Stocks On Sale - securities on the market

Kiplinger's Personal Finance Magazine,  June, 2001  by Jeffrey R. Kosnett

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What `U' stands for

ENERGY STOCKS have had a nice run over the past couple of years, thanks to rising oil and natural-gas prices. As with any sector experiencing a revival, there are leaders and laggards. Ultramar Diamond Shamrock (UDS) has been a laggard, but it's one that's poised to do some catching up.

A union of companies with roots in Texas and Canada, Ultramar owns refineries and gas stations throughout North America. It is solidly profitable, and earnings growth over the past three years outpaced the industry average. But the stock, recently at $39, sells at less than eight times estimated profits this year of $5.10 per share. That's far below the sector average. No wonder CEO Jean Gaulin says that the U in Ultramar also stands for "untapped upside," "uniquely positioned," and, uh, "undervalued."

What's going on here? For starters, Ultramar carries a lot of debt, which it incurred to buy refining capacity, on the assumption that the U.S. was short of refineries. Now it's undertaking some complex financial engineering. It has cut its dividend and is buying back one-fourth of its outstanding shares--all in the name of adding 25% to earnings per share without reducing the stock's already low P/E ratio. UBS Warburg analyst Christopher Stavros strongly endorses the plan, saying it could add 90 cents a share to profits by next year. -- Reporter: COURTNEY MCGRATH

Key numbers Seven reasonably valued stocks

The stocks sell at modest price-earnings and price-to-sales
ratios. The stocks are also cheap in relation to others in
their industries.

                                                        MARKET
                                             RECENT     VALUE
COMPANY                       PHONE NUMBER   PRICE    (MILLIONS)

Arkansas Best                 501-785-6000     $17        $346
Dan River                     804-799-7000       2          49
Journal Register              609-396-2200      16         688
M/I Schottenstein Homes       614-418-8000      31         237
Modis Professional Services   904-360-2000       4         387
Sappi                         212-815-2207       9       2,086
Ultramar Diamond Shamrock     210-592-2000      39       2,810

                                 2001       P/E RATIO     P/S
COMPANY                       EARNINGS(*)    2001(*)    RATIO(#)

Arkansas Best                    $2.61          7         0.22
Dan River                         0.18         11         0.07
Journal Register                  1.07         15         0.56
M/I Schottenstein Homes           6.00          5         0.27
Modis Professional Services       0.46          9         0.21
Sappi                             1.43          6         0.44
Ultramar Diamond Shamrock         5.17          8         0.20

Data to April 12 (*) estimates

(#) price to sales ratio, or market value divided by
last four quarter's revenues.

SOURCE: Thomson Financial/First Call, Market Guide

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