8 Ways to Find His Keepers
By James K. Glassman
Sunday, May 30, 2004; Page F01
"I happen to love Cleveland," says Elliott Schlang as we sip our drinks in the dark and stylish bar of the Jefferson Hotel, which, to my parochial Northeast Corridor mind, is about as far from Cleveland as you can get.
I happen to love Elliott Schlang, and the fact that he lives in Cleveland, far from the madding crowd, has helped make him America's greatest unknown market analyst. He's far from Wall Street, keeping his own counsel. You won't find him touting companies on CNBC or being quoted in Money magazine on the hot stock of the moment.
Instead, for more than 20 years, he has run a low-key research service called LJR Great Lakes Review (the LJR stands for Lynch, Jones & Ryan, the firm that owns the company), whose 60 institutional clients include some of America's largest mutual funds. But being Elliott Schlang, he won't divulge the names. He is a discreet Midwesterner, with a voice and a demeanor that remind me of my favorite comedian, the late, great Jack Benny, who grew up in Waukegan, Ill.
Schlang's job is to provide money managers with ideas -- in other words, stocks to buy. Most are companies no one else bothers with because they're too boring. Take, for example, Littelfuse Inc. (LFUS), a company based in Des Plaines, Ill., that makes, well . . . little fuses, circuit-protection products that are used in automobiles, trucks and machines.
If you haven't paid much attention to Littelfuse, you aren't alone. But you have been missing a good bet. While the average stock on the Standard & Poor's 500-stock index has lost value over the past five years, Littelfuse has doubled.
Another Schlangian success story is Dentsply International Inc. (XRAY), which makes products for dentists, such as false teeth and little tips that go on the water syringes they shoot into your mouth to dislodge the gunk when they are cleaning your teeth. Dentsply also makes lots of money, year after year. Earnings have grown at an average annual rate of 16 percent since 1999, and the stock has roughly tripled, rising steadily even during the long bear market.
Schlang keeps only 30 stocks on his recommended list, and most are solid Midwest burghers that have been in residence for many years. Among them: Lancaster Colony Corp. (LANC), which makes glassware, candles and salad dressings; La-Z-Boy Inc. (LZB), the furniture manufacturer; and one of my all-time favorites, Cintas Corp. (CTAS), which rents work uniforms.
Schlang has a very clear stock-picking strategy, laid out in a three-page manifesto on March 13, 1981, and unchanged since. Few analysts -- and I have talked to loads of them over the years -- can tell you with clarity how they select investments. Schlang can. His strategy has the traits of his own personality written all over it: moderation, patience, circumspection, integrity. These are the virtues of the American heartland, and, when it comes to stock picking, they work.
He looks for mid-size companies "with an entrepreneurial, aggressive, creative management still relatively immune to the potholes of corporate bureaucracy." Often they are firms that have been run for many years by a charismatic leader who is also a major stockholder.
A good example is Tootsie Roll Industries Inc. (TR), maker of not only those little chocolate logs but also Charms lollipops, Junior Mints, Sugar Daddies and other delights. Tootsie Roll's chief executive and chief operating officer are husband and wife Melvin and Ellen Gordon, ages 84 and 72, respectively.
© 2004 The Washington Post Company
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