Alimentation Couche-Tard Inc. (ATD.B on TSE), Laval, QC, tel: (450) 662-3272     Price: Feb 22/01: $29.65, 52-week range: $32.50-8.75.  Last mention of the company in this newsletter was at $24.85 on Nov 23/01.  The company raised $101.6 million through the sale of 4 million shares at $25.40/sh. and now has 44.4 million shares outstanding.  It acquired a small 6-store convenience chain based in Lafayette, Indiana from BP Amoco in December & now operates 226 stores in Midwestern USA in addition to the 1700 in Canada.  The company is expected to continue its acquisition program, primarily in the US mid-west.  However this could change as opportunities arise.  Alimentation has built good working relationships with oil companies, such as Shell and Amoco in the US, Irving Oil in eastern Quebec (56 stores) and even Petro-Canada (24 stores).  Husky Energy has put itself up for sale and may very well end up selling various parts to several buyers.  Alimentation’s working relationships with Irving Oil and Petro-Canada could see the company end up the 406 Husky and Mohawk stores.  Further consolidation could take place where oil companies prefer concentrating on upstream operations, examples Shell Canada’s 444-store network including Payless and Beaver and Petro-Canada’s 288-store system of Super Stop.  Meanwhile, the company should be improving profitability by lowering costs over the next 2 years by $5 million to $10 million when their supplier contracts with Metro and Provigo expire this month enabling Alimentation to deal directly with manufacturers for large volume items and making use of the new 100,000 sq.ft. automated distribution center opening in Montreal also this month. An indication of how thinly traded the stock is was the trading pattern of Tuesday Feb 19 when the share price climbed from $27.75 to $32.50 on a volume of 25,000 shares only to fall back to $29.05 the next day on 46,000 shares.  At $29.65 the shares trade at 24.7 times estimated earnings $1.20/sh for the year ending April’02.  The shares have done well, up 69% from our initial mention at $17.50 on Sept 28/01 but can still be held as a long-term growth investment.

Canadian Medical Laboratories Ltd. (CLC on TSE)  Toronto, ON Tel: (416)  Price: Feb 22/01: $25.15, 52-week range:$25.65-15.70.  Last mention of the company in this newsletter was at $23.15 on Jan 23/02 and first mention was at $6.20 on August 19, 1997.  The company reported excellent 1Q earnings for the period ended Dec 31/01.  Revenues increased 16% to $53.7 million and earnings 53% to $9.8 million or 48 cents/sh.  These results indicate that the current year could produce stronger results than that implied in our mention last month on Jan 23/02.  It now appears that CLC’s earnings this year could surpass $2.00/sh compared with last year’s $1.68 and a 15 multiple to this implies a stock price of $30.

Compass Bancshares Inc. (CBSS on NASDAQ), Birmingham, Ala., tel:(205) 297-3331, Price: Feb 22/01: $29.59, 52-week range: $30.20-18.75.  Compass is a $23 billion-asset financial holding company which operates 341 full-service banking offices spread out: 117 in Texas, 87 in Alabama, 60 in Arizona, 40 in Florida, 25 in Colorado, 9 in New Mexico and 2 in Nebraska.  It has just increased its quarterly dividend to 25 cents/sh, the $1 annual rate representing the 21st consecutive year that dividends have been raised.  This comes on the heel of its 14^th consecutive year of record earnings.  Earnings increased 16% to $2.11/sh in 2001; 4Q earnings were 56 cents/sh up 30% over last year’s 43 cents.  Return on assets for the year was 1.25% and on equity 16.7%.  Net income is forecast at $2.35/sh for this year and $2.60 next.  A 13.5 multiple to next years earnings implies a share price of $35.  The current dividend payout provides a yield of 3.4%.  Interestingly, institutional ownership appears to be only 37%.

