Companies with straightforward business plans, which executives explain clearly to the public, are to be prized. Avoid those that make things complex.
Sir Winston Churchill said: "A fanatic is one who can't change his mind and won't change the subject." I'm fa-natical about brevity. In his new book, Speak Like Churchill, Stand Like Lincoln (Crown, $14), James Humes describes the techniques of history's most renowned speakers, pointing out that Abraham Lincoln's Gettysburg Address--which might win a poll as the greatest speech ever delivered--made a compelling case for the Civil War in only two minutes.
Some people think complex plans and longer explanations are just better. Aside from wasting precious time, a long, disjointed message is often laden with overstatement and useless information. Brevity is honest. A pointed mes-sage is more compelling, persuasive and certainly more memorable. I trust the short and sharp and am suspicious of the verbose.
Public speaking, architecture and even accessorizing are all better when simple. The same is true for investing. In my experience the companies with the simplest stories are the ones that thrive over the long term. Warren Buffett has famously advised to buy what you know.
I try to avoid stocks with convoluted business strategies as well as chief executives who seek to impress with voluminous reports and long-winded presentations.
I call myself "the patient investor," but we all have our limits. Aside from the accounting fraud and other ethi-cal lapses that later came to light, in its heyday Enron was a bad investment idea. Who could grasp how all those energy trades created profits? Quantum physics is probably moreunderstandable. The same goes for a conglomerate like Tyco. Again, disregard the dubious goings-on under previous management. How can investors wrap their minds around com-panies with hundreds of subsidiaries ranging from undersea cable to fire equipment?
The following companies are artfully succinct in their clear missions, straightforward business models and plainspoken communications:
An old industry play on the new economy, DeVry (16) has built an empire on simplifying the complex. DeVry is one of the U.S.' largest publicly held higher education companies and, as a vendor of technical and business school-ing, it presents a conservative foray into technology for skittish investors. The company has 22 undergraduate DeVry campuses in the U.S. and 2 in Canada. Additionally, it operates the Keller Graduate School of Management, which ac-counts for 20% of DeVry University's 55,961 students.
Also, DeVry's Becker Conviser Professional Review Program provides coursework for professional certifica-tion exams, including the certified public accountant, certified management accountant and chartered financial analyst examinations. With students like theirs you can bet DeVry keeps a clean balance sheet. DeVry sells for 17 times trailing earnings, 19 times forward earnings and at a 33% discount to my $24 estimation of its intrinsic worth.
Park Place Entertainment (8) makes business out of pleasure. The world's largest casino gaming company--it derived its name from the coveted property on the Monopoly board--Park Place operates two dozen resorts in five coun-tries. In Las Vegas the company's prime properties include Caesars Palace, Paris, the Flamingo, Bally's and the Hilton. The company also owns casinos in Atlantic City and abroad.
Cash flows freely at Park Place. In fact, the house took in $299 million in free cash flow (in the sense of net in-come plus depreciation minus capital spending) in the 12 months ended Sept. 30. That's equal to $1 per share. Park Place goes for 19 times trailing earnings and 13 times forward earnings. It, too, is at a 33% discount to my estimate of its intrinsic worth.
Tricon Global Restaurants wanted its name to say it all and thus rechristened itself Yum Brands (23). In sales, Yum is the second-largest fast-food company in the world and is the corporate equivalent of a food court, catering to different tastes by housing multiple restaurant brands under one roof. Yum's chains are KFC, Pizza Hut, Taco Bell, Long John Silver's and A&W. This simple, diversified strategy is Yum's competitive advantage. Multibranding has helped make the company the fast-food industry's leader in terms of number of locations, with 30,000 restaurants worldwide, and gives it elbow room for further international expansion.
Yum Brands is the cheapest of my recommendations here: 12 times trailing earnings, 11 times forward earn-ings and a 26% discount to its $31 intrinsic value.
John W. Rogers Jr. is chairman and chief executive officer of Chicago-based Ariel Capital Management, Inc., the adviser to the Ariel Mutual Funds. Visit his home page at www.forbes.com/rogers.
—John W. Rogers Jr.
