HARTMARX: GOOD BUY WITH AREA TIES

Hartmarx, parent of Thorngate Ltd., appears to be underpriced under current conditions. It's P/E (price to earnings) ratio is less than half the market average, and earnings are growing. Its common stock trades on the New York Stock Exchange with the symbol HMX, and its last trade Wednesday was for $7 11/16. That's not bad for a stock that was trading around $4 a year ago. That's right. While the S&P 500 increased by about 30 percent, Hartmarx stock increased by about 70 percent and seems to have room to do it again.

Hartmarx's origin can be traced back to 1872 when brothers Harry and Max Hart, ages 21 and 18 respectively, opened a men's clothing store. It was renamed Hart Schaffner & Marx in 1887 after Marcus Marx and Joseph Schaffner joined the company. They contracted with independent tailors to produce suits for their store during the early years.

They began their long history of growth by acquisition in 1935 and became Hartmarx in 1983. Acquisition of Biltwell from Interco gave them manufacturing facilities in Missouri. The shift from retailing to manufacturing was well under way.

Hartmarx had declining earnings during 1987, 1988 and 1989, started a three-year period of losses in 1990 and paid a declining dividend throughout this period. There has been no dividend since 1991.

Elbert Hand, the current chief executive officer, increased the pace of restructuring in 1992. Since then, Hartmarx has completely exited the retail business, closed 10 domestic factories and outsourced production to low-cost countries such as Costa Rica and Mexico.

Thorngate survived those cuts. The productivity and efficiency of this Cape Girardeau employer must be contributing to Hartmarx's increasing earnings. As a result, 750 of Hartmarx's 8,600 employees are residents of the Heartland.

Although Hartmarx pays no dividend, its P/E ratio is 8.8 as compared to a market average of about 25. P/E, price to earnings ratio, is one of the more popular indicators of a stock's value. Stocks with low P/E's tend to offer investors better value relative to earnings. P/E is also the favorite measure of value used by David Dreman, author of "The New Contrarian Investment Strategy" and a columnist for Forbes.

If Hartmarx's stock was trading near the market average P/E, it would be priced about $25. My research indicates it would be more appropriately priced at about $16 considering the risk and uncertainty associated with the company's earnings stream stock. That is still about twice the current price. Technical analysts love to say, "the trend is your friend." This stock is presently trading in line with its long-term trend, and there is no reason to think it will fall below that trend line at this time. The price ran up to about $10 back in late May and fell back to near $7 in July. It now seems to again be following that long-term trend.

I think Hartmarx's common stock is worthy of consideration as an addition to your portfolio if you are a long-term investor and prepared to weather the inherent risks of the stock market. I hold none at this time, but may in the near future.

Dividend Reinvestment Plan: Yes.

Web Site: http://www.apparelmart.com/hartmarx

Bill Walker is president and CEO of Walkrich Investment Advisors and completes a market appraisal of more than 5,000 common stocks each week. (573) 651-9196 (Walkrich@mvp.net)