Sitting Around the Table July 08, 2004
Dow Jones 10199
July 8, 2004
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& tips on today's top undervalued
Let's examine a few old positions
Pepsi Bottling Group (PBG) $30.94 is being removed from our Stock
Table today. This is what we think. We are up 38% since our entry
point at $22.41 on July 11, 2003. We are very pleased with the profit
because this was, and is a very conservative company. Is there more
potential profit left in the stock. We certainly hope so. We do not
look for the last dollar in a stock. We always want someone else to
make a buck too. Pepsi is experiencing some margin pressure. We also
have the issue of weakness in the Mexican market with a 7% volume
decrease. Mexico is performing below PBG's expectations. Could we be
leaving 10% more profit on the table? Absolutely, but the cream is out
of the stock, and that's what we are always looking for, the cream.
We are looking for other stocks to remove from the Stock Table,
because we believe in taking profits. Paper profits are beautiful, but
you can't buy an ice cream cone with paper profits. You need cash in
your pocket, and that's what we are trying to do at
valuestockplayers.com. We want you to take profits. So let's look at a
few more stocks and see what's going on.
(HDI) $60.38 We put Harley on the Stock Table at $45.37 a year ago, this
month. We are up 33% so far. We told our subscribers to consider getting
involved with HDI when nobody wanted it. It was a class company then,
and it remains one today. It has peaked at $62 and change since our
write-up. We think the stock may have about 5 to 7 more points in it.
It's not going to $75 or $80 right here. It may take at least a couple
of more months, maybe longer to realize that extra profit, and we have
market risk in the interim to deal with.
We have chosen to hold Harley a while longer, but if we change our
minds tomorrow, don't be surprised.
We are encouraged with Harley right now because there's a whole
series or interesting, positive points to be made for the stock. Among
- A great many Harley dealers in America are right now selling
bikes at the Manufacturer's Suggested Retail Price (MSRP). In other
words, NO DISCOUNTS.
- We believe new bike sales are exceeding company expectations.
- Inventory positions on used bikes are unusually low.
- A majority of bike buyers are financing the purchase through
Harley-Davidson Financial Services.
- There is no one bike from a sales standpoint that is falling
below Harley's internal expectations.
We still like Harley because the fundamentals are strong for this
classic brand. The stock is selling a shade under 18 times
valuestockplayers.com's 05 earnings estimate. Street consensus estimates
are $2.86 this year and $3.25 in 05. The stock is selling at 18.6 times
the 05 consensus estimate. We think the $3.25 Street number is low by
about 20 cents, but that's us. The S&P 500 price/earnings multiple
stands today at 16.4, so Harley is trading slightly above that number.
Harley is building cash. We see not just share repurchases in the
next few quarters, but accelerating repurchases. Higher dividends are
coming in our opinion. If our internal numbers are accurate and we
think they are, there could be three events in the next couple of
- We see between $700 and $800 million in stock repurchases coming.
- We see an annual $1.00 plus dividend.
- We see, with all of the above more than $800 million in cash at
the end of the year.
For the moment, we think we continue to keep Harley on the Stock
Black & Decker Corp (BDK) $60.21 This is another stock that's
on a roll. Do you sell it or hold it? We are up 25% since November of
2003 when we wrote it up at $47.99. BDK is a very classy company. We
think the stock is worth about $65 to $67 per share. At the moment we
are holding out, looking for a few more dollars. We could change our
opinion tomorrow. Here are some bullet points.
- Operating cash flow in 2004 will be in excess of $4.75 per share,
above Street expectations.
- We see an annual $1.00 plus dividend. The Street is in the
process of upping earnings estimates for 2004 and 2005. It looks
like better than $5.15 plus next year.
- Black & Decker will shortly make an acquisition in our
opinion in order to increase top-line (revenue) growth. The likely
candidates include either Atlas Copco's Milwaukee assets, or
Pentair's power tools. Either one works in our opinion. Milwaukee is
a very famous brand name used by professionals everywhere.
With about $5 to $6 more left in this stock, we are holding on
right now. Feel free to vacate this position anytime you are
comfortable. We think there's more money on the table with this one.
Tyco (TYC) $31.84 We have been in and out of Tyco three times in
the last couple of years. Each time our subscribers have made money. It
looks like it's going to be the same thing this time. We got our
subscribers involved with Tyco at $19.95 per share last July. That
equates to a 59% profit if you were to sell today based on our entry
price. We still smell more folks, but we are tempted to jettison this
one also. Here's why it's got more profit left in it.
- There should be 15 to 20% earnings per share growth for the next
two to three years. Free cash flow (FCF) is off the charts. Every
quarter or so, Tyco has to keep increasing their projections for
FCF. The goal is $4 billion dollars in FCF.
- Tyco is restructuring its balance sheet, including doing a debt
restructuring shortly, according to the scuttlebutt on Wall Street.
This should result in Moody's giving the company an "A"
- We believe that by the end of 2005, Tyco's total debt currently
at $10 to $12 billion will be down to $6 to $7 billion. What an
achievement. We expect $4.5 billion of Tyco's current debt will be
converted into common stock.
- Tyco's merger / acquisition team has been very busy. Total debt
will continue to decrease.
- The CEO, Ed Breen has done nothing short of a spectacular job,
and he is worth every penny he and his team is being paid. He
stepped into a hornet's nest and has come out smelling like a rose.
We couldn't be more pleased.
We could see another $4 or $5 increase in Tyco's common stock over
the next couple of months. That's why as of today, we are telling
subscribers to continue to hold on. By sometime next year, this company
will demonstrate significantly higher CORE earnings than what we are
looking at today. Sometime late in 2005 or early 2006, this stock is
worth something approaching $55 per share in our opinion. Our hope is
probably to be able to get out somewhere in the short-term, and then get
back in. Again, our belief is that subscribers need to take ACTUAL
profits. Good luck.
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