Bottom-fishing, says value investor Scott Black, president of Delphi Management in Boston, is the way to go right now. So far, his catch has been handsome: He snapped up 150,000 shares of Tommy Hilfiger when it dropped to 34 in mid-October, down from 70 in late June; it has since risen to 40. And when Ross Stores, which hit 50 in July, fell to 24 in October, Black bought 225,000 shares. It's now 34. What's Black's latest find? Pittway (PRY), a maker of burglar- and fire- alarm equipment.
Now at 22, the stock hit 32 in June, and Black feels that, at worst, it's worth 31--about the company's estimated breakup value. "That's a very conservative estimate," according to Black, "of Pittway's assets"--which include 30% of Cylink, a supplier of network-information-security products, and 4.2% of U.S. Satellite Broadcasting, a provider of subscription TV programming. Mario Gabelli, who holds 13% of Pittway, says: "It's a good growth company and a good cash generator--and it's very shareholder-oriented."
Black is definitely gung ho about Pittway's fundamentals, but he's also aware of the consolidation in the security industry. "I see it as a well-managed, undervalued, asset-rich company," says Black. He notes, however, that Tyco International, a leader in alarm services, has been buying companies and might find Pittway attractive. "I wouldn't be surprised," he adds, if Tyco made a move. Last year, it bought ADT Holdings, a major provider of monitoring services in the U.S. and Britain.
Any deal, however, would have to be friendly: The Harris family, headed by Pittway Chairman Neison Harris and his son, President and CEO King Harris, owns some 40% of the stock.
Black figures that Pittway, which in December spun off its Penton Publishing unit to shareholders, will earn a split-adjusted $1.80 a share, fully diluted, next year, up from an estimated operating earnings of $1.55 in 1998.