Go to Jeff Salisbury LWGate Home Page.From: "Duke Miller" <dukemill@tampabay.rr.com>
Subject: RE: [CANSLIM] Re: CHTT (was: Identifying NEW leaders)
Date: Thu, 8 Aug 2002 16:36:09 -0400
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Harvey:
This just in from CBS Marketwatch, excerpted from Tom Calandra's column.
The market is waiting for large share buybacks from the Dow 30
companies, including IBM (IBM), General Electric (GE) and Intel (INTC).
If official interest rates, now at 40-year lows, fall even lower next
week, America's largest companies could be tempted to use borrowed money
to rein in their shares. A rate of 1.5 percent or lower on overnight
funds essentially would put the "real" interest rate, which accounts for
inflation, near zero.
By the way, his column is pretty interesting, so I've copied the text of
the entire piece below.
Duke
A lasting rally needs the little guy...
Housing market, oil to play their parts in market drama
By Thom Calandra, CBS.MarketWatch.com
Last Update: 10:46 AM ET Aug 8, 2002
SAN FRANCISCO (CBS.MW) -- Here's what investors need to see if the U.S.
stock market, this summer's best-selling drama, is to stage a lasting
recovery:
The market is waiting for large share buybacks from the Dow 30
companies, including IBM (IBM), General Electric (GE) and Intel (INTC).
If official interest rates, now at 40-year lows, fall even lower next
week, America's largest companies could be tempted to use borrowed money
to rein in their shares. A rate of 1.5 percent or lower on overnight
funds essentially would put the "real" interest rate, which accounts for
inflation, near zero.
Consumers clearly call the shots. Their buying on Main Street powers
about two-thirds of economic output in the United States. Big retailers
such as Best Buy (BBY) cite waning consumer confidence in their sales
reports. As always, the American economy, and the stock market that
follows its path, depends on a happy, spending consumer.
Getting that happy spender might depend largely on the housing market.
Brisk sales of homes, both old and new, and a record pace of mortgage
refinancings must continue if Americans are to cruise the shopping mall
with discretionary income. As long as "real" interest rates hover near
zero, home and condo prices will keep rising nationwide.
Right now, there's a glut of oil out there, thanks to the global
slowdown. Russia and countries that "cheat" on their OPEC quotas are
also feeding the glut. Energy author Joseph Duarte says White House
saber-rattling about an attack on Iraq could lead to a further
stock-market slump in the event of an attack on Saddam Hussein. "The
depressed prices in the oil stocks have correctly predicted the economic
slowdown in the U.S.," says Duarte, author of "Successful Energy Sector
Investing." "Their rock bottom prices are now predicting that an attack
on Iraq would lead to severe damage to the oil companies' international
infrastructure, which would be translated to decreased earnings and
material losses, as vandalism, death of key personnel, and perhaps even
the nationalization of assets in radical states would likely be the
outcome of such an attack."
America needs confirmation that long-suffering investors are not, repeat
not, poised to cash in their retirement portfolios to pay bills. Such
confirmation, in the form of hard numbers, is hard to come by. Anecdotal
evidence suggests some investors with 401(k) and Individual Retirement
Accounts, saddled as they are with credit-card debt or on the jobless
dole, may rush to liquidate their holdings, triggering penalties and
putting their retirement lifestyles at risk. If that happens on a large
scale, all heck would break loose in the stock market. I suppose that is
what the market would label desperation, or capitulation.
Finally, America needs to boost exports in a big way. With the red ink
in the country's current account -- its ledger with the rest of the
world -- approaching 5 percent of economic output, America's capital
markets face a complete retreat by overseas investors. Keep an eye on
the corporate bond market. If the suffering bond prices of America's
largest companies improve any time soon, that's a sign international
investors are becoming comfortable with bloated U.S. debt levels.
The stock market is a hot potato these days, as strategist Kevin Lane at
Technimentals Research puts it. Large and small investors are no longer
willing to commit to the market for any span longer than a few days.
Hence the choppy trading and 300-point Dow swings.
Investors are advised to wait for signs of serious net inflow into
equities, as measured by trading volumes, price and sustained rallies,
before attempting to navigate themselves through the wreckage.
StockWatch by e-mail
You can get free delivery of Thom Calandra's StockWatch every trading
day. Sign up for Thom Calandra's StockWatch newsletter at
MarketWatch.com. No strings attached. Subscribe today
Thom Calandra's StockWatch is in its seventh year at CBS MarketWatch.
- -----Original Message-----
From: owner-canslim@lists.xmission.com
[mailto:owner-canslim@lists.xmission.com] On Behalf Of Harvey Brion
Sent: Thursday, August 08, 2002 4:20 PM
To: canslim@lists.xmission.com
Subject: Re: [CANSLIM] Re: CHTT (was: Identifying NEW leaders)
Thanks Katherine, I now feel a little better about the debt but it is a
bit scary. Normally, I'd expect buybacks when the debt is down and
there's a lot of cash lying around, but I guess it makes sense to go
into debt to buyback shares if (1) the stock price is considered way
undervalued and (2) the cost of financing (interest rate) the buyback is
exceptionally low.
