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Dow Jones S&P 500 NASDAQ 10-Year Note
10,415.05 1,112.48 2,230.77 36.17
Oil *
74.35
UP
86.16
UP
10.01
UP
19.08
UP
0.71
10 Yr
3.62%
SPDR Gold
109.26
+0.83%
+0.91%
+0.86%
+2.00%
Data delayed 20 minutes

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Commentary: The Turnaround Artist
*New* Alerts! Please click here...

Tuning the Conservative Portfolio for Today's Market
By Arne Alsin
Special to TheStreet.com
8/7/01 1:29 PM ET



The best part of value investing is the ability to dispose of the constant angst that comes with trading in speculative stocks during a difficult market. About four months ago, I penned a column for investors who were tired of losing and frustrated with all the volatility. I highlighted seven stocks spread across seven different sectors and called them my "Conservative Portfolio."

I know that I march to a different drummer in just about everything associated with stocks, and I also realize that my definition of a conservative stock may differ from the generally accepted wisdom on Wall Street. I consider a conservative stock to be a company with a wide gulf between stock value and business value, a vibrant business model and a strong position relative to the competition.

Here's how the Conservative Portfolio performed since that column originally appeared March 30:

The Original Conservative Portfolio
Here's how the picks have performed since March 30
Company Cost on March 30 Aug. 6 Close Gain
Office Depot (ODP:NYSE - news - commentary) $8.65 $12.29 42.08%
Hasbro (HAS:NYSE - news - commentary) 12.50 16.20 29.60
Raytheon (RTN:NYSE - news - commentary) 28.66 28.12 -1.88
TRW (TRW:NYSE - news - commentary) 34.50 42.95 24.49
Safeco (SAFC:Nasdaq - news - commentary) 26.65 30.38 14.00
Centennial Bancorp (CEBC:Nasdaq - news - commentary) 7.75 9.08 17.16
Delta Air Lines (DAL:NYSE - news - commentary) 39.50 43.85 11.01
Return 19.49%
Source: Alsin Capital Management

I continue to own all of the stocks above, but that doesn't mean I would recommend the same portfolio today. Stocks are not static; every story is constantly changing and evolving in the context of a dynamic business environment.

So here's what I'll call Conservative Portfolio II, consisting of seven stocks in seven sectors and including my new pick, Manpower (MAN:NYSE - news - commentary).

Conservative Portfolio II
Keep your eye on these seven stocks.
Company Industry Aug. 6 Close
Office Depot (ODP:NYSE - news - commentary) Retail $12.29
Textron (TXT:NYSE - news - commentary) Conglomerate 55.00
Georgia Gulf (GGC:NYSE - news - commentary) Chemicals 16.70
Continental Airlines (CAL:NYSE - news - commentary) Airlines 47.83
York International (YRK:NYSE - news - commentary) HVAC 33.95
TRW (TRW:NYSE - news - commentary) Auto Parts/Defense 42.95
Manpower (MAN:NYSE - news - commentary) Employment Services 31.87
Source: Alsin Capital Management

Besides Office Depot (ODP:NYSE - news - commentary) and TRW (TRW:NYSE - news - commentary), which were included in the original Conservative Portfolio, this portfolio includes Manpower, discussed below, and four picks that I have written about in prior columns: Textron, Georgia Gulf, Continental Airlines and York International.

Manpower Could Gain Momentum

At about $31 a share, Manpower is my kind of stock. It's in a simple business -- employment staffing -- with more than $10 billion in annual revenue. It's profitable, and it has a superb balance sheet, strong management and, most important, catalysts in place to lever the stock price onward and upward.

Manpower's Movement
After the past five years of performance, it could now be poised for an upside move

In addition to a compelling margin-expansion opportunity, Manpower stock is perfectly positioned for an economic recovery. Typically, staffing stocks like Manpower will have two legs higher as we exit a recession. The first leg up is in anticipation of better times ahead, and the second is when the improved fundamentals actually occur and flow through the financials.

Another catalyst for Manpower will be a softer dollar. About three-fourths of Manpower's revenue comes from outside the U.S., primarily from Europe. Any stabilization or even strength in the euro will benefit Manpower.

What's a reasonable target value for Manpower over the next few years? My calculations indicate that Manpower will have about $4 a share in annual earnings power in this next cycle. For most of the 1990s, Manpower traded at a market price-to-earnings ratio. Though I'm not going to predict the future market P/E -- it could be anywhere from 12 to 18 times -- you can easily do the math and come up with a reasonable price target.

Arne Alsin is the founder and principal of Alsin Capital Management, an Oregon-based investment advisor specializing in turnaround situations. At time of publication, Alsin and/or ACM was long Office Depot, Hasbro, Raytheon, TRW, Safeco, Centennial Bank, Delta Air Lines, Textron, Georgia Gulf, Continental Airlines, York International and Manpower, 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 arne@alsincapital.com.
Send letters to the editor to letters@realmoney.com.
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TheStreet Directory

Dow Jones S&P 500 NASDAQ 10-Year Note
10,415.05 1,112.48 2,230.77 36.17
Oil *
74.35
UP
86.16
UP
10.01
UP
19.08
UP
0.71
10 Yr
3.62%
SPDR Gold
109.26
+0.83%
+0.91%
+0.86%
+2.00%
Data delayed 20 minutes

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