Quaker State traded as high as $31 a share in 1987, but it has been more or less on the skids since then. Now, it sells at just a shade below its book value of $11 a share. The company, which produces motor oil and operates a chain of quick-lube centers, has been struggling to boost earnings, which fell 40% in the first quarter. But that hasn't spooked such big investors as Mario Gabelli, who holds a 8.2% stake. Indeed, other pros have been buying, too. Why?
"There are two ways to win with Quaker State," says investment pro George Clairmont. "As an earnings turnaround and as an asset-value play." Clairmont, president of Clairvest, notes that with the stock near its lowest multiple in 10 years, Quaker is "one of the cheapest stocks around." Based on assets, he puts the company's breakup value at $20 a share.
Clairmont doesn't see an imminent buyout, even though Quaker was a rumored takeover stock in the `80s. But he believes Quaker is exploring the sale of its insurance and coal units, which Clairmont thinks have a combined worth of $11 a share. "At the stock's current price," he argues, "you're buying the core lube businesses for nothing."
Quaker's Heritage Insurance has turned profitable, but its Valley Camp Coal has been a loser--in the red by $1.3 million in the first quarter. The Truck-Lite unit, which makes safety lighting for trucks and cars, also posted a big loss in the first quarter.
But Clairmont sees an earnings recovery in the second half. Although profits for 1991 will be flat, he expects a jump to $1 next year, vs. last year's 72~. Meanwhile, "you're paid a 7% dividend yield to wait for the stock to rise," says Clairmont. A Quaker spokesman says management is looking closely at its coal operations.