Workshop Portfolio

<FOOLISH WORKSHOP>

Many Margins

by Louis Corrigan (TMF Seymor)

Atlanta, GA. (Jan. 26, 1999) -- A whole lot to choose from in this week's Rising Margins screen. One that I won't cover but that is worth a look is PC maker Gateway (NYSE: GTW), which reported as 38% EPS gain on 17% better sales. For more, see Dale Wettlaufer's recent Lunchtime News report.

First up, the newly public Bebe Stores (Nasdaq: BEBE), which designs and sells contemporary women's apparel and accessories to 18 to 35 year-old women, mostly hip urban types. The company operates 91 specialty retail stores in 22 states.

The subject of a recent Daily Double, Bebe delivered exceptional holiday period results. Sales increased 37% to $59.5 million on an astonishing 27.7% increase in same-store sales. That bumped EPS up 65% to $0.38. The company has a low-inventory, quick-turnover strategy based on domestic sourcing. That allows the firm to quickly reorder products that are selling well.

After running up 44% to $44 1/2 in the three weeks before the earnings release, Bebe has given back most of those gains, selling off to $33 1/2 in the last week. With a consensus earnings estimate of $0.94 for the year ending in June, the shares still trade at 36 times forward estimates. That's rich for a company projected to deliver 20% long-term growth, even when you consider the $2 per share in cash and otherwise solid balance sheet.

Still, Bebe has tremendous momentum. Gross margins increased 280 basis points to 54.3% as the store expansion is creating some operating leverage and more women paid full price for Bebe's sexy suits. Such profitability is tops in the industry, according to BancBoston Robertson Stephens. Investors interested in an apparel retailer should take a look.

Next, Craftmade (Nasdaq: CRFT), a marketer of ceiling fans and light kits sold through 1,500 retail outlets and outdoor lighting sold through Lowe's (NYSE: LOW), Home Depot (NYSE: HD), and Wal-Mart (NYSE: WMT) stores. This is the kind of boring company I love, since its business is easy to understand. It's also benefited greatly from the housing boom. Since showing up as a Daily Double a year ago, the stock has more than doubled to $16 3/8, figuring in a 3-for-2 stock split.

Last week, Craftmade reported that revenue and net income for the first six months of FY99 has exceeded the totals for all of FY98, partly due to the acquisition of TSI Lighting, which makes outdoor lighting. For Q2, sales rose 96% to $17.6 million, pumping EPS up to $0.17 from $0.08 on a 150% jump in net income. Fan sales rose 21.6% in the quarter. Great weather and low interest rates also helped the construction/home-buying market.

CEO James Ridings expressed confidence that the firm would meet or beat the FY99 estimates of $0.90 per share. Better yet, "We will begin to see the real synergies of the two companies during the third quarter of this year as we initiate our cross-marketing strategy." For instance, TSI's outdoor lighting was a hit with customers at the recent Dallas Lighting Market. "With the initiation of these synergies, we should have several years of substantial growth," Ridings said.

The Fool Snapshot reveals a company with a 32% return on equity on a small amount of debt. Yet the real story is improved profitability. Trailing 12-month net margins are 9.4% versus just 6.5% for the year-ago period. Craftmade trades at 18.2 times forward estimates, but only 13.6 times the $1.20 per share expected for FY00. While the company's results are sensitive to economic conditions, it appears poised to craft a solid future performance.

Finally, we're going to revisit MapInfo (Nasdaq: MAPS), a company that provides Internet-enabled business intelligence applications that help clients discover unseen patterns and trends in their databases. We looked at the company November 10, after Q4 EPS doubled to $0.22 on a 33% jump in sales.

Last week, MapInfo reported that Q1 EPS doubled to $0.10 as revenue rose 23% to $16.1 million. European sales shot up 55%, thanks to sales to major utilities such as Berlin Water and BEB, a large German gas distributor. U.S. sales increased 21% while Asia-Pacific was off 16%. Other MapInfo enterprise-wide customers, including AT&T (NYSE: T), broadened their deployment of MapInfo's products.

The company has trailing 12-month sales of $63.6 million and net income of $3.5 million or $0.59 per share. One analyst's estimate calls for $0.64 per share for FY99 ending in September and $1.00 for FY00. With the stock at $16, it carries a PE of 27. But back out the $4.44 per share in cash and it trades at just 18 times the forward estimate.

With an enterprise value around $68 million, the company is trading at about 1 times sales despite 5.5% net margins and healthy double-digit sales and triple-digit earnings growth of late. So mapping out this company's prospects might be smart move.

That's all for today. Go Dirty Birds!

