Cash In on the Great Buyout Boom

The result of all that money jumping up and down on the managers of underperforming companies until they either performed or were bought out was that in 2005, value investing strategies outpaced growth. And the bigger a stock's market capitalization, the more value outperformed.

At the small-cap end of the stock market, the Russell 2000 Value index outperformed the Russell 2000 Growth index for the year, 4.71% to 4.15%. At the large-cap end, the Russell 1000 Value index beat out the Russell 1000 Growth index, 7.05% to 5.26%. And at the very top of the market-cap pyramid, the Russell Top 200 Value index raced ahead of the Russell Top 200 Growth index, 4.6% to 2.88%.

This year, the Russell 200 Value index was up 3.09% through Jan. 12, and the Russell 200 Growth index was up 2.76%. Value is outperforming growth even as the stock market stages a textbook January rally.

Riding the Backs of the Buyout Artists

So how do individual investors put all this buyout cash to work for them?

Find value stocks where an activist buyout fund has taken a stake.

Take a look at Copart(CPRT Quote), which puts the sellers of salvaged vehicles, primarily insurance companies, together with the buyers of such cars and trucks, largely vehicle dismantlers, rebuilders, used-vehicle dealers and exporters, through its live and Internet auction services. The company also provides salvage services such as vehicle storage.

The stock is now trading at around $24 a share, with a trailing 12-month price-to-earnings ratio of 22. That strikes me as cheap for a company with projected earnings growth of nearly 10% in fiscal 2006 and 16% in fiscal 2007. The company, which owns about 30% to 35% of the salvage processing market, generated $315 million in operating cash flow in the last four quarters.

The stock is cheap because the company missed October-quarter earnings forecasts due to Hurricane Katrina's effect on the salvaged vehicle market.