Stocks On Sale - securities on the market

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

But buried in the back pages of the newspaper business is the largely unknown Journal Register Co. (JRC). The chain owns clusters of daily and weekly papers in small cities and suburbs in New England and the Philadelphia and Cleveland areas. It looks to expand into areas where it can print different newspapers in a single plant. Management stresses relentless cost control, stability and dominance of local advertising, and saving money by printing many papers in one place.

Journal Register isn't as cheap on a price-earnings basis as the other stocks featured here. But compared with its industry, its shares appear compelling. At a recent $16, the stock sells at 15 times estimated 2001 earnings of $1.07 per share. That's well below the average P/E ratio for the industry, even though the company's profit margins are wider than those of the typical newspaper chain. Journal Register's finances and operations are healthy, and ad sales are holding up so far in 2001. Ultimately, Journal Register could be an attractive merger target for a big metropolitan newspaper company that wanted to buy the suburban competition.

Waiting for tech to revive

SALES AT Modis Professional Services (MPS), a provider of consulting services to information-technology firms, have fallen every quarter but one since 1999--hardly a ringing endorsement for the stock. But Modis, which derives two-thirds of its sales from consulting and one-third from recruiting, never went into the red and continues to benefit from the growing number of high-tech companies contracting out for accounting, legal, technical and other professional staffers.

Modis is also taking steps to bring costs under control, says Tyra Tutor, vice-president for investor relations. It's laying off employees, hiring fewer consultants, and closing offices. This will help arrest the slide in profit margins until the tech sector, a major part of Modis's customer base, revives.

Considering that Modis earned $1 a share as recently as 1999, the stock, at just $4, looks like classic bargain-basement fare. Profits this year are expected to come in at 46 cents per share, marking the second straight year of lower profits. But analysts see a resumption of growth in 2002. Analyst Mark Allen of Robinson-Humphrey says the stock could reach $12 within a year.

A supercheap paper play

AN INDUSTRY LEADER based in South Africa that doesn't mine gold or diamonds? Sappi (SPP) is the largest global supplier of coated fine paper, the kind that graces art and fashion magazines, brochures and calendars. It also has a small newsprint and pulp operation. Roughly 40% of its business is in Europe and 35% in the U.S. Compared with the rest of the paper industry and with its own trading history, Sappi is supercheap. At $9, its shares (they trade in the U.S. as American depositary receipts) change hands at six times estimated 2001 profits.

Sappi reports its results in dollars, but analyst Peter Ruschmeier of Lehman Brothers says the company's South African domicile is probably a key reason for the low price. Moreover, because investors view Sappi as a South African company, they're more likely to focus on its pulp business, which is almost entirely domestic. Pulp production is a commodity business that rates a much lower P/E ratio than fine-paper production. Domtar, a Canadian giant in fine papers, trades at 12.5 times this year's earnings estimates.