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Bought 3,000 shares Office Depot, ODP, at 20.03, market order
ODP competes with Staples and Office Max in the office supplies field. It was recommended in Barron's on 8/27/2007 by Value Investor Ron Olstein, I reviewed it because his other picks seemed similar to what I buy. His main points were that margins can be improved and he is impressed with the CEO. I compared it to Staples, SPLS, and its net income as a % of revenue was lower than Staples and has increased in recent years. I felt that supported the margin idea. I read some on the financials, I saw some "investments" in international that are being expensed. International is growing well, so the money is well spent. Cash flow is strong and there have been some share buybacks.
I had previously reviewed on 6/22/07, when it stood at 34.73 and came up on a screen for Hi ROE, Lo PCF, Debt/Equity <.35. My impression at the time was that it was a good buy at a price/ 5 yr average EPS of less than 20.
I was going over my watchlist due to the market being down, and ODP was down about 9% on the day and it was at a buy point on that basis. I noted after I had bought the shares that it had been downgraded by Goldman Sachs. I plugged their estimates into my spreadsheet, that did not change my opinion, I like to buy a stock at a forward P/E of 10.5. Goldman's price target is 29, mine is 30 as a midpoint: in any event, a 50% increase will be good enough for me.
Using 15% of portfolio as a maximum position and going for 40% of that on my first buy, I bought the 3,000 shares. This leaves me room to add to the position if it declines further.
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