You know, if Congress would just listen to Jackson and Dow’s (DOW) Andrew Liveris on energy, we would be so much farther along the road than we are now.
We recently took a long position in AutoNation (AN). This interview Jackson did was what got me really looking into the company and considering a purchase.
This is a multi-year bet as auto sales do not look to turn soon but the demand will continue to build and when it releases, profits ought to flow…
It should be noted that famed value investors like Leucadia (LUK), Berkshire’s Buffett (BRK.A) are buying into the sector as it troughs.
You know, if Congress would just listen to Jackson and Dow’s (DOW) Andrew Liveris on energy, we would be so much farther along the road than we are now.
We recently took a long position in AutoNation (AN). This interview Jackson did was what got me really looking into the company and considering a purchase.
This is a multi-year bet as auto sales do not look to turn soon but the demand will continue to build and when it releases, profits ought to flow…
It should be noted that famed value investors like Leucadia (LUK), Berkshire’s Buffett (BRK.A) are buying into the sector as it troughs.
The latest rumor has Jamie Dimon and JP Morgan making an offer for Wachovia.
The deal make sense for a couple reasons. Unlike Bear Sterns (BSC), Wachovia is a bank with investor deposits. Dimon has made very public his desire to expand his banking franchise into the SE and a Wachovia deal would do just that. While a deal would push the combined bank over the 10% threshold for deposits, I think it is not a very large stretch to suggest that Congress would happily raise that cap to avoid more banking problems and /or more Middle East and Asian investing in another US bank should Wachovia need more capital.
The other option is SunTrust (STI) bank. Two things make this deal slightly less appealing for Dimon. It is a far smaller bank that Wachovia (roughly 1/3 the size) so its eventual impact on JP will be less. It also trades at a valuation that is 40% higher than its book value relative to what Wachovia trades at (.7 vs .5).
The valuation is a key point. By this metric Dimon could pay Wachovia shareholders a 40% share premium, (this is just an example) which would easily get approval and get the bank relative to its book for a current market price of SunTrust. Wachovia shareholders would jump (leap) at the opportunity to get $24 and change (or shares) for their holdings and have it run by Dimon vs whomever Wachovia decides will be the permanent replacement for ousted CEO Thompson.
Will it happen? I think consolidation is inevitable and it as not really happened yet. Citi (C) is out as a suitor, Bank of America (BAC) is trying to deal with the Countywide (CFC) fallout and Wells Fargo I think is just not interested in something the size of Wachovia. That leaves Dimon as the only real suitor.
What will he offer? I think far less that $24 a share and I think Wachovia shareholder will take just about anything at this point. If I am being honest, anything they offer to have Dimon in charge is better than just about anything Wachovia will eventually do anyway so let go….
Disclosure (“none” means no position):Long WB, WFC, C, None
First of all, before I received this book I knew it would have to be really special in order for the book to receive a 10 out of 10. Value Investing is a subject that is constantly written about and any new book would really have to be unique in some sort of way to really make an impact on someone who is constantly reading about it.
This week saw Lehman Brothers replace two of its top executives: CFO Erin Callan and COO Joseph Gregor. The two will remain at the bank in lesser roles.
“As recently as a month ago,” says Justice Litle in Taipan Daily, “Erin Callan was on top of the world.”
Warren Buffett knows great businesses, and he’s generous enough to share his wisdom through his letters to shareholders. By using the Magic Formula, we automatically find the good businesses from the poor ones.
Looks like the great American investor will have something to say about the future of the Great American Lager, with Warren Buffett reportedly involved in the hostile takeover battle between Anheuser-Busch and European brewing giant InBev.
Can you imagine Budweiser as anything but an American company? Scary isn’t it? While it seems unlikely, this deal has a good chance of going through. This first bid they made was just to get a reaction, the next will be a lot bigger. I found out how high InBev is willing to go, click through to find out.
Eleven of Wall Street’s most insightful investment experts weigh in on the uncertain prospects for the economy, stocks, bonds, commodities and more in our midyear Roundtable. Some good and bad news about oil and banks. And an early read on 2009 — and yes, 2010.