Check out the latest file updates for the Workshop:
New Rankings | Workshop Returns


Workshop Portfolio


9/28/01 as of ~5:30:00 PM EDT

Ticker Company Price
Change
Daily Price
% Change
Price
AETAETNA INC NEW0.943.36%28.94
BABOEING CO(1.04)(3.02%)33.36
CATCATERPILLAR INC1.112.53%44.91
COGCABOT OIL & GAS 'A'0.693.59%19.90
DDDU PONT (EI) DE NEMOURS0.992.74%37.14
DGXQUEST DIAGNOSTICS(0.45)(0.73%)61.42
EKEASTMAN KODAK0.421.31%32.49
GMGENERAL MOTORS1.393.38%42.55
LHLABORATORY CORP AMER HLDG(NEW)1.141.42%81.21
MOPHILIP MORRIS COS(0.76)(1.55%)48.24
NEWPNEWPORT CORP0.261.90%13.97
NVRNVR INC(0.54)(0.38%)140.41
PKXPOHANG IRON & STEEL ADS1.097.51%15.61
PVNPROVIDIAN FINANCIAL1.075.64%20.04
QCOMQUALCOMM INC(0.40)(0.84%)47.16
RJRRJ REYNOLDS TOBACCO HLDGS(0.69)(1.19%)57.31
SLESARA LEE CORPUnchg.Unchg.21.09
UNFIUNITED NATURAL FOODS0.563.18%18.15
WMIWASTE MANAGEMENT(0.01)(0.04%)26.74

Overall Return -- total % Gained (Lost)
  Day Week Month Year
To Date
Since
Inception
(12/24/1998)
Workshop1.30%7.32%(12.02%)(20.66%)(18.91%)
Comparable S&P 500n/an/an/an/a(19.07%)
S&P 500 (DA)1.95%7.48%(8.33%)(21.22%)(14.88%)
NASDAQ2.02%4.71%(17.46%)(39.68%)(31.41%)
DJIA (DA)1.68%7.07%(11.07%)(17.86%)(2.22%)

Internal Rate of Return -- Annualized Rate of % Gained (Lost)
  Since Inception (12/24/1998)
Workshop(17.62%)
vs. S&P 500(17.63%)

Trade Date # Shares Ticker Cost/Share Price Total % Ret
1/8/0126MO40.9448.2417.82%
1/8/0122RJR50.1057.3114.39%
1/8/0167UNFI16.4518.1510.34%
12/24/9824CAT43.0844.914.24%
1/8/018NVR136.63140.412.77%
1/8/0140WMI27.4426.74(2.54%)
1/8/0150SLE22.5421.09(6.42%)
1/8/0161PKX17.8315.61(12.46%)
1/8/0115DD48.8337.14(23.95%)
1/8/0129AET38.1728.94(24.19%)
1/8/0139COG28.7519.90(30.79%)
1/8/0114QCOM75.5447.16(37.57%)
1/8/018LH134.6981.21(39.70%)
12/27/9918GM73.2642.55(41.92%)
1/8/0118BA59.5333.36(43.96%)
1/8/019DGX114.4961.42(46.35%)
12/27/9920EK65.0932.49(50.08%)
1/8/0120PVN55.5020.04(63.89%)
1/8/0115NEWP74.9613.97(81.36%)

Trade Date # Shares Ticker Total Cost Current Value Total Gain
1/8/0126MO$1,064.50$1,254.24$189.74
1/8/0122RJR$1,102.25$1,260.82$158.57
1/8/0167UNFI$1,102.12$1,216.05$113.93
12/24/9824CAT$1,034.00$1,077.84$43.84
1/8/018NVR$1,093.00$1,123.28$30.28
1/8/0140WMI$1,097.50$1,069.60($27.90)
1/8/0150SLE$1,126.88$1,054.50($72.38)
1/8/0161PKX$1,087.75$952.21($135.54)
1/8/0115DD$732.50$557.10($175.40)
1/8/0129AET$1,107.00$839.26($267.74)
1/8/0139COG$1,121.37$776.10($345.28)
1/8/0114QCOM$1,057.62$660.24($397.39)
1/8/018LH$1,077.50$649.68($427.82)
1/8/0118BA$1,071.50$600.48($471.02)
1/8/019DGX$1,030.44$552.78($477.66)
12/27/9918GM$1,318.62$765.90($552.73)
12/27/9920EK$1,301.75$649.80($651.95)
1/8/0120PVN$1,110.00$400.80($709.20)
1/8/0115NEWP$1,124.37$209.55($914.83)
 
Cash: 
Total: 
$10.80
$15,681.03
 

Key
• S&P 500 (DA) = dividend adjusted. Dividends have been added to the total return of the index.
• DJIA (DA) = dividend adjusted. Dividends have been added to the total return of the DJIA.

Note
Note: The Workshop Portfolio was launched on December 24, 1998, with $4,000 which was invested in the Foolish Four strategy. Approximately $15,000 was added on January 8, 2001, to support five additional mechanical strategies. At that time approximately $1000 was transfered out of the Foolish Four strategy to bring the Foolish Four into balance with the other strategies. (That's why the Foolish Four's overall return is not consistent with stock values.) Such rebalancing will take place each year among the strategies so that each will start out with approximately the same value at the begining of the year. No more cash additions are planned. The first four tables above show the overall performance of the portfolio. Below that we also track the performance of each component strategy. All transactions are announced publicly before being made, and returns are compared daily to the S&P 500 and the Dow. (Dividends are included in the yearly, historic and annualized returns.) Stocks are chosen using strategies developed by the Workshop community.