Geoff Gannon July 13, 2007

Interesting Items for Friday, July 13th, 2007

Energizer Holdings (ENR), a stock I’ve written about before on this blog, announced it will acquire Playtex Products (PYX) for $18.30 a share in cash (total consideration of approximately $1.9 billion). The size and nature of this acquisition looks like a perfect fit.

Energizer had made no secret of its desire to make such an acquisition. Playtex has some very strong brands. Of course, this will only broaden the front on which Energizer competes with Procter & Gamble (PG) – and that’s already the biggest mark against Energizer in most peoples’ minds. But, these are good businesses and it’s often better to be a smaller player in a good business than a larger player in a bad business despite what it does to your ego.

Posco (PKX) is another stock I wrote about here (and in my now defunct newsletter). Today, there’s only one problem with Posco – the price. When I first wrote about the stock in the April 2006 issue of my newsletter, the ADRs were trading under $65 a share. Now, they’re around $150 a share. Then, I wrote about the stock on this blog in March (after Berkshire’s annual report showed it owned about 4% of Posco). At that time, the ADRs were trading at over $90 a share. So, they’ve come a long way even from that post. I also reprinted my July 2006 review of Posco where I gave a “Best Guess” price of $124 a share and a “Suggest Selling” price of $190 a share and I wrote this:

The wide discrepancy between my best guess price ($124/share) and my suggest selling price ($190/share) for Posco is due to my being extremely conservative on the best guess price. Posco at $124 a share probably is fairly valued as a steel company – however, it’s probably not fairly valued as Posco, because Posco is a great steel company even if it isn’t a truly great business.

So, if you take me at my word and say that $124 a share was a conservative intrinsic value estimate and $190 a share was a good dividing line between investment and pure speculation you can split the difference and call it an honest estimate – without any undue conservatism – and that gives you $170 a share. I know that $190 and $124 don’t average out to $170, but the estimates do because of the difference in time – those value estimates were made in July of 2006, assuming I discounted by 8% (which is basically what I do whenever the long bond is below 8%) the average 2007 value would be something like $170 a share. A year later, that sounds about right.

The point of this little revisitation exercise isn’t to say Posco is worth $170 a share – I have no way of knowing that – but to remind you that (those of you who subscribed to the newsletter) were getting my views on the stock at $65 a share, those who read the blog at $90 a share, and today it is trading at around $150 a share.

Posco is a fine company, but the business did not double in value last year. So, whether you are remembering that I wrote about it or that Berkshire owns it (bought even cheaper – by the way) just remember that those were at much lower prices. Now (as then) I still don’t know a damn thing about steel – so, I may be wrong, but it seems to me this stock was a fat pitch south of $65 and it isn’t a fat pitch north of $150. There really isn’t much more to say about it – but, I thought it was important to mention that the price has risen sufficiently to alter my view of the stock. It was once an extraordinary bargain – now it looks rather ordinary.

And finally a funny post from Cheap Stocks:

Content is indeed king, as evidenced by the growing number of web content aggregators trying to entice writers to share their postings. Promises of more exposure and increasing site visits are the usual bait. Cheap Stocks received the ultimate solicitation this past week, the one that demonstrates that we have truly arrived. Here it is in full, except we have removed the soliciting company’s name; suffice it to say, it is a well-known behemoth in the data industry:

Dear Ben Graham,

I would like to invite you to become part of the new XXXXXXX Blog Network. We would like to make your content available through…

Shame on Reuters for not knowing who Ben Graham was.

Read the full post at Cheap Stocks.