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Letter to the Editor
This article originally appeared in the June 2002 Issue of INSIGHT
Asking the Right Questions Mid-Year
Last month we asked the rhetorical question: Is the glass half full or half empty? Well, there is no question this month - 21 stocks down and only three up.
The up stocks, CCC Information Systems, Parts. com, and Keystone Automotive, each showed modest increases. Keystone and CCC have both been concentrating on basics and are showing improvements in sales and earnings.
Who knows why Driversshield showed a slight increase for the month? It is down 37 percent for the year, and, in my judgment, the fundamentals are not there.
If we had all been clever enough to have invested in CCC, Earl Sheib, FinishMaster, Insurance Auto Auctions, Valspar, and Progressive Insurance, we would be approximately 40 percent up on a YTD basis. Of these six stocks, your publisher was only clever enough to have picked three for our INSIGHT Fund - CCC, FinishMaster, and Progressive.
On an overall YTD basis we did pick some additional winners - Keystone, 3M, PPG, and Sherwin-Williams - resulting in an overall increase of nine percent YTD, greatly outperforming the Dow.
It is always interesting to look ahead to the second half of the year and to try to revise our outlooks from January to reflect current conditions.
Will interest rates go up and further hammer the insurers, impacting their bond investments and further reducing earnings?
Will the weather gods finally cooperate with our industry and push parts demand up along with sales of refinish materials? An early winter with lots of ice could make for an improved fourth quarter.
The odds are, however, that the economy will stumble along with no great impetus for stock price increases or drops. There is a wild card, however, and that is terrorist actions. Another September 11th or worse could plunge the Market to record lows and delay an overall economic recovery for months.
All in all, our industry has fared pretty well for the year as compared to telcom and high tech stocks.
Your publisher's Corning Glass stock, that a year or so ago was at $110 per share, is now $3.65. Did I sell? No, and in fact bought a little bit more at $4.10 per share. Ah, hope truly springs eternal!
Right now I think that preferred stocks look attractive, with yields of 7.5 percent or more on the preferreds of both Ford and GM. If interest rates soar, these stocks will take a hit, but in the midterm, 7.5 percent looks pretty good compared to "growth" in common stocks and interest on CDs, money market accounts, and others.
There appears to be some activity on the horizon worth keeping an eye on among our international refinish manufacturers. Consider a few recent actions: BASF has taken over the operations of Wattyl Ltd. in Australia; DuPont has just raised its Q2 earnings forecasts; and Akzo Nobel is growing in China and Indonesia, and plans to double coatings sales within the next five years.
-Charles Baker-
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