After its second bid was rejected, a frustrated Microsoft turned its back and walked away. This infuriated Yahoo shareholders who had seen the bid as the company’s last chance to regain profitability. A contingent led by Carl Icahn instigated a proxy battle, seeking to oust Yahoo’s current board of directors and replace it with candidates of his choosing.
The dormant, yet important, proposed $5 billion merger of Sirius Satellite Radio Inc. (SIRI) and XM Satellite Radio Holdings Inc. (XMSR) cleared a major hurdle, as Federal Communication Commission Chairman Kevin Martin backed the merger – with stipulations.
Billionaire hedge-fund manager Edward S. Lampert is placing new bets on a U.S. housing recovery, buying stakes in beaten-up home builders, mortgage lenders and a home-improvement retailer.
It has been a while since the latest rumor about what Berkshire’s (BRK.A) Buffett is buying so lets look at this one. It think the last one was a Bear Sterns deal?
Wachovia (WB) credit protection costs fell yesterday on rumors Buffett is considering making an investment in the bank. Five-year credit protection costs on Wachovia fell to 193 basis points, or $193,000 a year to protect $10 million of debt, in from about 202 basis points.
“There is unconfirmed speculation that Warren Buffett is considering an investment in Wachovia,” said Paul Foster, option strategist at Web information site theflyonthewall.com in Chicago.
Now, Buffett does have consider equity investment in financials in Wells Fargo (WFC), M&T Bank (MTB) and US Bancorp (USB).
Would he consider a purchase in Wachovia? The argument could be made that it is undervalued today based on it’s long term potential. We also know that when Buffett invests in banks, the time frame to this point is measure not just in years but decades.
But, Wachovia will not be one of those investments. The reason? Management. Buffett has said repeatedly about Wells Fargo that its management is the “finest at any bank” and M&T and USB have so far shown to have escaped the worst of the current situation through conservative decisions.
This is not to say that what is left at Wachovia management wise is not good, it is just that the situation is unsettled. Buffett, to my knowledge has yet to invest in a company during a time of management transition, especially when the situation has deteriorated as it has at Wachovia. I guess one could argue his investment in Salomon Brothers was one such investment but if we use that as a guide then since he has called it one of his “worst decisions” we can then all but eliminate a Wachovia deal.
What if Buffett did do a deal? If he did then we can only figure that he sees a current valuation so low that even mediocre management at the bank will not mess up the eventual revaluation to normalized levels.
At the end f the day this is nothing more than a rumor but the exercise is always fun..
Disclosure (“none” means no position):Long WB,WFC, none
The following are an attendees notes from June 5, 2008 AAII NYC Conference on Sears Holdings (SHLD). Note Berkowitz recently added call options to his Sears position.
6. Sears Holding (SHLD) ($85.26) –
A. Lampert has cards up his sleeve. He is a smart guy. The price of SHLD means you get Eddie Lampert for nothing.
B. Obvious investment is real estate for Sears.
C. Claims lots of Free Cash Flow.
D. Bought back stock at high price.
E. Think about a young Berkshire Hathaway. Buffett struggled with the ailing textile mill for over 7 years before he pulled the plug. Look what Berkshire turned into.
F. Claims that K-Mart and Sears could disappear as retailers and all is still good. If they happen to hit, merely a bonus. “What if they become a Wal-Mart?” Don’t count on it, but could happen.
G. You can’t kill Sears. If you can’t kill it you should own it.
Seems the web is a flutter lately with Sears Holdings (SHLD) posts.
The latest today is from Portfolio.com and it essentially reiterates the premise that “most investors have given up on the prospect of a retail turnaround and are counting on Chairman Edward Lampert to begin raising cash through asset sales.”
I guess the question I have to ask is “did anyone really buy shares of Sears thinking Lampert was gunning to give Wal-Mart (WMT) a run for their money”? Really? Did anyone buy shares in a tiny New England textile mill in the 1960’s because they thought Warren Buffett has his sights on Berkshire Hathaway (BRK.A) becoming a textile empire?
I think Lampert has simply said several times it can be a very profitable business (and has up until last quarter).
Didn’t most people who bought into the company do so because they were intrigued as to what Lampert could wring out of it and parlay that into? Didn’t others of us buy because of that and because we saw the value in underutilized brands like Kenmore, Craftsmen, DieHard and Land’s End and the land they sit on?
