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Letter to the Editor
This article originally appeared in the August 2000 Issue of INSIGHT
August 2000 Investment Update
CCC has had the double whammy of being looked at as a high tech dot com-related company and a company with little or no earnings growth. The combination this year has been deadly.
While I don’t believe CCC is floundering, it does give some indication of being unfocused. Selling today at nearly 40 times earnings, it will take, in my judgment, a combination of strong marketing leadership coupled with product innovation to turn this stock around and restore it to its glory days’ pricing of nearly $30 per share early this year.
Speaking of dot com fiascos, Parts.com, which was focused on web sales of auto parts by OEM car dealers, is now at $1.50, down from its 52-week high of $50.50.
Almost all the Collision Industry related stocks are showing red ink values on a year-to-date basis. The exceptions are few and far between. Sherwin-Williams, for example, at $23, is up on a YTD basis, but if you look at this stock on a 52-week basis it is down dramatically from a $30 high.
Others have fared even worse: the giant DuPont at $44, down from a 52-week high of $75. At the other extreme in size and long term stability is First Priority, again trading at less than $2 - down from a 52-week high of $6+. With First Priority Group, insurers are apparently not buying into the FPGP concept of its 2000 shop planned FPGP network at a cost of around 15 percent to the shop for getting the repair assignment from First Priority. I suspect that most insurers feel that the "discount" provided by the shop to FPGP will eventually end up pushing up their severity - just an opinion on my part, of course!
Safety Kleen, now in Chapter 11, remains an investment disaster, with the stock now trading off the board at around fifty cents, down from its high near $20 within a 52-week period. This was not one of your publisher’s better investments.
Other companies, such as AutoNation, Keystone, Progressive, and SAFECO, have recently been trading at less than half their 52-week highs. Are they values at these depressed prices? Well, we think some may be. DuPont will certainly at some point recover its value, and we think Keystone is a value at less than seven times earnings. (See the new Under the Microscope look at Keystone in this issue.)
On July 19, in a proxy statement filed with the SEC, A. Jason Adair, president of Copart, has been nominated for election to the Keystone board. Adair, who recently negotiated a strategic alliance with Keystone, at age thirty has already built quite a reputation for bottom line profitability at this publicly owned salvage auction company.
Keystone’s SEC filing revealed another interesting development. Unlike most companies suffering a profit loss and a drop in stock price, key executive officers, including Charlie Hogarty, Keystone’s president, have taken a cut in pay. This unusual but sensible action is an indication of sound management and integrity. When you ask your organization to cut costs, and then you share the burden by tightening belts at the top level of the company, you demonstrate your commitment to the operation and your confidence in its future success.
On the others we will have to wait and see. Perhaps a long talked about "summer rally" will lift these year-to-date dogs to new highs.
-Charles Baker-
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