11-15-03

Undervalued Investment Weekly

The Undervalued Reports Company’s weekly newsletter

Towson, MD

November 15, 2003

Good morning,

I apologize for not updating the site this week. I was in the Imperial City (Washington D.C.) all week, and couldn’t get the
modem on my laptop working at the hotel. Maybe it’s time to throw out the modem and invest in a wireless internet
connection.

Your editor learned an important lesson on his trip. I should never, ever drive in a large city without first consulting a map.
I get lost going from the couch to the coffee maker, so city driving is a real challenge. From where we were staying, it was
an easy drive over the Roosevelt Memorial Bridge to the monuments and the Mall. Getting there was the easy part.

Now, I would have expected that getting back was as simple as crossing the bridge the other way and back to the hotel.
Sounds sensible, right?

Ah, but I forgot where I was. I was in the land of make-believe, where sensible is a dirty word. So, we crossed back over
a different bridge, heading west towards our hotel. Two hours later, we were about 10 miles north-east of where we
started, with no idea how we got there. And if you’ve ever gotten lost with a baby in the car you know what a pleasurable
experience it can be.

The moral of the story? Stay home.

Let’s look at a smattering of this week’s news. The Dow was down 41 points this week to 9768.7, while the S&P inched
three points lower to close at 1050.4. Our buddies at the Nasdaq took a 41 point beating this week, down two percent to
1930.3. The bond market rallied this week, on news that the Fed was inclined to leave rates unchanged, and data
indicating the economy may be slowing. The ten-year bond rose 5% this week, driving the yield down to 4.23%.

So, I ask you, if you haven’t refinanced your mortgage to a low fixed rate, what are you waiting for?

The heavy hand of karma continued to pound the mutual fund industry this week. Two senior executives at Alliance Capital
were shown the door, amidst findings that some of their funds engaged in market timing. Investigations into other companies
are ongoing. And in a story I missed last week, founder Richard Strong stepped down as chairman of Strong Funds,
amidst similar allegations.

If all these mutual fund companies are “uncovering” instances of market timing in their funds, doesn’t that lead you to believe
it was common practice? It’s obviously more than just a few renegade managers at a few firms.

Putnam funds settled with the SEC, agreeing to make changes in some of its business practices and reimburse shareholders.
This doesn’t immunize them against state and federal prosecution, however. The federal government and the state of
Massachusetts have already filed further charges against the company. The company has seen $14 billion withdrawn from
its funds since the scandal came to light.

Oracle’s purchase of PeopleSoft may be in jeopardy, according to a revision of the lawsuit Oracle filed against its target.
Apparently, PeopleSoft has promised customers big rebates if the company is acquired, which obviously reduces the
company’s value should Oracle win the bid. It’s actually a novel takeover defense, and I’m interested to see how the court
rules on this situation. In my opinion, the defense is a bad idea because it will destroy shareholder value, but interesting
nonetheless.

The nation’s top retailers, Wal-Mart and Target, both announced earnings this week. Wal-Mart just missed analyst
expectations and Target met expectations. But the real story was in the fourth quarter forecasts. Both companies see a
weak holiday season coming up, which is bad news for retail investors. For the week, Wal-Mart was down about 6%, and
Target was down less than 1%. Maybe the American consumer is starting to feel tapped out.

A mixed bag of economic signals came out this week. Retail sales were down and wholesale prices were up, while
industrial output increased. Auto sales were down 1.9% last month, driving the retail sales decline. The automakers are
putting the brakes on incentives, effectively raising auto prices. Wholesale prices, as tracked by the Producer Price Index,
were up 0.8% last month thanks to rising auto prices and a sharp increase in food prices. Stripping out food and energy, to
look only at the core index, we saw a 0.5% rise. It looks like all that extra money the Fed has been printing is working.

Finally, the joke of the week:
Boeing Corp. creates an ethics office!

That does it for my weekly wrap-up. I hope you’ll find this week’s feature article interesting and educational. The topic is
Porter’s Five Forces Model, which is an essential tool for analyzing a company’s competitive position and profitability.
Good luck, and happy investing.

The full version of this newsletter is available to subscribers only. It's free and easy to
subscribe, and you'll receive instant access to the members area.

Plus, you'll receive Ben Graham's 10 value stock criteria FREE!

Sign Up Now...