Winter 2006/2007

Quest Diagnostics was a simple business that faced challenges due to changes in Medicare and HMO pricing, which significantly impacted their earnings. However, after thorough research and observing the stabilization of pricing, the company demonstrated a clear strategy to improve margins, making it an attractive investment opportunity.

Fruit of the Loom is a strong business in the underwear market, but faced temporary problems due to excess inventory and markdowns. Despite its strong market position and cost advantages, the stock price fell significantly, presenting a potential buying opportunity at a low price.

ICO offers investors a significant margin of safety based on the value of its reserve base, which is estimated to be worth at least $6.50/share. The company is transitioning towards higher priced metallurgical coal and has committed to a substantial capital expenditure to enhance production capabilities, which should lead to increased EBITDA and a higher valuation in line with peers.

Strattec Security Corp. is trading at less than 7x depressed LTM operating income and at 1.4x tangible book value, presenting an attractive buying opportunity. The company has a solid balance sheet with no debt, generates significant cash flow, and is implementing a turnaround strategy that could lead to a stock price of $58 in three years, yielding a 12% annual return.

Strattec is positioned to recover lost revenues through joint ventures, new products, and geographic diversification. The VAST China partnership is expected to generate significant additional revenue, and the company is also pursuing acquisitions of distressed competitors to enhance sales. With a strong balance sheet and innovative product offerings, STRT is well-positioned for growth in the automotive lock market.

Strattec is expected to benefit from the growing market potential of re-codeable locks, with conservative estimates projecting $190 million in sales by 2009. With a normalized EBIT margin of 9%, the company could generate a NOPAT of $11 million and accumulate significant cash reserves, leading to a target stock price of $58, representing a 40% upside from the current price of $41.