ASSET ANALYSIS FOCUS

BACKGROUND:

After almost 1 1/2 years in the planning stage, Asset Analysis Focus, a monthly research publication concentrating on in-depth evaluations of total corporate worth, published its first issue in January 1975. In that issue, we stated:

“Chief operating officers and merger and acquisition specialists have taken advantage of this unusually depressed period in stock market history to acquire corporations at unusually low prices. Although the investment community, as a whole, has not yet followed their lead. We believe that in the “not too distant future”, stock prices will begin to ascent and will more accurately reflect the intrinsic worth inherent in many corporations. In retrospect, this period may be look upon as one of the four or five great buying periods for common stocks.”

Although we do not attempt to predict the stock markets’ direction, it is interesting to note that by purchasing securities at depressed market levels in relation to our criteria for investment, an investor will tend to become increasingly invested in cash and equivalents as the market rises, and increasingly invested in equities as the market declines.

Raison D’être:

The service was developed primarily because we felt that too much stress was being placed by portfolio managers and security analysts on earnings per share growth and not enough emphasis on balance sheet analysis. As a direct result of the aforementioned, too great a disparity existed (and still exists) between stock market valuations and the value that would be placed on a corporation if the entire enterprise were acquired by a knowledgeable private investor interested in continuing present operations.

PHILOSOPHY

Definition:

Asset Analysis Focus is a monthly research publication which focuses on corporations that are selling well below intrinsic or break-up value. Intrinsic value, as we define, is the estimated current worth that would accrue to the stockholders of a company, either through liquidation of corporate assets upon termination of operation or through the sale or merger of the entire enterprise as a continuing business. Asset Analysis Focus does not subscribe to the often accepted theory that the market price of a stock is its true worth, but believes that taking advantage of favorable discrepancies between market value and intrinsic value is the meaning of investment opportunity.

Methods:

Methods employed by Asset Analysis Focus in determining intrinsic value include:

01) Hidden Asset Method.

“Hidden” assets are assets whose current values are not accurately reflected on a corporations’ financial statement - a situation which may lead to a disparity between market value and intrinsic worth. Such hidden assets include real estate buildings and undeveloped acreage; reserves of natural resources - coal, gas, oil and timber and inventory reserves resulting from the “last-in first-out” method of inventory accounting, are adjusted to current market value in calculating the true worth of the corporation.

02) Business Value Method.

Periods of unwarranted pessimism within the securities markets in general, a particular industry, or a specific company, may result in extreme disparities between the stock market price of a corporation and the value that would be placed upon the company if the entire enterprise were acquired by a knowledgeable private investor. When employing this method of evaluation, Asset Analysis Focus considers the subject corporations’ historical earning power, present product market condition, and financial strength, and then make comparisons with similar corporations that have been acquired or merged in the recent past.

03) Franchise Approach.

A number of corporations have, over long periods of time, created consumer franchises. In other words, their products are readily identified by the consuming public and would be virtually impossible to duplicate by a potential competitor. Equally important, these “franchise” corporations have the ability to increase prices without loss of acceptance for their product, a value which is not adequately reflected by market place price.

04) “Fallen Angels”.

During certain periods of time, well-know corporations that were once the “darlings” of Wall Street, fall out-of-favor with the investment community causing their stock prices to plummet to unrealistically low levels. After determining that the fundamentals of such concerns are not permanently impaired, the “fallen angel” is written about in an excerpt of Asset Analysis Focus.

05) Work-Outs.

A corporation that announces a plan of liquidation may decide that rather than sell all of its underlying assets, it will spin-off a portion of them, thus, forming a new publicly traded entity containing those assets. Often in these situations, the common shares of that company sell at a substantial discount to their underlying net asset value. Asset Analysis Focus identifies and writes about such situations.

The fundamental risk of investing in equity securities is the risk that the value of the stock might decrease. Stock values fluctuate in response to the activities of an individual company or in response to general market and/or economic conditions. The market value of all securities is based upon the market's perception of value and not necessarily the book value of an issuer or other objective measures of a company's worth.

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