Danier Leather Inc. (DL on TSE), Toronto, ON  Tel: (416) 762-8175.  Price Feb 22/02: $14.75, 52-week range: $15.00-8.75. Last mention of the company in this newsletter was at $6.70 on Feb 4/00.  The company, established in 1972, designs, manufactures and retails in their 91 stores leather and suede garments and has been profitable for the last 27 consecutive years.  In the most recent quarterly period, 13 weeks ended Dec 31/01, sales increased by 24% to $86.2 million and net by 17% to $11.3 million, or $1.58/sh, based on 7.2 million shares on a fully diluted basis.  Same store sales during that period increased by 5%.  For fiscal 2002 ending in June, net could come in at $12.2 million, or $1.70/sh.  The company is cautious with its expansion plans.  US involvement presently consists of only 2 stores, these located on Long Island.  While waiting for a more aggressive plan for expansion, the shares, nevertheless, appear to be trading at an undervalued level and could, certainly, command a p/e ratio of 10, implying a stock price of $17.

Dominion Homes Inc. (DHOM on NASDAQ), Dublin, Ohio, tel: (614) 761-6000.  Price: Feb 22/02::$16.20, 52-week range: $19.44-7.66.  This is the first mention of the company in this newsletter.  The company builds residential homes in three distinct series dependant on size and price in 40 locations in Central Ohio and 6 in the Louisville, Kentucky area.  The company also provides mortgage financing.  For the year completed Dec 31, 2001, revenues increased 21% to a record $396 million based on closing 2,054 homes compared with last year’s $326 million on closing 1,798 homes.  At Dec 31/01, Dominion had a record contract backlog of 1,032 homes with a sales value of $202 million, compared with 777 homes and $154 million a year ago.  This produced net income for 2001 of $15.1 million, or $2.30/sh, a 66% increase over last year’s $9.1 million, or $1.39/sh.  With mortgage rates expected to remain at low levels, housing starts should continue to be firm.  Based on the current outlook, the shares could trade at a p/e ratio of 10, implying a stock price of $23

Dynegy Inc. (DYN on NYSE), Houston, TX, tel: (713) 507-6400, Price: Feb 22/02: $24.80, 52-week range: $59-20.  This is the first mention of the company in this newsletter.  Dynegy is a $11 billion provider of energy and communication solutions to customers in North America, the UK and Continental Europe.  Its business is divided into 4 segments: 1) energy convergence consisting of energy marketing, trading and electricity generation; 2) midstream services consisting of natural gas gathering, processing, treating & transmission; 3) Illinois Power serving 650,000 electricity & natural gas customers over a 15,000 sq.mile area; 4) Dynegy Global Communications.  Year 2001 results came in at $2.10/sh.  Management expects 1Q2002 earnings to be similar to 4Q2001, i.e. 41 cents/sh and for year 2002 to be $2.26/sh.  The company has suffered in the financial stock market place because of its aborted takeover offer of Enron and also by having its knuckles wrapped by Moody’s.  Its acquisition of Northern Natural Gas from Enron is expected to add $95 million to bottom line.  Dynegy has 354 million shares outstanding on a fully diluted basis.  A p/e multiple of 13.5 combined with a 30 cents/sh dividend spells out a share price of $30.

Elan Corp. (ELN on NYSE), Dublin, Ireland, tel: (212) 407-5740, Price: Feb 22/02: $13.25, 52-week range: $65-12.40.  This is the first mention of the company in this newsletter.  Following the accounting problems of Enron, an article in the Wall Street Journal pointed out some off-balance sheet entries Elan entered into on some joint ventures.  This combined with negative results regarding a drug Elan and joint partner American Home Products are developing to treat Alzheimer’s disease as well as a downward guidance from Elan with respect to 2002 earnings has caused the share price to tank.  Management is predicting earnings of $1.55/sh to $1.65/sh for 2002, compared with $1.91/sh for 2001 and $1.55/sh for 2000.  Analysts had been predicting $2.35 for 2002.  The new forecast by management includes an amount equivalent to 15 cents/sh to 20 cents/sh coming from product acquisitions.  Elan has been successful in the past in bringing in profitable product acquisition.  Applying a 13 multiple to $1.55 earnings produces a stock price of $20.  Market sentiment is poor at the moment and it may take some time for Elan shares to attain this level.  The company has cash, cash equivalents and current marketable investments of $2.4 billion, equivalent to $7/sh based on 341.3 million shares outstanding.  Debt of $2.0 billion compares with shareholder’s equity of $3.3 billion, the equivalent of 37.7% of capital.

