Private Values

Omnicell is roger King’s kind of stock. In barely a year the medical information company has let down WallStreet with its quarterly earnings and seen its market value shrivel 68% to $173 million. But King, comanager of the Fountainhead Special Value Fund, believes Omnicell could be worth $300 million and that one day the company will prove it.

“Omnicell will make it on its own,” says the 62-year-old Houstonian, “or somebody’s going to put it under their umbrella.”

After 36 years in the investing business King has settled on several ways to root out stock bargains. His favorite among them is to find stocks selling for less than what a buyer of the whole company might pay, the so-called private market value approach.

It’s largely a matter of guts, King explains, as impatience or jitters will always lead certain investors to sell stocks at prices below their true economic worth. “If there’s a significant discount,” he says, “we’re interested.”

Full story at Forbes.com

Is Uncle Sam Leaving Children Behind?

WASHINGTON, D.C. – Three weeks ago, 858 people showed up in Washington for a conference, hosted by the Consortium for School Networking, on the use of technology in K-12 education. The mood at the event? “Pretty somber,” reports participant Bruce Wilcox, chief executive of an education technology venture called Project Inkwell.

Weighing on the group: money troubles. For one, concerns simmered about the fate of E-Rate, or the Schools and Libraries Universal Service Support Mechanism. The U.S. government program, funded by fees added to phone bills and devoted to wiring schools to the Internet, has been wracked by charges of fraud and mismanagement.

A more immediate worry was President George W. Bush’s proposed education budget for fiscal 2006. The budget, released in February, proposes eliminating a program known as Enhancing Education Through Technology. Created as part of the No Child Left Behind Act of 2001, EETT doles out grants for integrating technology into schools. The program received $500 million in fiscal 2005, down from $700 million in 2002.

Full story at Forbes.com

Bottom-Fishing Value Line Stocks

Two ways to make money on Wall Street: Run with the crowd or bet against it. Whatever your preference, the Value Line Investment Survey has statistics that can help you sort out the prospects.

Forty years ago Samuel Eisenstadt created the “timeliness” ranking formula that made Value Line famous. It scores 1,700 stocks for expected performance over the next 6 to 12 months, using a plethora of technical (stock-price-related) and financial factors. The formula, still in use, has had a remarkable run. A hypothetical investor reshuffling his portfolio every Jan. 1 to hold only the 100 top-ranked stocks would have earned a 19% compound annual capital gain over the 40 years, says Value Line, against 10% for the S&P 500. (These numbers exclude dividends.) Transaction costs would have dampened the return, but even so the performance has been strong enough to baffle proponents of the Efficient Market Hypothesis, which says that no statistical formula can keep beating the market.

Full story (reg. required) at Forbes.com

Newspaper Bargains

In the last year, newspaper and publishing stocks in the S&P 500 are down 9%, versus a 7% gain for the broader index. The selloff has left some print media giants with historically cheap valuations. Still, it’s not easy being a bull on this sector.

“The last three years have not been fun,” says Miles Groves, an economist and consultant to the newspaper business. Groves, who also publishes monthly and quarterly research, cites disappointing advertising results, sagging circulation stats and challenges ahead as readers devote more attention to bloggers, while media buyers send more dollars to the likes of Google and Yahoo!.

Full story at Forbes.com

Run, Robot, Run

Gary Carr is a mechanical engineer working for Ensco, a professional-services firm and government contractor headquartered in Falls Church, Va. But get him started on the subject of the robot he’s building, and he sounds more like a beaming parent.

“It starts to go off and make decisions on its own,” he explains. “Decisions sometimes you can’t believe it made.”

Carr leads Ensco’s team which is competing in the second annual Grand Challenge, a robot derby taking place next October that is sponsored by the Defense Advanced Research Projects Agency (DARPA). The challenge in question is to build an unmanned vehicle capable of traveling on its own through 175 miles of desert terrain in less than ten hours. The team whose robot completes the mission the fastest takes home $2 million.

At last year’s Grand Challenge, Ensco fielded “David,” a modified all-terrain vehicle. Alas, it and the 12 other robots all crapped out within eight miles of the start. But the firm got plenty of mileage in publicity terms. On its Web site, Ensco, a relatively small outfit with $100 million in annual revenue, still proudly touts a 38-page booklet packed with media mentions from the 2004 event.

