Intelligent Investor Chapter 13 Summary : A comparison of four listed companies

A comparison of four listed companies

• Four companies - Eltra(electrical), Emerson(electrical), Emery(air freight), Emhart(hardware).
• P/Es vary more widely than operating performance/financial condition. Compared to average earnings of 1968-70, Eltra and Emhart are very modestly priced(9.7,11.7). Emerson and Emery have high multipliers of 33 and 45 - attributing to their growth and also as favored companies.
• Profitability: Earnings per share to book value is high for Emerson and Emery. High rate of return attributing to high annual growth rate in EPS - net per share/book value. Ratio of operating income/sales is an indicator of strength/weakness- net/sales is high for Emerson.
• Stability: Maximum decline in any one of the past 10 years against average of 3 preceding years. Eltra and Emhart had moderate decline, Emerson and Emery had none.
• Growth: Eltra's figures are impressive as it's P/E is very low. It's good for the two high multiplier companies.
• Financial Position: Current assets/current liabilities. Standard is 2:1. Emery has low value, but it had good prospects to raise money.
• Dividends:Emhart>Eltra>Emerson>Emery(new) in terms of long record of dividend payments.
• Price history:Good advance over 30+ years.
• Emerson: high market value(1.6B). High valuations entail high risks though.
• Emery:Growth P/E~40. But can't say for certain about future developments.
• Emhart & Eltra:Sold at 22 times multiplier in 1958,profits tripled against DJIA 100%, but ended with 1/3 above 1958 high compared to DJIA 43%. Similar track for Eltra. Though they are doing well, they are not popular.
• Eltra and Emhart are better. The price is close to book value. Rate of earnings,stability of profits and past growth are good. They meet the requirements for defensive investor:
• Adequate size
• Strong financial condition
• Continued dividends for past 20 years.
• No earnings deficit in past 10 years.
• 10 year growth of at least 1/3 in EPS.
• Price/net asset value<1.5
• Price/average earnings over past 3 years<15

Commentary:

• Emerson, EMC, Expeditors, Exodus comparison.
• Exodus went on splitting stocks amidst public enthusiasm for nothing and finally went bankrupt.
• EMC grew by 21% but the shares which were selling at 100x high multiplier lost 88% in 2002 compared to 1999.
• Emerson grew by 40% and it's shares only lost less than 4%.
• Expeditors shares gained 51% in 2002 compared to 1999.

~

See Intelligent Investor Summary for other chapters summary.