Fresh Brands, Inc. (FRSH on NASDAQ), Sheboygan, Wis. Tel: (920) 457-4433, Price: Feb 22/02: $18.50, 52-week range: $22-10.75.  This is the first mention of the company in this newsletter.  Company is a grocery wholesaler and supermarket retailer operating 91 stores under the Piggly Wiggly brand name and 8 stores under Dick’s Supermarkets. These are located mainly in Wisconsin, Michigan’s Upper Peninsula, and portions of Minnesota and Illinois. The company also has two distribution centers and a centralized bakery/deli production facility. Retail sales increased 31% to $271 million in 2001 aided by the acquisition of Dick’s Supermarkets in June and which accounted for $55 million of the $64 million increase.  Together same store sales increased 3.4%.  Wholesale sales to independents & convenience stores increased 4.9% to $309 million.  Together, sales revenues for 2001 were $580.2 million and net earnings of $7.8 million represented a profit margin of 1.34%.  Company has set a goal to grow sales revenues 15% a year over the next 5 years and has set a target for earnings of $1.60 to $1.75 for 2002.  This would be achieved by a combination of same store sales growth, additional store conversions to the 2 brand names and one additional multi-store acquisition.  FRSH has 5.3 million shares outstanding and pays out a quarterly dividend of 9 cents/sh.  If management succeeds in achieving targeted earnings, the stock could very well trade at 15 times earnings, or $24.  The stock split 3 for 2 in Sept 1997 when trading then at $22.

Hovnanian Enterprises, Inc. (HOV on NYSE), Red Bank, NJ, tel: (732) 747-7800, Price: Feb 22/02: $21.20, 52-week range: $22.40-8.75.  This is the first mention of the company in this newsletter.  Founded in 1959, the company designs, constructs and markets a variety of for-sale housing in 200 residential communities in 11 states.  It is the leader in New Jersey and North Carolina and ranks among the leaders in metro Washington DC, Southern California, Sacramento and Northern California and in Dallas/Fort Worth.  Company also provides mortgage and title services.  Hovnanian’s philosophy is to control a 5 year supply of lots, 70% of which are held under option rather than tying up capital, and in tight markets where regulatory approvals are strict.  This results in better margins and stable markets.  The company has shown 47% compounded earnings growth over 5 years.   In 2001, revenues grew 53% to $1.75 billion, net earnings 91% to $63.7 million, or $2.29/sh from $1.50/sh.  The company delivered 6,791 homes in 2001 and at the October 31/01 year-end, taking into consideration the acquisition of Forecast Homes closed in January 2002, it had a contract backlog of 3,445 homes with a sales value of $900 million.  For fiscal 2002, Company is forecasting home deliveries of 8,500, total revenues of $2.1 billion and net income of $95 million, or $3.00/sh based on 31.5 million shares.  The purchase of  California-based Forecast Homes, finalized in January, was for $176.5 million, consisting of the issuance of 2.2 million shares valued at $45.5 million, and $1131 million cash which was subsequently financed through a 5-year $150 million term loan.  This enabled Hovnanian to retain its $440 million unsecured credit line to fund ongoing operations.  The acquisition makes the company the nation’s 8^th largest homebuilder.  Preliminary figures for the 1Q ended Jan 31/02 indicate that the company delivered  1750 homes, 56% more than in last year’s 1Q and that revenues were $454 million, earnings $18 million or 60 cents/sh.  These appear to be ontrack to meet management’s forecast of $3/sh.  That being the case, a share price target of 12 times earnings, or $36, appears within reach.

Husky Energy Inc. (HSE on TSE), Calgary, AB, tel: (403) 298-6111, Price: Feb 22/02: $15.75, 52-week range: $20.95-13.10.  This is the first mention of the company in this newsletter.  Hong Kong controlled Husky has put itself up for sale.  Popular sentiment has PetroChina interested, but mainly in Husky’s upstream operations, possibly the midstream heavy oil.  If a deal were made, the downstream operations would be available to 3^rd parties.  These could very well be from joint venture partners such as Irving Oil and Petro-Canada along with Alimentation Couche-Tard Inc.  In the unlikely case that Husky does not find a buyer/buyers, share price based on fundamentals would probably settle within a range of $14.50 to $15.00.  Supporting this evaluation would be cash flow generated /sh ranging between $3.15 and $4.15, depending on commodity prices, and the 9 cents quarterly dividend providing the stock with a 2.3% yield.  Adding up the various component parts of Husky, bearing in mind that some are more in demand than others, produces a take-over/make-over stock price of between $20 and $21.

