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Letter to the Editor
This article originally appeared in the April 2002 Issue of INSIGHT
It's NOT an ILL Wind
The winds of March have blown favorably, pushing the value of many of the stocks on our investment list to new highs for the year and erasing some of the major dips in value following the September 11 tragedy.
Specifically, PPG, DuPont, BASF, and Sherwin-Williams, major refinish suppliers, all saw major gains in the past thirty days. Each saw the price of its stock rise to a new yearly high.
Each of these companies is enormous, and it is difficult to gauge the impact of refinishers alone. However, it is our impression that refinish volume has been relatively flat for the first three months of the year.
Valspar, our other refinish player, is also performing very well indeed. The company's stock price is up 22 percent since the first of the year.
Collision repair volume has in total for the year to date been flat, with the exception of a few insurers, with State Farm probably showing the greatest increase in claims volume, based on the company's major effort last year to expand its base of insureds. Given State Farm's announced losses one might wonder if they insured the wrong drivers.
Expect State Farm to both re-examine its underwriting and, more relevant to our industry, to re-focus on severity in an effort to control claims costs.
While repair costs are a key part of overall severity, the number of "totals" has risen dramatically, while at the same time the recovery on salvage has dropped.
Still covering insurance, we note that Progressive has announced a three-for-one stock split, scheduled for April 22. We expect that this split will have at least a short term impact on the price of Progressive's stock.
Copart, which has been a "winner" company over the past few years, suffered a significant drop in its stock price this last month after posting record earnings.
Just why Copart stock is down is a mystery. While the value of salvage has dropped somewhat this should not have a significant impact on Copart’s earnings.
Insurance Auto Auctions, which has historically trailed Copart in stock value, has seen an increase in the price of its stock, and is now selling for a high of the year 2002.
As more vehicles get totalled both of these companies should show significant continuing growth, based on a strong demand on the part of insurers to use recycled parts when available.
-Charles Baker-
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