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Investing In The Future
That's the opinion of undergraduates in the Roland George Investments Program at Stetson University in DeLand - a unique course where business students manage real money. Seeded in 1980 by a $500,000 gift from Sarah George in memory of her husband, Roland, a successful New York stock broker who believed students learn more from hands-on experience, the George portfolio has grown to almost $1.7 million. Divided into a growth fund and an income fund, the portfolio pays annual program expenses of $40,000 for resource materials such as computer hardware and software and research services. Additional profits are reinvested.
The George students' investment strategy looks for fairly priced small companies. "We are a small-cap growth manager with a valuation approach," says Ned W. Schmidt, visiting professor of applied investments who guides the class. According to Schmidt, a money manager consultant and formerly a senior vice president at Bank Oklahoma Trust Co. in Tulsa, many equities have been overvalued, but more recently, "for the first time in a while, we are finding stocks at reasonable prices," Schmidt says.
The 20 George students form two-person teams that research stocks and report to the class with buy or sell recommendations. If a majority favors the proposal, it goes to a seven-member board of trustees that includes four students from the program. With a simple majority of the board, the proposal is approved. (Two trustees, the dean's representative and a member of the university's investment committee, have veto power, but have never exercised it.) Schmidt finds the selection process "very similar to how a money management firm tailors a portfolio."
The growth fund currently allocates 30% to international investments and 61% to domestic equities, with a 9% cash balance. The fund shuns blue chips in favor of small companies with financial histories that can be plumbed to reveal attractively priced stocks. Research focuses on share price relative to four values: revenue, cash flow, book value and earnings.
Even though investment in foreign country mutual fund shares returned a paltry 1% in 1995, the students increased the proportion invested abroad in 1996. As of December the return had reached 3%.
The class sees opportunities for broader growth outside the U.S. where whole societies are reorganizing, not just corporations. From the developing economies in Latin America to progress toward unification in Europe, "Students are oriented to the real world perhaps more than money managers on Wall Street, who move with the herd," Schmidt says.
The growth fund appreciated by about 12% in 1996, less than the S&P 500's 21%, but comparable to 13% for the Russell 2000 small-cap index. Students think specialty chemical manufacturer Great Lakes Chemicals has been overlooked "because it's not about computers," Schmidt says. The three high-tech companies suffered mid-year plunges in 1996 that made them more reasonable. The diversified, closed-end Germany Fund invests in equities of German companies.
George Students Pick Five Company/Symbol Stock Market Price On
12/16/96
Great Lakes Chemicals / GLK NYSE $47.25
Micron Technology / MU NYSE 34.75
Novellus Systems / NVLS NASD 58.56
Electro Scientific / ESIO NASD 27.38
Germany Fund / GER NYSE 13.38
Company Profile
Chico's Tries Four-Season Marketing
But will year-round styles improve the appearance of this clothing retailer?
By Kris Hundley
After hard times in 1995 ? a brutal year for clothing retail stocks ? Fort Myers-based Chico's FAS went in for a makeover, but is still looking tattered. Once primarily a wild print, resortwear retailer, Chico's broadened its mix in '96 to include year-round casual wear. But by year-end, sales had increased only 4.4% compared to 1995, and comparable store sales decreased 0.8%. Shares, priced at $19 in December 1993 and $10 in June 1996, fell below $5 in December. Chico's began life in 1983 as a quirky little shop on Sanibel Island stocked with imported Mexican folk art, then it began selling clothes. More stores followed, and founders Marvin and Helene Gralnick took it public in 1993, using Wall Street cash to add 26 units in 1994. At the end of 1996, the chain had 133 stores in 32 states. Expansion came too fast, however, and the company ran into problems. Chico's, which designs its merchandise in-house and contracts with manufacturers around the world, suffered late deliveries and poor quality. And with new stores in such non-resort locations as Columbus, Ohio, Chico's brightly colored vacation garb no longer cut it. Sales stalled and net income dropped to $1.7 million in 1995 from $3.3 million in 1994 and $6 million in 1993.
"The feedback we were getting was that we never satisfied our fall-winter customer," says Melissa Payner, hired by Marvin Gralnick in July 1995 and named president the following month.
Payner, a 38-year-old merchandising whiz whose background includes Ann Taylor and I. Magnin, initiated an aggressive advertising campaign. "We just want to offer women every alternative to jeans and sweats," Payner says.