Inmet Mining Company (IMN on TSE), Toronto, ON, Tel: (416) 361-6400, Price Feb 22/02: $4.53, 52-week range: $4.99-1.60.  Last mention of the company in this newsletter was at $4.30 on Jan 23/02.  Two events took place over the last month which will have, as an effect, increasing reported income on one hand and confirming asset value on the other.  The company reported 4^th Q earnings of 54 cents/sh vs 1 cent a year ago.  Understandably, the latest results consisted of 2 non-recurring gains, one a $15 million recovery of environmental reclamation and the other a $4.4 million tax return.  The other main event was the sale to Noranda Inc. of its 3.3% net proceeds interest in the Antamina, Peru copper-zinc mine by means of a put/call agreement.  This would bring into Inmet an amount that would vary from US$15 million to as much as US$24 million, depending on when the put/call were to be exercised and by which of the 2 parties.  Nevertheless, it crystallizes for Inmet a minimum cash value which discounted would add anywhere from 60 cent/sh to 80 cents/sh to net asset value.  This now brings NAV to about $418 million or $10.65/sh.  This now permits a share price target considerably higher than that proposed in this newsletter a month ago, i.e. now $8.50 as compared with $6.50.

Jos. A. Bank Clothiers, Inc. (JOSB on NASDAQ), Hampstead, MD, Tel: (410) 239-5715.  Price: Feb 22/02: $8.25, 52-week range: $9.00-4.08.  Last mention of the company in this newsletter was at $8.30 on Nov 23/01.  The company announced that sales for the 12 weeks ended Feb 2/o2 increased 0.1% to $67.3 million and that for the 52-week period increased 4.1% to $211 million.  Fiscal year results will be reported on March 18.  Management maintains that reported earnings “will significantly exceed our earlier guidance of $.85 per share”.  The company expects to open 20 stores in 2002, 8 to 13 in the first half, bringing total store count to 143 to 148.  It opened 21 stores last year.  Judging by the web site, there appears to be considerable clearance sales.  Although the share price looks reasonable, this newsletter now prefers to maintain a wait and see stance.

Nortel Networks Corporation (NT on TSE and NYSE), Brampton ON, Tel: (905) 863- 0000. Price: Feb 22/02: $8.70, 52-week range: C$31.15-7.50.  Last mention of the company in this newsletter was at $11.85.  First mention was on June 22/01 at $13.50.  The company provided some guidance at an analysts meeting in NYC on Feb 12/02.  Management reiterated that 1Q revenues may still come in at 10% less than 4Q01 of $3.5 billion and that cash earnings per share would improve sequentially each quarter of 2002 including the first.  Management further believes that the break-even level is now below US$3.8 billion.  That being the case, Nortel would be in line to earn 25 cents/sh in 2003 and 50cents in 2004.  Using a 25 multiple and discounting back to present day value at a rate of 15%, produces a target price of better than US$10 or C$15.  If this could materialize at some point over the next 12 months, it would certainly take the dog out of its current performance.

Orleans Homebuilders, Inc. (OHB on Amex), Bensalem, PA, tel: (215) 245-7500, price: Feb 22/02: $7.65, 52-week range: $10-1.85.  This is the first mention of the company in this newsletter.  Company develops residential communities in SE Pennsylvania, central& southern NJ and in the metropolitan areas of Richmond VA, Charlotte, Greensboro and Raleigh in North Carolina.  Has operated in Pennsylvania and New Jersey for 80 years and in  North & South Carolina and Virginia only since October 2000 through the acquisition of privately-held Parker & Lancaster Corp.  Over the six months ended Dec 31/01, Orleans delivered 632 homes compared with 472 in the corresponding period last year.  This produced revenues of $169 million an increase of 32% over last year’s $128 million and net income of $7.8 million, or 49 cents/sh compared with $4.5 million , or 29 cent/sh a year ago.  Backlog at year-end, Dec 31/01, was 632 homes with a contract value of $184 million an increase of 23% over that of 496 homes and $149 million a year ago.  Company has 11.4 million shares outstanding.  With prospects for earnings of $1/sh for this year, the shares currently trading at 7.6 times these estimated profits appear to be undervalued and possibly the target for a takeover.

