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Letter to the Editor

This article originally appeared in the May 2007 Issue of INSIGHT

The “Weather” Forecast Continues

The Dow got up over 13,000 and is forecast to go higher this month before falling. Perhaps precipitously, as was pointed out, the Market is as fluid as the Cleveland weather.

The two big winners in stock value continue to be Akzo Nobel and BASF. Rumors persist that these two companies appear to have an interest in each other. Just how this might play out I do not know, but this, coupled with improved earnings may be part of their rather impressive increase in their stock prices.

DuPont, on the other hand, shows a very modest growth in stock price and, while in the same chemical and basic materials business as Akzo and BASF, it has not had the same increase in value for its stockholders.

PPG, the remaining company of the four chemical companies, shows an impressive ten percent gain in share volume, and Sherwin-Williams, in paint only, has a modest three percent gain.

A surprise to me this year has been the poor stock performance of United Auto Group, a Penske-controlled company. Typically, Penske companies have shown increased earnings and increased stock value on a continuing basis. UAG’s flagship operation in Arizona must be doing well. Overall parts as service sales were up significantly during the last quarter. UAG operates 26 collision repair centers in the U.S. and in Europe. Overall, 30 percent of UAG revenue is international. It is my personal belief that UAG is the best run of the publicly owned auto retailers, and at the current stock price represents an excellent opportunity for future appreciation.

On the insurance side, Progressive continues to disappoint, with an over six percent drop in stock value since January. It would almost seem that collision repair shop owners were expressing their overall dislike of Progressive claims handling and relationship with shops over parts and labor issues. Perhaps Progressive treats its policyholders equally.

Allstate also, in spite of increased profitability, continues to show a drop in stock price on a YTD basis.

The only publicly held collision repair business, The Boyd Group based in Winnipeg, Canada, continues to show recovery in its stock value.

For 2006, Boyd showed an overall GPM of 43 percent and an EBITDA of approximately four percent based on its year-end statement. For 2006 overall reported net loss was over $20 million Cdn after write downs for Good Will and for Depreciation and Amortization.

There appears to be a “high pressure system” over gas pumps across the nation. The pre-Memorial Day increase in price for a gallon of gas was hefty - up an average 25 cents in one afternoon to $2.99 per gallon. Various delays and glitches at oil refineries were to blame. For sure we can bet to see $3.00 per gallon gas in plenty of time for Summer road trips.

-Charles Baker-

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