I guess the answer to the “Sears as a retailer” question comes down the how it is defined. Are the brands it owns going away? No. Will those brands remain profitable for years? Yes. If that is true, then Sears will be around as a retailer of those brands for years. Will it remain in its current incarnation? Probably not. I have assumed here for a long time Kmart will eventually disappear and to be honest, so what if it does? As long as Lampert can take the dollars received for the location and parlay them into additional dollars in excess of what he made at Kmart, then, does anyone really care if there are 1,200 or 40 Kmarts left in three years?
If, as everyone of the doubters seem to claim Kmart is as lousy as they feel then that feat ought not be that difficult.
Will it happen overnight? No. Years? Yes.
The bottom line here is that Lampert still sits on $1.4 billion at Sears, until he does something with it other than repurchase Sears shares, Sears will be viewed as a retailer. Once he branches Sears out, then it officially becomes an investment vehicle. One could argue that the new divisional realignment with the REIT division is already a step in that direction but, again, until things there actually take shape most folks will not see it. Like Buffett Lampert is using early ownership years to consolidate his ownership of the company. Today’s prices will allow that process to be expedited.
Who is right and who is wrong? Well, those of us who bought Sears shares years ago are still is the “right” column as we are still way up in our investment. Those who bought at $150, not so much. The good news? Buffett himself has said “you are neither right or wrong because the market says you are, you are either right or wrong because in the end, you are”
“In the end” is the key phrase. Berkshire shareholders (the were a bunch) who panicked at the turn of the century and sold shares when Berkshire plummeted near 50% later regretted that decision. Perhaps they believed the press that Buffett was “out of touch”? Those who doubted the media and used that opportunity to finally own shares (yours truly) later loved the results (I later sold leaving about $600 per “b” share on the table).
Sears is not an investment on a “quick retail turnaround”. It is an investment in a cash generating mechanism and what its head can eventually do with that cash. Because of that, measuring the outcome of the investment based on a quarter or two or a slide (or jump) in the share price will lead folks to assume too much in either direction.
Look at how this value investor made a 33% return in just 49 days for a simple workout. The Jaclyn going private transaction provides a great example of an almost perfect reverse split going private transaction.
Kimberly Clark Corp is a dividend aristocrat as well as a component in S&P 500 index. It has been increasing its dividends for the past 36 consecutive years. KMB has delivered an average total return of 6.60 % annually to its loyal shareholders. over the past 10 years
Over the past several weeks the company has traded below 68 on a couple of occasions. I am considering buying some PEP this week, as long as the price is below $68.
The best mutual fund manager around – a.k.a. Ken Heebner of Capital Growth Management – looks restless. He is sitting in a conference room at Goldman Sachs’s Boston office, listening to a young analyst pontificate about all the trends he thinks will sweep the markets in coming years. Oil demand outpacing supply. The rapid growth of agriculture. The increased sway of sovereign wealth funds.
Normally, anything filed late on a Friday means that a company is trying to bury something pretty juicy. That’s doubly true when that late Friday filing happens before a holiday weekend when the markets are closed. So you can imagine my surprise to see this 8K filed by Chipotle (CMG) at 5:27 pm on Friday afternoon.
Among the topics covered: his continuing effort to get the word to large family-owned businesses that he may be interested in buying if the family needs to sell, the U.S. economy and ‘financial weapons of mass destruction.’
Target’s (TGT) CFO said earlier this week the company could potentially pay a higher dividend, following an increase to the payout last year. “I clearly think that there’s room to increase the dividend,” Chief Financial Officer Doug Scovanner said at a conference broadcast on the Internet. But he added: “I do not believe that we are likely to fundamentally alter the dividend yield in any abrupt kind of way.”
Last June, Target increased its quarterly dividend by 2 cents per share to 14 cents per common share for a current yield of 1%.
Target has been using excess cash to buy back shares as part of a $10 billion share repurchase plan announced in November after agitation from Bill Ackman. It has said it expects to complete half or more of the stock buyback program by the end of the year.
Why is even talking about a dividend that yield 1%? It is out there now. Because you were ambiguous about it, people will want it increased and will be upset when you do not deliver. Why create an issue over a 56 cent annual payout? Now, admittedly this is not a onerous as a earnings “guarantee” but the fact that hew did not dismiss it, and actually gave it credibility will give it life.
