A bumper crop in 2003

Benj Gallander and Ben Stadelmann
Monday, December 29, 2003

With the end of the year quickly approaching, it’s time to review the companies that we discussed over the last year or so in this column. Today we look at US stocks; our next article will detail our Canadian equities.

We’ve been talking a lot about the funeral industry, a grim hobby that started in October 2002 with a column examining Service Corp. International. It was trading at $2.50 (all stock prices in US dollars) at the time, well below the $4.51 we paid for it. Though the possibility of taking the tax loss and buying it back after 30 days was given due consideration, we ended up simply hanging on. Good thing; the stock price has recovered to the $5.25 mark on the strength of a settlement of an outstanding class-action lawsuit.

We wrote about another funeral operator, Stewart Enterprises, last April. We were a bit early on this one too, buying in just after a profit warning slammed the stock, our purchase price was $3.11. Often these declines get overdone as the news is bad, but not really all that awful. This was a classic example of that pattern. We reckoned the stock was an even better bargain at $2.74. Despite the fact that business has remained slow — good news for those not looking forward to shuffling off this mortal coil — the stock has elevated to a rather serene $5.74.

During the dark days of the bear market when many investors were grasping for stocks with a good margin of safety, we suggested children’s shoe maker Stride Rite, then trading at $7.40. Though it is not an industry that has been as sexy as gold or copper in the interim, this well-run enterprise has kept chugging along, generating healthy profits and a welcome dividend. The capital gain to the current price of $11.42 is a comfortable fit, too.

One that we missed out on was Xerox. We kicked the tires on this venerable outfit and opined that it wasn’t quite ready to copy its past success. Wrong! Trading last December at $8, the stock has now climbed to $13.70.

Incidentally, 2004 was a year when a slew of equities on our Stock Watch List did at least as well as the ones that we actually added to the portfolio. It’s tough to watch a nice fish swim away with the worm, but it’s not unusual for plays that don’t quite match our needs to work out just fine.

Finally, a column that generated some interesting e-mail from readers was our admonishment to Bill Gates to “grow up” and pay a dividend. The exhortation was tongue in cheek, and the idea fanciful at the time, since Microsoft’s executives had long insisted that returning money to the shareholders was a bad idea. Lo and behold, US President George Bush pushes through his dividend tax credit and the unthinkable becomes reality.

Now if we can just get Warren Buffett to come out to our next bridge game…