Stock Pickers Who Kick The Tires

Making a pact rather like the Three Musketeers', the three principals at Entrust Capital--all ex-Goldman Sachs--have vowed to agree unanimously on stocks for their $1.2 billion portfolio. Top picks: American Pad & Paper (AGP), AMC Entertainment (AEN), and Big Flower Press Holdings (BGF).

Why bother about what this trio--Mike Horowitz, Gregg Hymowitz, and Mark Fife, may buy? Well, they've beat the market by a mile: From Entrust's start in January, 1991, through Oct. 31, 1997, its annualized rate of return is 29.7%, compared with 19.9% for the Standard & Poor's 500-stock index. For 1997, Entrust's year-to-date gain (through Nov. 11) is 27%, a whisker ahead of the S&P's 26.3%.

What's Entrust's secret? Its young managers are old-fashioned--with a kick-the-tires approach: They meet with the CEO and CFO of companies they invest in. And they're value hunters. "We like to buy into companies the Street has trashed, but whose assets remain underappreciated," says Hymowitz.

So in mid-September, when American Pad dived from 24 to 12, they snapped up a 7% stake. "We had been tracking AmPad. When opportunity knocked, we jumped in fast," says Hymowitz. The company, which makes office supplies for such outlets as Staples and Office Depot, posted an 80% third-quarter profit drop--because of lower prices and customers' inventory cuts. But Entrust says that sales will perk up this quarter. AmPad should earn 49 cents a share in 1997 and 75 cents a share in 1998. But Hymowitz says that these are rock-bottom estimates. The stock, now at 13, is worth 20, he says.

AMC, which runs 230 multiscreen movie theaters in 23 states, Japan, and Portugal, has also had disappointments. Now at 20, AMC's intrinsic value is 36, says Entrust. Amid consolidation, "it's possible AMC could be acquired," says Fife. It is at the forefront, he adds, of building megaplexes--14 to 30 screens.

Big Flower Press, an advertising and marketing company, is trying to build an information-service company through acquisitions, notes Fife. Three recent buys, he says, should boost cash flow from $168 million to $210 million and lift 1998 earnings to $1.68 a share, up from about $1.35 in 1997. Entrust, which owns 17% of the stock, values Big Flower, now at 22, in the mid-30s.

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