If that is not in the plans, just say so. Dismiss it, put it to bed, and move one. Do not let it linger for people to run with.
Anything short of doubling the dividend keeps it insignificant for shareholders, ignore it. To be honest, they would probably do better by shareholders by scrapping the stupid thing and using the same cash to repurchase shares. I mean 1%?
Think about it. Target will spend about $460 million this year on dividends. At current prices they could use that to repurchase 8.2 million shares of 1% of the outstanding total. I would argue doing that each year would benefit shareholder more than a 1% yield will. Now, as they continue to repurchase the shares, that same money would by incrementally more of the outstanding number on a percentage basis.
There is a reasons that investors like Ackman, Lampert and Berkshire’s (BRK.a) Buffett never talk about 1% yields when talking about investing. There are better uses for the cash.
Target’s (TGT) CFO said earlier this week the company could potentially pay a higher dividend, following an increase to the payout last year. “I clearly think that there’s room to increase the dividend,” Chief Financial Officer Doug Scovanner said at a conference broadcast on the Internet. But he added: “I do not believe that we are likely to fundamentally alter the dividend yield in any abrupt kind of way.”
Last June, Target increased its quarterly dividend by 2 cents per share to 14 cents per common share for a current yield of 1%.
Target has been using excess cash to buy back shares as part of a $10 billion share repurchase plan announced in November after agitation from Bill Ackman. It has said it expects to complete half or more of the stock buyback program by the end of the year.
Why is even talking about a dividend that yield 1%? It is out there now. Because you were ambiguous about it, people will want it increased and will be upset when you do not deliver. Why create an issue over a 56 cent annual payout? Now, admittedly this is not a onerous as a earnings “guarantee” but the fact that hew did not dismiss it, and actually gave it credibility will give it life.
If that is not in the plans, just say so. Dismiss it, put it to bed, and move one. Do not let it linger for people to run with.
Anything short of doubling the dividend keeps it insignificant for shareholders, ignore it. To be honest, they would probably do better by shareholders by scrapping the stupid thing and using the same cash to repurchase shares. I mean 1%?
Think about it. Target will spend about $460 million this year on dividends. At current prices they could use that to repurchase 8.2 million shares of 1% of the outstanding total. I would argue doing that each year would benefit shareholder more than a 1% yield will. Now, as they continue to repurchase the shares, that same money would by incrementally more of the outstanding number on a percentage basis.
There is a reasons that investors like Ackman, Lampert and Berkshire’s (BRK.a) Buffett never talk about 1% yields when talking about investing. There are better uses for the cash.
After watching value investors dive into the market, time to join them.
Almost exactly a month ago I took a look at AutoNation (AN) and at the time said “I think one could wait until summer to pick up shares at and not pay too much more than today.” Shares sat at $15.96 then a today sit at $15.80.
Having just cashed out of our oil (USO) position there are funds laying around for investment. Being hesitant to put more into the retail sector currently, the retail auto sector does look very appealing. When you have investors like Lampert, Berkshire’s (BRK.A) Buffett, Leucadia (LUK) and Wilbur Ross entering the sector, it pays to monitor them.
Why AutoNation then? Back in March CEO Mike Jackson did an interview and here is the jist of it:
Forecasts this year call for about 15.5 million cars to be sold. Now, interesting tidbit. On CNBC, CEO and Chairman Mike Jackson was speaking of running his (or any) business. In the interview he said he runs his business for “a 1,000 year flood”. He then said that if auto sales dropped to 10 million units, “a depression” he called it, his business would be “cash flow neutral”. That is his basis for decision making.
As a potential investor, this is fantastic news. It simply means that the business will still produce cash even in an almost devastating economic climate. Wonderful…
A positive cash company in the current economic climate makes for tremendous flexibility competitors will not have. Jackson can reduce debt, repurchase shares or expand. In fact, Jackson has reduced share count by 30% the last two years. The repurchases have allowed EPS to stay flat at $1.44 despite the downturn in the auto industry during that time frame.
In the past two years, U.S. auto retail sales have declined 12 percent, Jackson said in early February and he said that economic downturns run in cycles of 30 to 40 months, and the market is currently 24 months into the downswing.
