Mr. Rogers investing advice, In your neighborhood
With the move of Vail Resorts corporate headquarters to Broomfield and the acquisition of Vail Banks (WestStar) by U.S. Bancorp (USB), we now have a level playing field in terms of financial reporting in the Vail Daily on publicly traded companies.Heretofore, VR and WestStar got all the coverage. Now these two businesses are on an equal footing with American Gypsums parent, USG Corporation, and Wells Fargo Bank. All of these listed-companies have a major presence in the Vail/Eagle River Valley, our neighborhood, but their main offices are elsewhere.In view of this development, it seems to me worthwhile to spend some financial-reporting time on investing opportunities that have gone underreported.First, a few words on Vail Resorts. Recently, Vail Daily readers were treated once again (Oct. 6) to a bold headline proclaiming Vail Resorts posts record profits. Management and shareholders have good reason to be happy about this latest fiscal year-end 2005-06 performance. However, as usual, I offer some cautionary observations to current and prospective investors.Vail Resorts price/earnings ratio (as of close Oct. 13) is still a lofty (overvalued?) 39 when compared with a broad-market (S&P 500) P/E of 18. The company carries a lot of debt, and consequently, interest expense eats up a high percentage of operating profit. Just for the record, the highly respected Value Line sees the stocks capital gains potential through the end of the decade as limited. In addition, shortly after the year-end earnings announcement, Matrix Investment Research downgraded VR to sell from hold.The acquisition of Vail Banks by Minneapolis-based U.S. Bancorp brings one of the nations premier regional banks to our area. USBs stock is well regarded by the investment community and is currently priced in the middle range (13) of price/earnings ratios typically carried by banks (11 to 15). Among many positive investment qualities of USB is its highly attractive level of fee-based income (non-interest income), which exceeds its net interest income. This may be a record for a large bank in the U.S. and affords substantial protection from fluctuations in interest rates, which are a continuous challenge for all banks. The banks current dividend yield of 4.4 percent should be of interest to conservative income-oriented investors.The consensus analyst opinion on Wells Fargo is very favorable. This stock also pays an attractive dividend (3.2 percent) and has experienced moderate but steady capital appreciation for several years. With expected year-end 2006 assets of $52 billion, WFC is one of the nations largest bank holding companies. Analysts point to WFC as a classic example of a relatively safe equity investment with its dividend and price appreciation producing a solid total return in the high-single- to low-double-digit range.The American Gypsum Co., located in Gypsum, doesnt get much local press. However, its parent, the USG Corporation, may be the biggest investment story in our neighborhood.Space limitations dont permit me to go into a lot of detail on the USG story. Briefly, the company went into Chapter 11 bankruptcy in June 2001 (asbestos liability claims). Thats the bad part of the story. Subsequently, as described Oct. 6 by Value Line analyst Craig Sirois, USG did a masterful job throughout its bankruptcy. On June 20, 2006, the company successfully completed its case and emerged from bankruptcy. Now for the really good part of the story: On Friday, all-universe value investor Warren Buffet announced that Berkshire Hathaway increased its ownership in USG to a significant 19 percent. Thats my kind of neighbor. USG stock is still risky, but stay tuned in to its progress. Buffets track record with this type of investment situation speaks for itself.Richard Loth is an independent registered investment adviser and runs Mentor Investing. He is a writer/publisher of investment education materials. His latest book is Finding Investment Quality in a Mutual Fund. E-mail inquiries to firstname.lastname@example.org or call 328-5591.Vail, Colorado
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