believe the market value is
$80 million to $100 million higher. It is invested in a wide variety of hedge funds and investment funds.
http://online..../0,,SB1043459686648397144-search,00.html?collection=barrons%2F30day&vql_string=Zulauf%3Cin%3E%28article%2Dbody%2 17.02.2003
Barron's Online - The Vision Thing -- Roundtable Part III Seite 17 von 19
From left: Marc Faber, Scott Black, Abby Joseph Cohen, John Neff, Art Samberg, Barton Biggs, Archie MacAllaster, Oscar Schafer, Felix
Zulauf , Meryl Witmer, Mario Gabelli
Faber: Actually, I know the family quite well. Their business in China is profitable. The company is very good. It is very clean.
Witmer: They know how to run a business. The stock trades at &euro:28 a share. My earnings-estimate range for this year is
&euro:2.90 to &euro:3.20 a share, though that estimate does not include any earnings from the investments. In '02 the company
is going to report &euro:2.70 to &euro:2.90 a share. If you assume a 12 multiple on the low point of my numbers and add the
cash, you get a target of &euro:43 a share. On the high end, you get a one-year target of &euro:50.
Witmer: Not much. You can go to a Home Depot or a Lowe's on the low end, but it is a pain to install. The Mom and Pop stores
come in and measure, and you get a window covering for anywhere from $100 to a $1,000.
Witmer: About 50% or 60%. They manufacture here and in the Netherlands.
http://online..../0,,SB1043459686648397144-search,00.html?collection=barrons%2F30day&vql_string=Zulauf%3Cin%3E%28article%2Dbody%2 17.02.2003
Barron's Online - The Vision Thing -- Roundtable Part III Seite 18 von 19
Witmer: Well, people change blinds when they move. And in the American economy, as you can see from cable-TV turnover, 1%-
1.5% of the people move every month.
REPRINTS INFORMATION:
To distribute multiple copies of this article, visit the Dow Jones Reprints site .
Return To Top
Copyright © 2003 Dow Jones & Company, Inc. All Rights Reserved
Copyright information.
http://online..../0,,SB1043459686648397144-search,00.html?collection=barrons%2F30day&vql_string=Zulauf%3Cin%3E%28article%2Dbody%2 17.02.2003
Barron's Online - The Vision Thing -- Roundtable Part III Seite 19 von 19
http://online..../0,,SB1043459686648397144-search,00.html?collection=barrons%2F30day&vql_string=Zulauf%3Cin%3E%28article%2Dbody%2 17.02.2003