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Author: woodstove Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 1933  
Subject: Re: 4th Edition? Date: 10/24/2005 9:52 AM
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Hi Rocky,

A recent sign I've seen that autos might be getting interesting was an
article that Wilbur Ross was starting to buy up bankrupt parts mfgrs.
He put together International Steel from bankrupt steelmakers. Mostly
his style is buying bank debt, I think - ie the most senior securities,
not common stocks. On steel, he was active a couple of years before
the steel industry started to look appealing for common stock buying,
and of course there were external factors driving steel demand higher.
So I'll figure a couple of years at least might be an ok wait period
before getting serious.

Arbitrarily I've set car sales at 65 pct of prior peak as safe enough
trough indicator. We aren't there yet. And also, for parts companies,
I think there are a lot of cash outlay costs that've been capitalized
on the strength of having a supplier relationship with one of the big
three. One company I follow, for instance, capitalized the training
of their workforce. Many companies capitalize product development.
If sales drop by 33 pct, there should be some writedowns in fairness.
In any case, there will be implicit writedowns which eventually will
be taken into account by some analysts. Just yesterday an analyst
report on one auto company revised their estimate down from approx
book value, to 90 pct of a reduced book value after a hypothetical
writedown of the value of a division the company is trying to sell
with difficulty. In all, a 20 pct reduction in the target price
which is being recommended. I don't use brokerage target prices
but like the raw data which is presented, and the business insight
in the reports. But also, as an indication of pessimism trough,
it is meaningful that at least one analyst of one company is now
taking a proactive bearish stance. More needed before it's a crowd.

When stuff like autos or forest products goes down, it can stay down
for quite a while (maybe permanently). I think there's lots of time.
Years of opportunity, even if it's not always the same company which
is the opportunity. No reason to vary from super-cautious purchaser
mode. My biggest regrets do not come from the occasional blowouts,
but rather from having paid too much for what was available cheaper.

WS
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