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The market is
sucking some serious air. The nightly news is
full of traders with furrowed brows looking
anxiously at flashing computer screens. But the
more telling tidbits of news are the
man-on-the-street interviews where people say:
"So what? I'm in it for the long haul."
Or better yet, there's the courageous contrarian
declaring this to be a "buying
opportunity." Among the Virginia Business editorial staff, there's been an awful lot of buying going on. One editor was explaining over a Diet Coke about his decision to switch from CDs to utilities and REITs earlier this year. When the market slumped, he tripled this bet by moving his 401(k) money-market horde into an equity fund. |
Me? I just bought a truck.
But if I had any money left over, there are a few stocks I'd be looking to own -- out-of-state of course, because writing for this magazine keeps me from buying into any Virginia-based companies.
But what do I know? I'm just an armchair investor for the most part. Pay more attention to the people who put their money -- or at least their companies' money -- to the test. Dramatic "buying opportunities" usually trigger some major stock repurchases, and that's what we're seeing now in Virginia. Here are a few companies that consider themselves bargains.
* * *
Last month McLean's Capital Automotive REIT (Nasdaq: CARS, $11.31) authorized the repurchase of up to 3 million shares -- 10 percent of its outstanding common stock.
In a company press release, CEO Thomas D. Eckert said that the move "reflects our confidence in the intrinsic value of our company. We believe our stock is significantly undervalued relative to our net asset value and the future growth potential of Capital Automotive."
Apparently, this is not your father's old-mold REIT. The idea is this: Car dealerships are land-intensive businesses, and quite often the underlying acreage is more valuable than the dealerships themselves. So REITs like Capital Automotive separate the assets by buying the real estate from dealerships and leasing it back to them. As of midsummer, Capital Automotive owned 64 properties in 14 states. Similar REITs may go public in the near future.
Few analysts cover the stock, so investors have to determine for themselves whether it's a bargain. Arlington-based Friedman Billings Ramsey, which helped take the company public, still tracks the stock, but that firm has a vested interest in the firm's success. Capital Automotive was scheduled to give a presentation at a Wheat First Union conference in late September, although the Richmond-based brokerage does not track the company at this time.
The general thinking goes, however, that earlier this year REITs were trading at inflated prices, but now the pendulum may have swung too far the other way. Money managers say there have been too many fund redemptions, which has contributed to the free fall.
CulturalAccess Worldwide (Nasdaq: CAWW, $4.50) also plans to repurchase up to 300,000 of its 9.1 million shares outstanding. The Arlington-based company specializes in data-driven sales and marketing, particularly for pharmaceutical clients.
John Fitzgerald, president and CEO, is bullish on his company. In a prepared statement he said: "There is no change in our focus on our strategy of growth through continued strong operating-unit performance and through acquisitions. Any repurchase of our stock at this time simply emphasizes confidence in our continued ability to perform for our shareholders."
And did you catch the executive compensation charts in this issue? Now is a good time for companies to buy shares to meet big option grants to top executives. CulturalAccess, in announcing its repurchase, said it would "take advantage of what we believe is a deeply undervalued stock price" rather than issue new shares to back up options.
Last month, while announcing a repurchase of stock by Optical Cable Corp. (Nasdaq: OCCF, $7.44), CEO Robert Kopstein blamed the year 2000 problem for his company's lower-than-expected earnings. Sales in the company's third quarter of fiscal 1998 were $13.7 million -- 3.9 percent lower than the third quarter of fiscal 1997. And so far, fiscal 1998's cumulative net sales are flat at $37.3 million. The Roanoke company manufactures and markets fiber-optic cable for high-bandwidth transmission of data, video and voice communications.
Kopstein believes that his customers are postponing fiber-optic upgrades so they can afford to meet their more immediate needs to prepare their computers for the year 2000. When that problem is solved, Kopstein expects the market for fiber-optic cable to surge again. So the company repurchased more than 648,000 shares through the end of July and, because of strong cash flows, it expects to repurchase even more shares.
So have at it, all you bottom fishers. Ten years from now, you could be bragging about the bargains you hooked in late '98. That would be better than lamenting all the big ones that got away.
Leigh
Anne Larance
Senior Editor
© OCTOBER 1998, VIRGINIA BUSINESS
MAGAZINE