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Letter to the Editor
This article originally appeared in the February 2002 Issue of INSIGHT
Nowhere - NOT a Good Destination...
Can We Turn Around?
Last month I said that this month we would recap the year, plus provide some suggestions as to where we feel the industry will go from an investment standpoint in 2002.
Well, I could be flip and just say that the industry, from an investment standpoint, went nowhere in 2001, and if things don't turn around pretty quick, this year's destination will be the same.
That having been said, we did have a number of "winner" stocks in 2001.
The stock with the highest percentage of increase was a company that I have written bad things about all year (and still believe that in the long run they will go nowhere), and that company is Driversshield.com, formerly known as First Priority.
While its stock went from $0.40 to $1.43 for a 258 percent gain, the fundamentals of this company - namely that its reported income is the total cost to the insurer of claims handled and that its gross profit is the twelve percent or so that Driversshield charges the shops for getting them the business - is not a valid business concept. While the stock is now close to $1.50, that is still down significantly from a high of over $6 in 2000.
The next highest in percentages of gain, with a gain just shy of 164 percent, was Keystone Automotive, which seems to have recovered from the State Farm lawsuit impact and has, in fact, moved beyond the pre - State Farm suit both in sales and profits.
Keystone continues to make acquisitions of companies, both manufacturers and distributors, with products closely allied with its core business.
While Driversshield.com and Keystone were the only triple digit gainers, AutoNation came close with a gain for the year of 98 percent. This 98 percent is a good start in the right direction to bring this stock back to the near $40 level that AutoNation reached in 1997.
Other strong gainers in 2001 on which we have commented before include Copart at 63 percent gain, now selling near its all time high of $39; and FinishMaster with a 59 percent gain and its stock selling for just over half of its all time high of $15 in 1995.
Looking at 2002 and where to invest, it is hard to make choices at this point, with a recession in full swing. In my view, the large cap companies such as PPG, ADP, DuPont, and Sherwin-Williams should see a slow recovery if, as I believe, the economy as a whole moves toward recovery in the third quarter.
Insurance companies have by and large not had a good year. Their investment income has been hard hit. This, coupled with increased claims costs, has impacted earnings.
All in all for 2001 and going into 2002, the INSIGHT U.S. Collision Repair Supplier Index and the INSIGHT Fund Index both outpaced the Dow and the S & P 100 indices.
Let us hope that this continues through 2002, and that retirement funds and jobs for all in this industry remain solid in these trying times.
-Charles Baker-
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