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  Losses were limited in our 2002 portfolio

BENJ GALLANDER and BEN STADELMANN

Friday, January 17, 2003

Last column, we wrote about many of the stocks that contributed to our 47.3 percent return in 2002. It wasn't just the winners that gave us the big gain, however; we were aided also by the fact that only two stocks in the portfolio lost more than 10 percent of their value.

If you want to guarantee a win when you flip a coin, you've got to call both heads and tails -- or perhaps use a two-headed coin. With stocks, making money is one thing; the flip side of the coin is preserving cash. And that we did.

Service Corp. International was brutalized, losing about a third of its value. This was caused by their mistreatment of the dead, as bodies were found in places other than where they were laid to rest. Problems ensued, as the company states at the bottom of its Securities and Exchange Commission Form 10-Q, concerning the outcomes of pending lawsuits in Florida involving certain cemetery locations, including the "possibility of criminal charges or other civil claims being filed against the company, its subsidiaries or its employees."

Add to that a debt load that remains bloated, albeit pared back, and you can see why many investors jumped ship and others were discouraged from coming aboard. Fortunately, when this bad news deepened right after our buy, we turned tail within a week and sold 62.5 percent of our position at $4.81, 30 cents above our purchase price, while remaining hopeful for gains on our remaining stash. Hasn't happened yet, but despite the travails, this firm remains a "Buy" in our estimation, with a target price of $13.84 US.

The other big loser was Xanser Corp., bruised to the tune of more than 20 pe cent. This is one of those high-tech outfits that provides a hodgepodge of specialized technical services, primarily in the energy, health care, finance, and insurance sectors. The company trades below its book value of $2, has decent financial ratios, and revenue chips in more than $125 million.

Naturally, this enterprise had to deal with the downdraft in the tech sector. Xanser is an anomaly in the portfolio in that we didn't purchase it, but were given it in a spinoff from our very lucrative play in pipeline outfit Kaneb Services. Our initial sell target on this remains at $4.74, and we rate it a Hold.

A couple of companies traded during the year at levels much higher than their current values. OfficeMax cruised to more than $8 from the $4.50 where it began the year, then receded to its current price of $5.12. On the Canadian side, Stelco rammed through the $6.50 barrier, only to drop back to its current level of about $4.57. If we were traders, who knows, maybe these firms would have exited the portfolio. But we're not, and we remain content with the target prices on these two enterprises of $13.44 and $10.24 respectively.

At the end of the day, it is not the one-year returns that are crucial, but our 10-year tally of 25.2 percent. Of course, you do need a few one-year grand slams to achieve such a fancy slugging percentage.


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