Looking for Value Among Reader Requests

In today's installment of my Friday Q&A series, I'm answering questions from readers about companies that they think are undervalued. Next week, I'll be covering your queries on overvalued companies. Email me your idea of an overvalued company, and I'll try to tackle it next Friday.

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Question: What do you think about Goodyear (GT - commentary - Cramer's Take)? Is it undervalued? -- L.B.

Answer: Goodyear is a mess that I'd avoid. It's hard to believe this small-cap company, with less than $1 billion in market cap, was a component of the Dow Jones Industrial Average for almost 70 years, from 1930 to late 1999. Yes, you could double or triple your money here if this turnaround turns. But there's no margin of safety. The balance sheet has gone from weak to weaker. Over the past couple of years, long-term debt is up by well over 50%, and time is running out for operations to improve. Also, for example, as the 10-K discloses, the company received 36,500 new asbestos claims in 2002. It's a liability that I can't measure.

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Question: What do you think about BJ's Wholesale Club (BJ - commentary - Cramer's Take)? I have been hearing mostly bad things from analysts -- that it is only time before this small player in the wholesale market is pushed out by Wal-Mart's (WMT - commentary - Cramer's Take) Sam's Club and Costco (COST - commentary - Cramer's Take). Fundamentals seem good and market position seems good, to the point at which it was rumored to be eyed by Sam's Club/Wal-Mart as a takeover. -- A.N.

Answer: BJ's is cheap, and it has some prime locations in the Northeast and Mid-Atlantic. But as a rule, I generally like to buy only the No. 1 or No. 2 company in any given segment. Absent a competitive advantage, the big get bigger at the expense of the marginal players. I'd consider allocating capital to Costco instead of BJ's. Costco stock has been slammed to very appealing levels in recent days because of sluggish earnings performance and other short-term issues. By my calculations, Costco should be worth at least 50% more than the current quote over the next three to four years. That's not a home run, to be sure, but it's a reasonable return, considering that it's a low-risk equity to own.

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Arne Alsin is the founder and principal of Alsin Capital Management, an Oregon-based investment advisor and portfolio manager of The Turnaround Fund, a no-load mutual fund. At time of publication, neither Alsin nor ACM held a position in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Alsin appreciates your feedback and invites you to send it to [e-mail]. Click here to receive Arne's latest favorite stock picks from his newsletter, The Turnaround Report.