OshKosh B’Gosh, Inc. (GOSHA on NASDAQ), Oshkosh, WI., tel: (920) 232-4140, Price: Feb 22/02: $41.25, 52-week range: $43-19.08.  This is the first mention of the company in this newsletter.  The company has been around for 100 years and is best known as a premier marketer of quality children’s apparel and accessories sold in more than 50 countries.  For fiscal 2001 ended Dec 31/01, the company reported sales of $463 million a 2% increase over $453 million in 2000.  Of this, wholesale sales in 2001 were $214 million down 2.4% from $216 million in 2000.  Retail sales, however, increased 6.2% to $245 million from $231 million in 2000.  Net income was $32.8 million, or $2.61/sh compared with $32.2 million, or $2.58/sh.  OshKosh opened 10 stores during the year bringing the number to 137 domestic stores, most of which are factory outlets.  The company has started shipping to Kohl’s Department Stores.  This will increase wholesale sales in 2002 by about $40 million to $45 million.  Management anticipates that sales in the 1Q will increase by 5% to 7% and that earnings will be between 43 cent/sh and 47 cents, compared with 36 cents last year.  The company plans to open an additional 10 stores this year.  The involvement with Kohl’s should open up an area of growth for OshKosh.  Company has a clean balance sheet with working capital of $75 million, cash of $29 million, dept of $24 million compares with shareholders equity of $74 million.  Company has only 12.5 million shares outstanding; dividend payments are 6 cents quarterly.  Last stock split was 2 for 1 in September 1998 when the shares were trading then at about $40 also.  Earnings in 2002 could take a quantum leap to perhaps as much as $3.00/sh to $3.15/sh.  If so, OshKosh stock could very well trade at a $50 level, or its equivalent if split.

PanCanadian Energy Corporation (PCE on TSE, PCX on NYSE), Calgary AB, tel: (403) 290-2020, price: Feb 22/02: $45.21, 52-week range: $46.48-35.01.  Last mention of the company in this newsletter was at $36.75 on Sept 28/01.  The company announced on January 28/o2 that it will be merging with Alberta Energy Co. Ltd. to create an energy powerhouse to be named EnCana Corp.  The $9.7 billion deal will form an energy giant with an enterprise value of some $27 billion, which would allow itself to leap ahead in size a company such as Houston-based Anadarko Petroleum. While the company reported strong earnings for the year 2001, a 26% increase in net income to $1.3 billion, or $5.09/sh and cash flow of $2.3 billion, or $9.02/sh, 4Q results were something else.  Because of lower commodity prices, 4Q revenues in 2001 were $1.7 billion, down from last year’s $2.6 billion and net income of $91 million, or 35 cents/sh pales in comparison to last year’s $344 million, or $1.35.  Even cash flow of $386 million in the latest quarter, or $1.51/sh was down substantially from $784 million, or $3.09/sh a year ago.  On the positive side, the company through capital expenditures of $1.9 billion, drilling 2,251 wells with a success rate of 93%, replaced 147% of its natural gas production on a proven basis and 173% of its barrels of oil equivalent on an established basis.  PanCanadian ended the year on a strong financial basis with cash balances nearly $1 billion, debt to total capital of 36% and net debt to 12-month training cash flow was 57%.  The merged companies expect to shed $500 million to $1 billion in mid-stream assets (gas gathering systems and processing plants) and then go on a buying spree for upstream properties.  It appears that PanCanadian stock is approaching full value over the near term.

