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STOCKS
Blooming Bargains
(Page 3 of 3)
by Jeffrey R. Kosnett
Oil-patch surprise
With oil so expensive, everyone in the business is feverishly trying to find new reserves or to pump more from established fields. Energy stocks are riding high, but some small players in the oil patch have been overlooked -- for example, Houston's Input/Output (IO), which sells products and services to help prospectors "see" beneath the surface of oil fields.
The company's biggest asset may be CEO Bob Peebler. A veteran of energy-service giants Schlumberger and Halliburton, Peebler took over I/O in 2003 and aims to turn it from an instrument maker to a consultant and producer of seismic-imaging software. That's the right track, says analyst Joe Agular of Johnson Rice, a brokerage that follows the energy industry.
I/O needed some new direction. With oil prices low a few years ago, I/O spilled buckets of red ink and the stock, as high as $40 in 1996, sank to $4 before recovering to $8 in mid December. It didn't help that I/O recently got caught up in a bit of Kremlin intrigue. Russian oil company Yukos owes I/O $5.2 million for some seismic equipment. Uncertain that it will be able to collect the debt, I/O took a write-off of 7 cents a share in the third quarter of 2004.
Still, if you're prospecting for an offbeat oil idea, this is it. I/O's best assets are global connections and geographic diversification: 77% of its sales of $180 million in the first three quarters of 2004 came from outside North America. I/O has potential new clients in China, Libya, Russia, West Africa, Eastern Europe and, perhaps, Iraq.
The company doesn't have much debt, but that doesn't make it a safe bet. Seismic imaging is "a very tough part of the oil business to figure out," says Agular. Analysts expect I/O to earn 42 cents per share in 2005, but don't put too much credence in that number. I/O's earnings are far harder to predict than most.
Manual tech player
Investors in Zomax (ZOMX) have been on a roller-coaster ride. In odd years, shares of this maker of instructional materials for personal computers have delivered positive returns ranging from okay to spectacular: up 457% in 1999, 75% in 2001 and 17% in '03. In even years, it has stunk: down 80% in 2000, 47% in '02 and 19% in the first 111Ú2 months of '04. The stock, which hit $33 in 2000, now costs a tad less than $4.
Odd year or even, you can still be comfortable with a company that counts Dell and Apple as its customers. A low-tech player in a high-tech milieu, Zomax produces the instructional booklets and CDs packaged with new PCs. With locations near PC plants, it places its materials in the boxes with the hardware.
Why is the stock so low? Part of the reason is fallout from an SEC investigation into charges that company officials made misleading forecasts and that two former officers sold Zomax stock improperly in 2000. (The current CEO, an outsider and new to the company, is not implicated.) The Plymouth, Minn., company has offered to settle, but the SEC has yet to accept.
Some analysts are bullish anyway. Says Clinton Morrison of Feltl & Co., a Minneapolis brokerage: "The company has a great balance sheet and is capturing market share and customers." Morrison thinks the stock can hit $10, though it may be another year before Zomax shows a profit (the two analysts who follow Zomax see earnings of 4 cents a share in 2005).
Zomax holds $70 million in cash, or more than $2 a share. That's both a safety cushion and an opportunity. Chief financial officer Rob Rueckl says Zomax wants to buy some businesses, possibly overseas. Denis Amato, who runs Fifth Third Micro Cap Value fund, says Zomax's cash reduces much of the risk of the stock. He thinks that if Zomax can earn half the 79 cents a share it once did, it will be a winner in even years as well as odd.
Research: Joan Goldwasser
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