I calculated from the 10Q that the buybacks over FY99 thru Feb02 were
made at an average share value of $12.83 or 38% of the current price so
they've made a hefty return on their investment.. Sounds like they're
managing their debt and I guess we just have to "have faith." -Harvey
Katherine Malm wrote:
> Hi Harvey,
>
> The high Long Term Debt to Equity comes from 2 sources: an aggressive
> stock buyback program (reducing equity) and a strategy of financing
> acquisitions via debt (increasing debt). The latest deal, for example,
> was a purchase of SelsunBlue from Abbott Labs for about $75m, financed
> with $45m in borrowings. The company seems to be fairly aggressive
> about using leverage where possible, and that is not surprising given
> the mature products that they take under wing in their portfolio
> reshaping program. They are also fairly aggressive about managing
> their debt facilities, most likely to take advantage of lower
> interest rates where possible. For example, they sold Ban in early
> 2001, then used the proceeds to retire $52m in senior debt. It's not
> all that uncommon for companies to rejigger their debt to equity
> ratios given their chosen business strategies. Interestingly, in June
> of this year, they announced a proposed primary offering of 1.8m
> shares, but withdrew the offering, citing "adverse market conditions."
> While a D/E of nearly 400% sounds scary, the more important thing to
> look for is their cash flow and ability to cover interest payments. If
> financing acquisitions through debt also allows them to build a broad
> product offering and increase net income as a result, then the
> interest paid becomes an investment, so to speak. If they do a lousy
> job of executing their strategies (sell non performing brands, acquire
> others, extend existing lines), then the interest will kill them. So
> far, so good.
>
> Beyond the D/E issue...CHTT was just an example thrown out in the
> discussion on "consumer stocks." Just as in the discussion of P&G
> earlier today, the "N" can come from many sources. Sometimes it's
> something as simple as leveraging a brand properly, as P&G has done
> with the Crest spinbrush and Crest Whitening Strips (by the way, about
> $50 for the box, premium pricing, but still a fraction of what it
> would cost to have it done with a special light activated process like
> Brite Smile's (BSML), or done "professionally" by a dentist.).
>
> Katherine
>
> PS
> Here are some quotes form CHTT's 10Q, which you can see in full at
> http://www.edgar-online.com/bin/edgardoc/finSys_main.asp?dcn=000093176
> 3-02-0
> 02300
>
> "We have historically financed our operations and acquisitions with a
> combination of internally generated funds and borrowings. Our
> principal uses of cash are working capital, servicing and repayments
> of long-term debt, acquisitions, repurchases of our common stock and
> capital expenditures."
>
> "In fiscal 1999, our board of directors authorized repurchases of our
> common stock of up to $10.0 million in the aggregate. In April 2000,
> our board of directors authorized repurchases of up to an additional
> $10.0 million of our common stock. Under these authorizations, 172,500
> shares at a cost of $3.9 million were repurchased in fiscal 1999
> 876,500 shares at a cost of $9.5 million were repurchased in fiscal
> 2000 and 14,000 shares at a cost of $0.2 million were repurchased in
> fiscal 2001. In February 2002, we repurchased, and returned to
> unissued, 44,000 shares for $0.6 million. As of May 31, 2002, the
> remaining amount authorized by our board of directors under our stock
> buyback plan was $5.8 million; however, we are limited in our ability
> to repurchase shares due to restrictions under the terms of the
> indenture for our 8.875% notes and our senior credit facility.
>
> We believe that cash provided by operating activities, our cash and
> cash equivalents balance, the net proceeds that we receive from our
> currently pending offering of common stock after debt repayment and
> funds available under the revolver of our senior credit facility will
> be sufficient to fund our capital expenditures, debt service and
> working capital requirements for the foreseeable future as our
> business is currently conducted. Any acquisitions that we make in the
> future may require us to obtain additional financing."
>
> ----- Original Message -----
> From: "Harvey Brion" <hbrion@ieee.org>
> To: <canslim@lists.xmission.com>
> Sent: Wednesday, August 07, 2002 1:13 PM
> Subject: Re: [CANSLIM] Identifying NEW leaders
>
> > These look interesting Katherine. It's hard to get excited about
> > cosmetics and weight loss products but with the high GRS rating,
> > they've obviously been doing well. I see they all have strong EPS
> > estimates for this FY. CHTT looks the strongest in cash flow and
> > ROE and I favor smaller companies anyway so I'd lean toward this
> > one. The chart is pretty wide and lose, so not classic CANSLIM. Do
> > you have any idea what their 389% debt to equity ratio is all about?
> > -Harvey
> >
> > Katherine Malm wrote:
> >
> > > Here's another view of "consumer" stocks--take a look at stocks
> > > like NBTY, WTW, CHTT, all of which have pros/cons, but nonetheless
> > > something unexpected. Who would've thought that HD might've done
> > > so well simply by consolidating a fragmented industry and
> > > redefining "home improvement"? Sometimes it's the unexpected which
> > > does the best while everybody else is looking to the obvious.
> > > Katherine
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