Full story at Forbes.com

GM’s Intelligent Advocates

WASHINGTON, D.C. – Yesterday, the Bush Administration showed its intention to put the screws on domestic discretionary spending with a budget cutting or shutting down 150 federal programs. With such a clampdown afoot, can federal funding for “Deer Avoidance Research” survive? Sure, if Neil Schuster has any say in the matter.

“We have a vision,” says Schuster, president of the Intelligent Transportation Society of America (ITSA). “Zero fatalities and zero delays.”

Maybe it’s all the time they and their staff spend stuck in Washington traffic, but members of Congress seem to like that message. Funding for intelligent transportation systems stands a decent chance of more than doubling to $3.7 billion when Congress gets around to passing a gigantic highway and transportation spending bill.

Full story at Forbes.com

Motorola’s Cargo Call

Washington continues to grapple with how best to protect the flow of commerce from terrorism. This week, U.S. Customs and Border Protection hosts a symposium on the matter, an event following up on the Department of Homeland Security’s “Cargo Security Summit” a month ago. There, outgoing Homeland Security Secretary Tom Ridge declared cargo security to be “a linchpin issue.”

That makes it a ripe business opportunity, too. In Ridge’s audience at the December meeting lurked reps from Boeing, Booz Allen Hamilton, IBM, Lockheed Martin, Northrop Grumman, Science Applications International and Unisys.

Also in that crowd was another company to keep an eye on: Motorola. A year ago, the Schaumberg, Ill.-based company launched Secure Asset Solutions, an outfit aiming to help businesses use satellite, cellular and short-range radio technologies to keep track of valuable goods, such as cars and cargo containers.

Full story at Forbes.com

Boat Gambling

For the past two years ocean shippers have had the wind behind them. Their vessels will carry 4.6 billion tons of oil and dry bulk cargo (iron, coal and so on) this year, up 10% since 2002, while container traffic will increase 23% over 2002 levels, says Clarkson Research Studies. All categories are expected to keep growing in 2005.

Given the inflexibility, at least in the short term, in the supply of ships, that uptick in demand translates into a huge gain in profitability for shipowners. This year’s net income at shipowner OMICorp. should be up better than tenfold from two years ago. Share prices are
up, too, although not as steeply. Standard & Poor’s index of maritime stocks has risen 83% since 2002 versus 29% for the S&P 500.

The party isn’t over, says Mark Coffelt, chief investment officer at First Austin Capital Management. He began buying tanker stocks a year ago for his $43 million Texas Capital Value Fund. He isn’t about to jettison his holdings.

Full story at Forbes.com

Cradle To Cradle To Washington

WASHINGTON, D.C. – Last month’s U.S. election results elicited the predictable laments from the enviro crowd. “The re-election of President George W. Bush means that polluters will enjoy four more years of lax enforcement,” moaned the Natural Resources Defense Council.

But the political winds don’t seem to ruffle one prominent environmentalist: William McDonough, a 53-year-old architect and man dubbed a “hero for the planet” by Time magazine in 1999. “We don’t focus on politics, because they come and go,” McDonough said in a phone interview last week, adding, “Republicans are very attracted to what we do.”

Indeed, last January, McDonough was back at the White House, where he had previously accepted an environmental award from President Bill Clinton, expounding his ideas on ecologically sustainable design to a meeting of government officials arranged by Bush’s Office of Management and Budget. “We’ve met with many of the departments and agencies many times since,” McDonough says.

The subject of those meetings is what McDonough calls “Eco-effectiveness” and “Cradle to Cradle Design.” In short, it’s an effort to refashion architecture and industry so that they emulate the ecosystems found in the natural world.

Full story at Forbes.com

Big Bets

Every Autumn we have 17 equity experts–some bulls, some bears–test their mettle against the S&P 500. They get one pick and 12 months to either beat or lag the index. Those who succeed stay in the contest for the next round. Only a handful of the experts from our recently concluded contest have reason to brag. On average the five shorts skidded past the market’s 8% rise since October 2003 with a 55% gain. Bearish pick Research in Motion, which rose 300%, did most of the damage.

Nor did the bulls deliver. Their 12 picks collectively finished in the black but still fell shy of the S&P 500’s advance by three percentage points.

The best among the bears was Clarion Group’s Morton Cohen. Last year he warned of trouble at Bradley Pharmaceuticals, which fell 38%. For 2005 he puts the finger on Travelzoo, an online aggregator of travel deals. It’s an easy business to get into, Cohen says. He thinks that Travelzoo faces threats from upstarts below and giants like Yahoo above. And the stock doesn’t look cheap at 90 times projected 2005 profits.

Full story at Forbes.com