Paramount Resources Ltd. (POU on TSE), Calgary, AB, Tel: (403) 290-3632, Price: Feb 22/02: $15.40, 52-week range: $18.75-12.00.  Last mention of the company in this newsletter was at $13.50 on Nov 23/01.  The company has been building up its asset base in recent months.  First of all, it got out of a  natural gas hedge that frees up $35 million.  It sold one half of its shareholding in Peyto Exploration for a $17 million gain.  The company has built up a sizable land inventory in the prolific multi-zone Kaybob area of Central Alberta, acquired interests in heavy oil leases in Northeast Alberta, 4 exploration licenses covering 1 million acres in the Colville Lake area north of Norman Wells in NWT and has been successful in oil and gas production in the Liard Basin, also in NWT.  From a corporate point of view, Paramount has been assisting some juniors by investing in TriQuest Energy, Spearhead Resources, Geocan Energy and Wilson Drilling.  Its remaining holding in Peyto is still worth over $20 million.  The company will report year 2001 results only in the 3^rd week of March.  Cash flow should come in at about $4.80/sh.  For year 2002, assuming not much of an increase in commodity prices, cash flow generated should be about $3.40/sh.  Because of the growth element, Paramount stock could command a premium 5.5 ratio to cash flow, pinning a target price of $18.50.

Petro-Canada Inc. (PCA on TSE, PCZ on NYSE), Calgary, AB, tel: (403) 296-4040, Price: Feb 22/02: $35.25, 52-week range: $43.65-$33.50.  This is the first mention of the company in this newsletter.  The company announced on January 29, 2002 that it has agreed to acquire the international oil and gas operations of Veba Oil & Gas Gmbh from Germany-based Veba and London-based BP PLC for a price of $3.2 billion cash.  The properties currently produce at a rate of 175,000 boe/d and have proven reserves of 600 million boe.  This means that Petro-Canada paid the equivalent of $18,286/boe/d or $5.33/bbl.  Pretty good deal!.  This truly makes Petro-Canada an international company and opens up many possibilities for further corporate transactions, bearing in mind the possible takeout of Husky Oil, the merger of PanCanadian and Alberta Energy and the desire of some large US O&G firms to divest.  For example, PetroChina, the possible suitor of Husky Energy, may be interested in the producing properties that PetroCanada picked up from Veba in Libya, Syria and Egypt.  Preliminary calculations suggest that Veba will add 25% to PCA’s cash flow while expanding production 75% and reserves 70%.  At Dec 31/01, the company had cash & short term investments of $781 million and debt of $1.4 billion equivalent to 21.7% of total capital.  Even if all the purchase price of $3.2 billion ends up as additional debt, pro-forma cash flow of $2.1 billion would relate to total debt of $4.6 billion, not unmanageable.  However, this will most likely not be the case, since disposal of assets will kick in.  In any event, normalized cash flow could attain $2.1 billion, or $8/sh based on 262 million shares outstanding. Assigning a 5.5 multiple implies a share price of $44.

Peyto Exploration and Development Corp. (PEY on TSE), Calgary AB, Tel: (403) 261-6081, Price: Feb 22/02: $5.15, 52-week range: $5.35-1.91. Last mention of the company in this newsletter was at $3.75 on Nov 23/01. Over the last 2 years a number of takeovers have taken place in the Canadian oil patch, some of these, in hindsight, at values considerably higher than present commodity prices.  Some of these purchases were made by US companies, such as Burlington and Calpine.  Presently other types of consolidation are taking place in the form of mergers such as PanCanadian and Alberta Energy, Petro-Canada’s acquisition of international operations of Veba O&G and the possible take-out of Husky Energy.  The outcome of these incidents is that it is making available to companies Canadian oil & gas prospects that no longer fit the resulting entities.  Furthermore, some of these incidents has caused both wealth formation as well as the liberation of oil patch talent.  This has excited entrepreneurial investment houses to sponsor newly-formed o&g exploration firms, hence the creation of companies such as Argonauts Group, Meota, Peyto, Progress, etc.  How these companies will handle these prospects will prove out in time.  In the meantime, the potential razzle-dazzle has added some to their stock price.  This appears to be the case with Peyto.  The share price has advanced 37% in the 3 months since this newsletter first mentioned the company.  At current levels, Peyto stock is trading at 5.1 times this year’s possible cash flow of $1/sh, no longer a bargain.  Looking down the road to potential production approaching 10,000 boe/d in 2003 and cash flow of $1.40/sh, a one-year stock price target of $6 is within reason.

