1. Limited, Inc.
  2. (NYSE: LTD)
    Closing price 9/24/01: $9.75
    52-week range: $9.41 - $27.88

By Brian Lund (TMF Tardior)

Apparel giant Limited, Inc.'s(NYSE: LTD) founder and CEO Leslie H. Wexner opened his first store in 1963. Since then, he has created an enormous amount of shareholder value by establishing or collecting a strong stable of store brands and unlocking their value through sale or spin-off. Limited owns the following brands:

  Store         TTM sales ($ mil)
Express         $1,593
Lerner New York  1,017
Lane Bryant        946
Limited Stores     647
Structure          550
Mast et al.        159

The company recently sold its Lane Bryant stores to Charming Shoppes(Nasdaq: CHRS) for $250 million in cash and 8% of Charming's outstanding stock. Once that transaction goes through, Limited will own the following stakes in publicly traded companies:

  market value
Company                       % owned (millions)
  Intimate Brands
    (NYSE: IBI)
        84%   $3,680 
Alliance Data Systems(NYSE: ADS) 20%      178 
Charming Shoppes                  8%       40 
Galyan's(Nasdaq: GLYN)          22%       30

That's $3.93 billion in publicly traded stocks. As of Friday's close, Limited had a market cap of $4.05 billion. It has $73 million more debt than cash, so its enterprise value is about $4.13 billion. That means that the market is valuing Limited's five remaining brands at a total of $200 million -- less than the cash paid for Lane Bryant alone.

For a company with a long history of selling or spinning off assets, such as Abercrombie & Fitch(NYSE: ANF) and Limited, Too(NYSE: TOO), that is too cheap. Even though retail will be in tough shape for the rest of the year and Limited's same-store sales have fallen about 3% across the board in Q2 and August, Wexner's long history of shareholder value creation strongly suggests that the company will get back on its feet. Its current 3% dividend yield is a nice kicker.

More resources:
Limited Dumps Lane Bryant
InDepth: Retail

Brian Lund (TMF Tardior) has never bought anything from Limited, but he hears others have. He owns no shares in companies he mentions, but he does own some others.

  1. Cable & Wireless
  2. (NYSE: CWP)
    Closing price 9/24/01: $12.19
    52-week range: $11.01 - $45.63

By Bill Mann (TMF Otter)

Okay, it's horse-whipping time, folks. A little more than one month ago, I detailed a stock idea as a Fool on the Hill column in which I described Cable & Wireless(NYSE: CWP) as "a fat pitch." Well, shuck my corn and call me Rhonda, C&W did the obvious in the intervening days and dropped another 35%. Never, ever accuse me of having market-timing skills.

Actually, I don't really care if I do hit the exact bottom of a stock price. I am looking for companies that provide unparalleled value at current prices, and nothing that has happened in the recent few weeks have changed my original supposition. Cable & Wireless, one of the largest Internet backbone providers, satellite connectivity and global communications firms, is still really, really cheap. It is one of a precious few telecommunications companies that did not spend itself into oblivion in the late 1990s. Now, while its competitors are drowning in debt, C&W is sitting on a huge amount of cash. In fact, at a current market capitalization of $11 billion, the market has valued C&W's operations, essentially, as a net destroyer of capital.

That is a big mistake. Cable & Wireless is in an industry that is deeply troubled, and it has just gone through a significant restructuring. But it stands now both as a potential acquirer of drowning companies or assets and an acquiree by cash-hungry bigger carriers. Telecommunications has endured one of the worst reversals of fortune in history as companies drowning in debt swamped one another in a desperate quest for cash. As the shakeout comes to its conclusion, only a few companies will be left standing. Chances are good that one of the few companies with a positive cash position will be among them. That means Cable & Wireless and a precious few others.

More resources:
Is Cable & Wireless a "Fat Pitch"?
InDepth: Telecom & Networking

Bill Mann (TMF Otter) does not go by the name Rhonda. He owns shares of Cable & Wireless, which you can see on his profile.  

  1. Adobe Systems
  2. (Nasdaq: ADBE)
    Closing price 9/24/01: $25.29
    52-week range: $23.85 - $87.31

by Zeke Ashton (TMF Centaur)

One excellent company that I think is undervalued right now is Adobe Systems(Nasdaq: ADBE). The stock got hammered last week after reporting that Q3 revenues were less than expected and reducing expectations for the upcoming quarter. Despite the horrible economic environment, Adobe did meet Wall Street estimates for earnings per share (EPS) in the quarter, a result of tremendous cost control. Costs were lower due to a reduction in some compensation, a very tight marketing budget, and a lid on discretionary spending such as travel. Importantly, Adobe did not reduce its commitment to research and development, keeping R&D spending to over 18% of revenues. A new product cycle will begin to roll out in the next quarter and continue well into 2002.

Adobe continues to be the big dog in Web publishing and graphics software, and the company's Adobe Acrobat document creation software owns the e-Paper market. In addition, Adobe's PageMaker is taking market share in the page layout market from Quark Xpress. In short, with graphics and Web customers in the millions, with the corporate market still in its sights, and with $575 million in cash on the balance sheet and no debt, Adobe looks to be well-positioned to ride out the economic downturn -- however long it may last.

With the stock at a bargain basement price of $25 a share, I calculate Adobe to be selling for less than 15 times trailing free cash flow. In my judgment, that's a very attractive price for a tremendous business that should hold its own during the downturn and emerge stronger than ever when the economy inevitably picks itself back up.

More resources:
Adobe Unsure About Second Half
The Inside Scoop on Adobe

Zeke Ashton (TMF Centaur) thinks he should probably remember enough physics to know what a quark is, but... You can see in his profile that he does not own shares in Adobe Systems.

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