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Arnold Van Den Berg founded Century Management in 1974, and has since beaten all of the indices. He is a value investor who determines the appraised or intrinsic value of a company, prior to making any investment, and then seeks to invest the company at a significant discount to the price. Normally, he seeks to invest at a discount of up to 65% below the company's intrinsic value. Van Den Berg prefers a bottom-up investment methodology with a focus on the fundamentals of each business and the price paid. However, he also believes that macro factors greatly influence returns; primarily interest rates and inflation, thus prior to making any investment decision he takes these into account.

Van Den Berg has a preference for investing in US based companies, and he is currently quite bullish on US based large cap tech stocks; he believes this is one of the cheapest areas in the market. In this article, I will analyze five recent stock purchases by Van Den Berg to uncover whether they present a solid investment opportunity and will continue to appreciate in value.

Encore Wire Corporation (WIRE)

Encore has a market cap of $571.89 million and is trading at around $24, with a price to earnings ratio of 14.82. Its 52 week trading range is $19.69 and $28.50. It reported third quarter 2011 earnings of $319.36 million, an increase from second quarter earnings of $309.47 million and the third quarter net income was $13.72 million, an increase from the second quarter net income of $9.46 million. It has quarterly revenue growth of 31.6% and a return on equity of 9.08%. It pays a dividend with a yield of 0.30%.

One of Encore’s competitors is Belden Inc (BDC), which has a market cap of $1.41 billion and is trading at around $30. It has a price to earnings ratio of 10.15, quarterly revenue growth of 30.9% and a return on equity of 15.31%. It pays a dividend with a yield of 0.6%. This data indicates that, both companies are performing on par.

 Van Den Berg holds 552,622 shares of Encore, purchasing the entire holding in the third quarter 2011. The average purchase price per share was $22.53. Based upon the last trading price of $23.10, he has made a return of 2.53%.

 Encore’s cash position has declined in the last quarter. Its balance sheet showed $15.17 million in cash for the third quarter a substantial decrease from $46.80 million cash in the second quarter. Encore’s quarterly revenue growth of 31.6%, versus an industry average of 11.8%, and a return on equity of 9.08%, versus an industry average of 11.9%, indicates that it has better growth prospects than many of its competitors but is not delivering the same return on shareholder equity. 


The outlook for the diversified machinery industry is cautiously optimistic, primarily due to an increase in economic activity in the manufacturing sector in 2011 and better than expected manufacturing results. This improvement is in line with recent signs of economic growth, despite the overall poor economic climate. In addition, the weak US dollar makes US exports more attractive, and this bodes well for US based manufacturers such as Encore.

When the positive industry outlook is considered in conjunction with the solid increase in net income and Encore’s strong performance indicators in what can be considered a difficult operating environment, I understand Van Den Berg’s decision to invest in the company. On this basis, I rate Encore as a buy.


Universal Forest Products Inc (UFPI) 



Universal Forest has a market cap of $513.54 million and is currently trading at around $26, with a price to earnings ratio of 82.06. Its 52 week trading range is $22.91 to $39.84. It reported third quarter 2011 earnings of $468.94 million, a decrease from second quarter earnings of $544.14 million. Third quarter net income was reported at $5.62 million, an increase from first quarter net income of $4.28 million. It has quarterly revenue growth of -2.4%, a return on equity of 1.28% and pays a dividend with a yield of 1.5%.

One of Universal Forest’s competitors is Bluelinx Holdings Inc (BXC), which has a market cap of $99.52 million and is trading at around $1.50. It has quarterly revenue growth of 1.8% and a return on equity of -179.39%. Based on these indicators it is being outperformed by Universal Forest. 

Van Den Berg holds 429,521 shares in Universal Forest, with the entire holding bought in third quarter 2011 at an average price per share of $27.24. Based on the last trading price of $24.89, he has made a return of -8.63%.


Universal Forest’s cash position has significantly improved in the last quarter. The balance sheet showed $18.65 million in cash for the third quarter an increase from nil in the second quarter. Universal Forest’s quarterly revenue growth of -2.4%, versus an industry average of 3.4%, and a return on equity of 1.28%, versus an industry average of 0%, indicates that it is performing on par with many of its competitors.

The earnings outlook for the general building materials industry is currently negative primarily due to the low demand for housing, poor economic climate, tight credit markets and high unemployment. However, there is a view that the long term prospects for the industry outlook are exceptionally positive as there will be a resurgence in residential and commercial construction activity, a recovery in infrastructure spending by governments, an improvement in liquidity in the financial markets and a gradual loosening of credit markets. This will not occur though, until there is a general uplift in the global economy, which is currently being prevented by ongoing concern regarding the European sovereign debt crisis.

Despite the negative industry outlook, Universal Forest is an interesting investment opportunity. It is currently trading at close to the bottom of its 52 week trading range and has reported an increase in third quarter profit and cash holdings in a difficult operating environment. On this basis, I agree with Van Den Berg’s investment decision and rate the company as a buy.


VCA Antech Inc (WOOF)



VCA has a market cap of $1.63 billion and currently trades at around $19, with a price to earnings ratio of 13.64. Its 52 week trading range is $14.73 to $26.29. Third quarter 2011 earnings of $385.14 million was reported, an increase from second quarter earnings of $376.11 million. Third quarter net income was $30.17 million, a decrease from second quarter net income of $39.61 million. It has quarterly revenue growth of 7.4%, and a return on equity of 11.71%.