Progress Energy Ltd. (PGX on CDNX), Calgary, AB, Tel: (403) 216-2510, Price: Feb 22 /01: $5.40, 52-week range: $5.50-2.30.  Last mention of the company in this newsletter was at $3.55 on November 23/01.  Over the last 2 years a number of takeovers have taken place in the Canadian oil patch, some of these, in hindsight, at values considerably higher than present commodity prices.  Some of these purchases were made by US companies, such as Burlington and Calpine.  Presently other types of consolidation are taking place in the form of mergers such as PanCanadian and Alberta Energy, Petro-Canada’s acquisition of international operations of Veba O&G and the possible take-out of Husky Energy.  The outcome of these incidents is that it is making available to companies Canadian oil & gas prospects that no longer fit the resulting entities.  Furthermore, some of these incidents have caused both wealth formation as well as the liberation of oil patch talent.  This has excited entrepreneurial investment houses to sponsor newly formed o&g exploration firms, hence the creation of companies such as Argonauts Group, Meota, Peyto, Progress, etc.  How these companies will handle these prospects will prove out in time.  In the meantime, the potential razzle-dazzle has added some to their stock price.  This appears to be the case with Progress.  The share price has advanced 52% in the 3 months since last mentioned in this newsletter.  At the current trading price, the shares trade at 6.7 times projected cash flow of 80 cents/sh this year and at 4.5 times possible cash flow of $1.20/sh in 2003 when the company may be producing at a rate of 5,000 boe/d.  In other words, no longer a bargain stock price with a price target of $6 one year down the road.

Royal Group Technologies Ltd. (RYG on TSE), Woodbridge, ON Tel: (905) 264-0701 Price: Feb 22/02: $30, 52-week range: $32.40-19.94.  Last mention of the company in this newsletter was at $19.80 on Dec 28/00.  First mention was at $18 on Oct 15/95.  Royal announced 1Q ended Dec 31/01 revenues increased 8.6% to $384 million and net earnings 9.7% to $24.9 million, or 27 cents/sh.  For the year, management is comfortable with the range of analysts’ earnings, consensus being about $1.85/sh, up from last year’s $1.27 and less than the $1.89/sh of year 2000.  At the current share price, RYG stock is trading at 16.2 times earnings and appears to be fully priced.

Saputo Inc. (SAP on TSE), St. Leonard, QC  Tel: (514) 397-3024.  Price: Feb 22/02: $28.50, 52-week range: $30.95-16.37.  Last mention of the company in this newsletter was at $23.50 on Nov 23/01.  At the time we mentioned that an expansion to the earnings multiplier for Saputo stock could take place if there was evidence of sequential growth. The company reported 3Q earnings of $35.1 million, or 34 cents/sh.  This compares with 2Q earnings of $41.5 million and 40 cents/sh.  The shares at current levels trade at 17.3 times expected earnings of $1.65/sh and appear to be fully priced.

Skechers USA, Inc. (SKX on NYSE), Manhattan Beach, CA. Tel: (310) 318-3100. Price: Feb 22/02: $13.60, 52-week range: $40.30-10.00.  Last mention of the company in this newsletter was at $16.11 on Jan 23/02 and first mention was at $23.71 on April 3/01.  The company came out with a terrible 4Q performance.  While sales were respectable at $214 million vs last years 4Q revenues of $172 million, earnings of $2 million, or 5 cents/sh, compares with $10 million, or 26 cents/sh a year ago. Time to take a walk.

Tusk Energy Inc. (TKE on TSE), Calgary, AB, Tel: (403) 264-8875.  Price: Feb 22/02: $1.01, 52-week range: $1.35-0.72. Last mention of the company in this newsletter was at $0.75 on Dec 29/98.  Tusk has worked closely on a joint venture basis with members of first nations in Alberta.  Recent results have been startling.  During 2001 production increased 122% from a base of 648 boe/d in 1Q to 1,444 in 4Q.  This momentum has continued in 1Q of 2002 with current production averaging 1,700 boe/d.  This resulted from a successful 30-well drilling program with a 92% success rate resulting in 15 oil wells and 11 gas wells.  The program for 2002 calls for $9 million in capital expenditures to be financed primarily from cash flow.  Tusk has 15.9 million shares outstanding, 17.9 million on a fully diluted basis.  It has filed to acquire 1.4 million shares, being 10% of the float, on a normal course issuer basis. Last year, Tusk bought back and cancelled 2,040,656 shares.  In spite of considerably lower commodity prices, the company generated cash flow equivalent to 10 cents/sh during 4Q of 2001.  Without any further price increases, Tusk could produce cash flow of 40 cents/sh in 2002.  That being the case, a stock price for this junior could attain $1.60.