AutoNation’s markets in California and Florida, who account for half of new vehicle sales drove down earnings last year. The two states account for 20 percent of industry-wide new vehicle sales.
When things get better, investors ought to see an amplified increase on the other end due to the repurchases. Hold flat in down times and explode up in good ones, very nice.
The demand for auto related items can be found in recent news from auto parts retailers like AutoZone (AZO) and Advanced Auto Parts (AAP) who both reported increased earnings in the latest quarter. The things is, people have to have cars, the demand will always be there and Jackson has built a business that can capitalize on all demand scenarios.
Trading at 9 times earnings AutoNation will be a winner when demand for auto’s returns. That, it turns out may be sooner than we think. $4 a gallon gas is already changing people behavior and there just may be a rush to trade in that SUV for something much more affordable on gas. Whether it happens now or year from now, AutoNation currently trades at a multiple that assumes it just may never happen, that is wrong..
What Jackson said today on CNBC clinched it for me:
The guy has his business set to profit no mater what happens. Electric cars? Ok. Hybrids? Sure. SUV? Got ’em. People must have a vehicle and Jackson is there to provide whatever they need from whoever produces it. With his scale it come very close to a toll bridge business. He provides people a necessity that they must replenish fairly often at considerable expense…
Disclosure (“none” means no position):Long AN, none
I just used the new Value Investing News Button to submit this link to Value Investing News. You can add this new VIN Button to your own site. It allows readers to submit your articles to VIN and it allows them to remotely vote on your articles. See it in action by following this story link to Fat Pitch Financials.
The most surprising thing about Warren Buffett is that he can still surprise. After all, more ink has likely been spilled dissecting Buffett’s strategies than those of any other investor. Buffett became the world’s richest person while displaying both integrity and wit.
I read an article called “Sears majesty to hedge-fund dust” at the behest of a reader on the gurufocus message boards, and I have to say it is one of the most uninformed and incomplete articles I’ve ever read.
It sounds crazy that Warren Buffett and Jim Rogers might have something in common besides intellect and wealth. Buffett has owned the Washington Post for 35 years, Coca-Cola for 18 years.
Joe Ponzio details his reasoning for buying the small company stock of Graham Corporation, the unique attributes of small caps, and why he decided to sell when he did.
Garmin is the dominant player in the fast growing GPS market. The company has delivered nearly 50% annual earnings growth since 2003, and is expected to grow at 17% per year going forward. With it’s current 11 P/E, is Garmin a textbook example of growth at a reasonable price?
On Wednesday the 7th, Dr Pepper Snapple Group (DPS) officially began to trade. Its $25 price tag is lower than many expected after the soft-drink maker was spun-off of its parent company, Cadbury Schweppes.
“Ever since Berkshire Hathaway (BRK.A) reported earnings earlier in the month, a number of people have been abuzz about the “losses” generated from marking-to-market some of the derivatives on the books. Barron’s had a Q&A with short hedge fund manager Doug Kass (one of my favorite contrarian voices) where Kass said he was short BRK because of Buffett’s “investment-style drift,” which has led him to take large positions in derivatives instruments – which he famously derided as “financial weapons of mass destruction” in his 2002 letter to shareholders. And while I’m not sure of his positioning, Mish Shedlock echoed similar thoughts, saying that Buffett’s mark-to-market derivatives loss has given him “$1.2 billion less to invest because so far he is underwater on his short…”
I think Kass and Shedlock are taking their bearish act too far – perhaps because they are doing some unconventional style drift of their own and backing off their normally-sharp research. As Buffett notes in the section of his letter dealing with derivatives, the term “covers an extraordinarily wide range of financial contracts” and range from simple puts, calls, and futures to exotic agreements on any number of reference points, such as total return swaps. Actually reading the two-plus pages of Buffett on derivatives, it becomes clear that the concern centers on long-lived or extremely complex contracts that need to be marked-to-model, allowing for fudging profitability. Buffett isn’t talking about the simple derivatives contracts that Buffett has been increasing Berkshire’s involvement in – namely equity index puts and credit default swaps. I don’t have any explanation why so many people get this wrong, other than to assume they didn’t actually read the relevant passage.”