One of VCA’s competitors is IDEXX Laboratories Inc (IDXX), which has a market cap of $3.89 billion and currently trades at around $69, with a price to earnings ratio of 25.47. It has a quarterly revenue growth of 11.6% and a return on equity of 19.39%. Based on this data, it is marginally outperforming VCA.

Van Den Berg holds 592,730 shares in VCA, with the entire holding bought in third quarter 2011 at an average price per share of $18.48. Based on the last trading price of $18.35 he has made a return of-0.7%.

 VCA’s cash position has significantly declined, with the third quarter balance sheet showing $79.24 million in cash, a decrease from $155.78 million in the second quarter. VCA’s quarterly revenue growth of 7.4%, versus an industry average of 12.6%, and a return on equity of 11.71%, versus an industry average of 15.2%, indicates that it is underperforming many of its peers.

The outlook for the veterinary healthcare industry is cautious positive with a recent report from William Blair and Company expressing the view that the long term growth outlook remains solid and that near term outlook continues to improve. This view was taken on the basis of the macroeconomic outlook starting to stabilize, although there is some ongoing concern regarding the European sovereign debt crisis, and that the demand for veterinary services has not dropped off as much as expected. This should leave the industry well positioned for further growth over 2012, if the economy continues to improve.

Despite the positive industry outlook, VCA has reported a significant decrease in net income and balance sheet cash. When this is considered in conjunction with its poor performance indicators and that it is trading well above its 52 week low, it is difficult to justify Van Den Berg’s investment decision. On this basis, I prefer to take a wait and see approach and rate VCA as a hold.

Corning Incorporated (GLW)



Corning has a market cap of $22.87 billion and is currently trading at around $14.50, with a price to earnings ratio of 6.87. Its 52 week trading range is $11.51 to $23.43. It reported third quarter 2011 earnings of $2.08 billion, an increase from second quarter earnings of $2 billion. Third quarter net income was $811 million, an increase from second quarter net income of $755 million. It has quarterly revenue growth of 29.5% and a return on equity of 16.72%.

One of Corning’s competitors is Furukawa Electric Co Ltd (FUWAY.PK), which has a market cap of $1.94 billion and currently trades at around $27.50. It has quarterly revenue growth of -1.1% and a return on equity of -1.7%. Based on these indicators, Corning is outperforming Furukawa Electric.

Van Den Berg holds 662,025 shares in Corning, purchasing the entire holding in the third quarter 2011, at an average price per share of $15.02. Based on the last trading price of $14.05, he has made a return of -6.46%. 

Corning’s cash position has improved in the last quarter. The balance sheet showed $4.901 billion in cash for the third quarter, an increase from $4.609 billion in the second quarter. The net tangible assets have increased to $20.76 billion in the third quarter 2011, from $21.26 billion in the second quarter. Corning’s quarterly revenue growth of 29.5%, versus an industry average of 7.7%, and a return on equity of 16.72%, versus an industry average of 9%, indicates that it is outperforming many of its competitors.

The earnings outlook for the diversified electronics industry is relatively positive as global demand has increased for components, including high performance glass, optical fiber and cable that is used in the manufacture of LCD TVs, computer monitors and other hardware and equipment products This, when combined with the devalued US Dollar and stronger than expected manufacturing results, bodes well for US based manufacturers such as Corning.

When the positive industry outlook is considered in conjunction with Corning’s increase in net income and balance sheet cash, its strong performance indicators, and that it is trading close to the bottom of its 52 week trading range, it is easy to understand Van Den Berg’s investment decision. For these reasons I rate Corning as a buy.



Insteel Industries Inc (IIIN)



Insteel has a market cap of $176.09 million, and is currently trading at around $10. Its 52 week trading range is $8.80 to $15.10. It reported third quarter 2011 earnings of $99.10 million, an increase from second quarter earnings of $98.58 million. Third quarter net income was $972 million, a substantial decrease from the second quarter net income of $3.65 billion. It has quarterly revenue growth of 76.4%, a return on equity of -0.26% and pays a dividend with a yield of 1.2%.

One of Insteel’s main competitors is Keystone Consolidated Industries Inc (KYCN.PK), which has a market cap of $88.46 million and is trading at around $7, with a price to earnings ratio of 5.08. It has quarterly revenue growth of 24.1% and a return on equity of 9.16%. Based on these performance indicators, Keystone Consolidated is outperforming Insteel.

Van Den Berg holds 525,072 shares in Insteel, purchasing the entire holding in the third quarter 2011 at an average price per share of $10.86. Based on the last trading price of $9.77 he has made a return of -10.04%.


Insteel’s cash position has substantially declined in the last quarter. The balance sheet showed $10,000 in cash for the third quarter 2011, a decrease from $2 million in the second quarter. Insteel’s quarterly revenue growth of 76.4%, versus an industry average of 15.4%, and a return on equity of -0.26%, versus an industry average of 8.9%, indicates that it has better growth prospects than many of its competitors but it s not generating a strong return on shareholder’s equity.

The earnings outlook for the steel and iron industry is quite positive even when allowing for the poor economic climate as the ongoing demand for steel and steel products is being driven by the economic boom of China, and to a lesser extent, India. Combined with a weak US dollar, making US exports more attractive, this bodes well for US based steel manufacturers such as Insteel.

Despite the positive industry outlook, I do not believe that Insteel at this time is a good investment opportunity, contrary to Van Den Berg’s investment decision. My view is primarily being driven by the recent substantial drop in net income and balance sheet cash, which would appear to leave the company in a weaker position and unable to take advantage of any future growth opportunities. On this basis, I rate Insteel as a sell.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: 5 New Stocks From Arnold Van Den Berg