Timing is everything
Andrew Allentuck
11:22 EST Wednesday, Jul 24, 2002

WINNIPEG (GlobeinvestorGOLD) – Philippe LeBlanc’s style of value investing in small- to mid-cap U.S. stocks appears to right for the times.

Having languished during the tech boom years from 1997 to 1999, the $6-million Cote 100 U.S. Fund performed better than the average in 2000 and 2001, and reached the top of the first quartile with a return of 6.5 per cent for the 12 months ended June 30, 2002. The Russell 2000 index lost 8.5 per cent in the same period, while the average small-to-mid-cap U.S. fund dropped 19.8 per cent. For Mr. LeBlanc, president of Cote 100 in Montreal, the recent performance is confirmation that it’s profitable to find companies with growing earnings priced at less than 25 times earnings per share.

“When you buy stocks with growing earnings and don’t pay too much for them, you have some upside potential and you can avoid bad losses when the market has a coronary over things like accounting,” Mr. LeBlanc said. “Buying deep value stocks just means picking up overlooked companies that may remain ignored. But with growth potential and a good buying price, you get the best of both worlds.”

Constellation Brands Inc. is a Fairport, New York-based producer and distributor of imported beers, upscale wines and spirits, and accounts for 2.6 per cent of the portfolio. Mr. LeBlanc bought the shares at an average cost of $15.35 (All figures in U.S. dollars) in 2001 and has seen them climb to $24.81 recently. The company’s sales tend to be stable, but acquisitions and resulting increases in market share have boosted revenue, he said. While Constellation has $1.38 of debt for every dollar of shareholder equity, it can easily handle interest payments with its revenue base, he added. Constellation earnings are expected to grow to $2.23 in 2003 from $2.04 in 2002 and $1.78 in 2001. While earnings this year will rise only 10 per cent, last year they were up15 per cent compared to a ratio of price to current earnings per share of 12.2. The stock should hit $32 to $33 within 12 months, Mr. LeBlanc said.

Mr. LeBlanc bought shares of Medical Action Industries Inc., a Hauppauge, New York-based company that makes disposable surgical products in 2001 at an average cost of $9.47. Those shares have recently traded at $11.31. At 2.5 per cent of the portfolio, the company, which has 31 cents of debt for each dollar of shareholder equity, should increase its earnings to 80 cents a share in 2003 from 62 cents in 2002. The ratio of price to current earnings per share of 18.2 makes Medical Action a good buy in growth at a reasonable price, he said. The share price should rise to $16 within 12 months, he said.

Mid-Atlantic Medical Services Inc. is a Rockville, Maryland-based health maintenance organization that Mr. LeBlanc added to his portfolio for an average cost of $16.68 in 2001. The stock has recently traded at $27.79. At 2.3 per cent of the portfolio, the company, with tight cost controls, is increasing its margins. As a result, earnings per share could grow to $2.16 in 2003 from $1.84 in 2002, he said. With no debt, profits tend to flow to shareholders and, as a result, the company’s ratio of price to earnings per share, 18.2, supports a rise in price to $39 within 12 months, Mr. LeBlanc added.