Gralnick and Payner reduced the number of new-store openings in 1996 to 13 and focused on restoring the reputation of Chico's merchandise. Management hoped for a turnaround, but in December 1996 total sales decreased 5.1% and comp-store sales tumbled 16.3% compared to 1995.
Peter Schaeffer, an analyst with Dillon Read & Co., still believes management is sound and the company will turn itself around, maybe late in 1997.
Marvin Gralnick notes that third quarter 1996 profits were up 40% on flat comp-store sales. "If you're profitable, it might not force the stock up, but it takes the pressure off. We want to make sure we're on the right path so Chico's is around years from now."
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The Dow Soared In '96
Better-than expected earnings boosted the stock price of Jabil Circuit, helping lift the 1996 total return (including reinvested dividends) of the Bloomberg Florida Small Cap Index to 18.2%, compared with 31.1% for the Dow Jones Industrial Average. The St. Petersburg circuit board maker's first quarter earnings per share rose to 47 cents from 31 cents a year earlier. Among stocks in the Bloomberg Florida Large Cap Index, Lennar Corp. appreciated the fastest in 1996's fourth quarter. The Miami-based homebuilder and real estate company reported record earnings and revenues for its third quarter. Lennar is part of an investor group making a bid for Arvida/JMB Partners L.P., one of Florida's best-known residential community developers.
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Company Profile
Not Made In The Shade
By Kyle Parks
Jack Chadsey, president and CEO of Sunglass Hut International, thinks it's time for the company to take control of its own destiny. Coral Gables-based Sunglass Hut, the world's largest sunglass retailer, started 1996 as a Wall Street darling, but ended the year with slowed sales growth, shares down 69% and questions about the future. Comparable-store sales increased less than 3% in 1996, after three years of double-digit growth. Add less-than-stellar earnings and you have a stock on the skids. Sunglass Hut shares closed the year at $7.25.
Chadsey blames the chain's problems on its two big brands, Ray-Ban and Oakley, not introducing any new styles. Those brands will have new products this year, and Sunglass Hut also expects a boost from Nike's first line of sunglasses. Still, Chadsey doesn't want his chain's health to depend on manufacturers. "This year," he says, "we're going to spend about $10-million to create an image for Sunglass Hut." The goal is to market over-$30 sunglasses like athletic shoes, so upper-income folks will look for the latest styles.
The company aims to double its stores to 4,000 in the next three years. While growth will help Sunglass Hut establish an image, it raises the possibility of saturation. Analysts wonder if the chain is growing too fast. Chadsey dismisses that, saying there are plenty of new markets. He also dismisses talk that the firm's new Watch Station chain is a response to problems in the sunglass business. Sunglass Hut has opened 45 Watch Stations around the U.S., selling $50 to $1,500 watches.
Chadsey sees the challenge ahead: He has to win back Wall Street."Actually, that is pretty simple," he says. "We have to post better sales numbers."
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Company Profile
Off The Ticker
CHS Electronics Celebrates
UPDATE ... On Christmas Eve, shares in CHS closed at $18.75, a high for the year and a 55% appreciation in four weeks' time. Based in Miami and a leading international distributor of computer products, CHS's November sales of $290 million exceeded expectations for the second month in a row and indicated that the integration of competitor Merisel's operations in Europe and Latin America is proceeding ahead of schedule. The Merisel acquisition at the end of September approximately doubled the size of CHS.
Stock Offering At PRC
UPDATE ... Precision Response Corp., Miami, filed with the SEC for a proposed public offering of 4,740,000 shares of common stock. Goldman, Sachs & Co., Dain Bosworth and Merrill Lynch & Co. are managers for the underwriting group. PRC, a teleservices firm, provides customer relations and marketing solutions to companies such as Taco Bell and British Airways on an outsourced basis.
JW Charles Declares Split
On January 24, stockholders received new shares in JW Charles Financial Services, Boca Raton, from a three-for-two stock split. Company clients include individuals, businesses and other brokerage firms.
Losing Money At Weitzer
While revenues at Weitzer Homebuilders, Miami Lakes, grew 164% in fiscal 1996 to $37,773,097, the designer-builder of single family residences for first-time and move-up homebuyers announced a net loss of $2,962,000 or ($.79) per share. Shareholders' equity fell 30% in 1996 compared with 1995.
