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Letter to the Editor

This article originally appeared in the October 2006 Issue of INSIGHT

Up, Up, and Then What?

This afternoon as I put pen to paper, the Dow briefly traded above its all-time closing high for the first time in over six years. The rally was based on a bullish opinion about corporate profits. The Index rose to 11,724.86, pulling past the previous record closing high of 11,722.98 hit on Jan. 14, 2000, when the average also hit a middle of the day record peak of 11,750.28. The Dow closed a few minutes ago up 32.25 points, or 0.28 percent, at 11,721.49.

Ah, I am savoring the moment - and I do mean moment. Life on Wall Street can change in the blink of an eye. Just this morning I was developing a nervous twitch from reading several financial essays full of bleak cautionary phrases such as “impending recession” and “possible depression.” Orders to U.S. factories for big-ticket manufactured goods fell for a second consecutive month in August, marking the first back-to-back declines in more than two years.

What is a poor investor to do? After many years of hoping for a “get rich quick” stock to jump into my slender stock portfolio, I tend to tell myself to stick with what I know and build on it slowly and steadily.

So, what do we know about INSIGHT’s Collision Repair Industry related stocks at the end of Q3 2006?

Well, U.S. auto manufacturers are toughening up their plans to get leaner and more profitable. GM Chief Executive Rick Wagoner is apparently open to an alliance with Renault-Nissan. Bill Ford has brought in a strong hand, Alan Mulally, who turned Boeing around, to run a tighter ship at Ford Motor.

Car dealers United Auto Group and CarMax are still showing nicely improved per share stock prices. CarMax in particular is up over 44 percent YTD. AutoNation appears determined to end 2006 with a stock price at least as high as its January price of $21.97. Recent production cuts by Detroit-based automakers bode well for the company.

In the aftermarket suppliers arena, Keystone Automotive’s per share stock price has recovered some ground the company lost in late October. Its per share stock price stands at about 16 percent over its January posting.

Refinish paint manufacturers are still holding their own in a flat market beset by rising raw materials and transportation costs. In particular, Akzo Nobel, up almost 28 percent YTD, and Sherwin-Williams, up just a hair under 25 percent since the New Year, are looking forward to healthy numbers in this final quarter of 2006.

Our Supplier Index beat the Insurer Index this month, posting a YTD gain of seven percent. Despite the calm hurricane season so far, Progressive, starting to climb but still posting a per share stock price about 18 percent off its January start, has kept our Insurer Index slightly below its January start. This will almost certainly change by December.

-Charles Baker-

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