Vermilion Resources Ltd.  (VRM on TSE) Calgary, AB  Tel: (403) 269-4884  Price: Feb 22/02:$10.75, 52-week range: $12.50-8.00. Last mention of the company in this newsletter was at $10.80 on April 3/01.  First mention was at $4.65 on Dec 26/99.  The company continued to increase production in 4Q 2001 to 23,351 boe/d from 22,580 in 3Q.  For the year, production increased by 22% to an average rate of 22,354 boe/d compared with 18,341 boe/d in 2000, and the company exited 2001 on target at 24,500 boe/d.  Undeveloped landholdings increased in 2001 to 1.2 million net acres.  The company has encountered success in drilling in the Peace River arch of northwestern Alberta going from grassroots to production of 3,000 boe/d in less than one year.  Vermilion also has filed to acquire a total of 2,735,070 shares, that being 5% of outstanding, as part of a normal course issuer bid.  Last year, the company had acquired 829,400 shares under a similar bid.  The company has established a capital-spending program for 2002 of $155 million.  Cash flow in 2001 was $153 million, or $2.81/sh.  In spite of increased production levels in 4Q, cash flow during this period dropped 38% to $30 million, or 54 cents/sh due to lower commodity prices.  Management has calculated that the company bears a net asset value of $11.12 per fully diluted share.  VRM stock could trade at 4.7 times normalized cash flow per share estimate of $2.60, implying a stock price of $12.25.

Washington Federal Inc.  (WFSL on NASDAQ), Seattle, WA, Tel: (206) 777-8246, Price: Feb 22/02: $25.26, 52-week range: $26.34-19.46.  This is the first mention of the company in this newsletter.  Washington Federal is a savings and loan holding company operating through 113 full service branches located in Washington, Oregon, Idaho, Arizona, Utah, Nevada and Texas.  It has $7 billion in assets. 1Q earnings for the period ended Dec 31/01 were$35.4 million, or 61 cents/sh compared with $24.5 million, or 42 cents/sh a year ago, a 45% increase.  Record earnings were primarily the result of an improving interest rate spread, which was at 3.21%.  Return on assets were 2.04% and return on equity 17.2%.  WFSL is growing by adding branches, 2 in 1Q and 3 will be added in 2Q.  The company announced a cash dividend of 24 cents, its 76^th consecutive cash dividend and a week later announced a 10% stock dividend, the 17^th stock dividend in the company’s 19-year history.  Earnings for 2002 are estimated at $2.22/sh compared with $1.95 in 2001 and $1.82 in 2000.  There are 63.5 million shs outstanding after the stock dividend giving the company a current market cap of $1.6 billion.  A 13.5 multiple to expected 2002 earnings places the stock price at $30.

Zargon Oil & Gas Ltd. (ZAR on TSE), Calgary AB, Tel: (403) 264-4992, Price: Feb 22/01: $7.65, 52-week range: $7.70-5.00.  Last mention of the company in this newsletter was at $7 on Aug 30/01. 4Q production increased slightly from 3Q, oil 2,876 bbl/d vs 2,851, gas 19.08 mmcf/d vs. 18.86 mmcf/d.  On an equivalent basis, production came in at an average rate of 6,057 boe/d compared with 5,995 boe/d in 3Q.  During the year, Zargon increased reserves by 27% to 20.61 mmboe from 16.20.  The company spent $55.3 million to increase these reserves at a quite high finding cost of $8.60/boe.  Cash flow for 2002 could approximate $28 million, or $1.60/sh.  Capitalized at 5 times, Zargon’s stock can be considered full value at $8.

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