Drip Portfolio Report
Tuesday, August 12, 1997
by Jeff Fischer (TMF [email protected])
and Randy Befumo (TMF [email protected])

ALEXANDRIA, VA (Aug. 12, 1997) -- Yesterday, I gave a brief, although slightly discombobulated, overview of OWENS CORNING (NYSE: OWC) and the factors that initially led me to think that it might be an interesting company to investigate for the Drip Portfolio. Today, in a slightly more organized fashion, I want to outline the questions about Owens Corning that need answers before I give the company any further consideration.

Asbestos Litigation. Owens Corning is one of the twenty companies remaining that still has some liability for injuries caused as a result of asbestos. What kind of liability remains? Is the company moving to settle these claims in a way that can be considered reasonable? Although I do not necessarily have a problem investing in a company that in the past has done some harm, in this case I want to see that it has committed to resolving the claims and has implemented procedures to ensure that something similar does not occur again.

Debt level. Recently, Owens Corning has added a ton of debt after slowly whittling down its debt since 1994. Owens Corning has increased its debt level -- in no small part due to a number of acquisitions that it has made over the past twelve months, including the $471 million purchase of vinyl-siding maker Fibreboard. Is management making the right move using debt instead of stock to make acquisitions? How much have these acquisitions added to Owens Corning? What kind of prices has Owens Corning been paying?

Historical Financials. Given the rash of merger and acquisition activity, the trailing earnings and revenues for Owens Corning have been rendered obsolete. Although I did calculate some ratios yesterday, many of them used historical Owens Corning results -- results that have not been stated to reflect the more than $1 billion in acquisitions the company has made over the past year. Piecing together these financials is a must, and is something that will probably take some time.

Future Growth Possibilities. My preliminary investing "thesis" with Owens Corning is that the company is a misunderstood growth company that has been priced incorrectly because of concerns about the asbestos litigation and that its current collection of businesses will grow as slowly as Owens Corning has in the past. We need to make sure that the current businesses the company owns can provide the kind of growth that a Dividend Reinvestment Plan (DRP) investor would look for.

The Valuation. After we have assessed the potential asbestos liability, figured out what the historical financials are, determined whether or not the debt-load is too high, and looked at the kind of growth that Owens Corning can provide over the next few years, the last step is to assess what kind of price we are paying for the company.

If this looks like a lot of work, well, it is. Because selling a DRP is much harder than selling a stock in a brokerage account, we have to be doubly sure we are correct before we purchase. This increased level of due diligence means that the workload also rises by the same amount. The last thing we want to do is "drip" into a stinker. For those who want to follow along, you need to get copies of some documents, many of which you can find on the Internet. I am listing all of these documents now to give those who want the opportunity to "read ahead."

Much of the following information can be found at www.owens-corning.com/owens/investor/, the Owens Corning investor information website, although I will list other sources as well. At www.fool.com you can access historical press releases from the company by simply typing "OWC" in the upper right-hand corner. To look at the last two 8-Ks, the last three 10-Qs, and the last 10-K, you need to go to www.sec.gov, www.freeedgar.com, or www.edgar-online.com to access these documents. Finally, for AOL readers, you will want to go to keyword: "DJ" and search for all of the recent Dow Jones stories on Owens Corning as well as going to keyword: "Company News" and searching for all of the Reuters stories.

Tomorrow, I will take a look at the asbestos claims and the potential liability there, including the tale of how Owens Corning got into that sorry mess. Tonight, I will check out the DRP message folders on both America Online and the Web to see if readers have any preliminary questions about Owens Corning or the investment thesis that ran in this space on Thursday and Friday of last week.

TOMORROW: Even More On Owens Corning

--Randy Befumo, Fool

           (Please see the left navigation bar for information on this new portfolio.)