eBay a Value Stock?

I ask because Mason Hawkins and Staley Cates report establishing a position in eBay in the Longleaf Partners Fund. As of September 30, the holding accounted for just over 1% of the fund's assets. So they could own a lot more by now. Or not.

Regular readers know I admire Hawkins, Cates and the Southeastern Asset Management folks immensely. And if they build their eBay position -- on top of their firm's huge bet on Dell -- perhaps that's a sign bargains are to be found in technology.

Then again, the Longleaf Partners Fund currently has nearly $10 billion under management. And they like to spread their money over 20 holdings. So Hawkins and Cates pretty much have to stick with large cap situations.

That's not a criticism. Just a fact.

Even Hawkins has been quoted as saying he doesn't like companies with huge market caps, giving Wal-Mart and Pfizer as examples if memory serves.

With a market cap of more than $46 billion, eBay certainly is a big company. And it will be fun to watch and see if the company becomes more and more of a darling for value managers.

Plenty of people have ridiculed Longleaf's Dell investment -- which is down big since they first bought it. Yet the flagship Partners Fund is up 12.8% through September 30, and that includes Dell being its largest holding.

Several years ago, people ridiculed Longleaf for having roughly 15% of its Partners Fund in Waste Management. But Hawkins and his fund holders had the last laugh there.

For all we know, the same could be true with Dell -- and perhaps eBay. We just won't know for a few years in all probability. That's the way it is with long-term investors.

Comments

[Amit Chokshi]

I think value managers are focusing more on growth rates and estimates and comparing that to valuation as opposed to the general view of value investors as low p/e, dividend investors. EBAY's price is based on 27x forward estimates and with all of the negativity towards the stock those estimates may be understated meaning the fwd multiple Mason's estimated is maybe 20-23x, if not lower. And EBAY is probably one of the few remaining big cap companies that can offer good top line growth to drive earnings growth as opposed to just milking a company for cash (i am fond of that strategy too though). EBAY is a good company, maybe a great company, sellign at a market price, so it's probably a variation of a Buffett theme.

DELL is a value investment, for what it was and has the potential to be, it's probably a $40-$50 stock and trades for cheap multiples, or at least was back in the $19-$22 range.

One thing I find intereting is how shocked the media seems to be with value investors investing in tech. Not all tech sectors are "growth" areas. DELL's computers and its growth outlook will probably be closer to the automobile industry in 10 years. A lot of megacap tech companies are trading for cyclical multiples and it's deservedly warranted.

[John]

Amit: I think many in the media are "shocked" because they just reflexively connect "tech" with "growth." Some others in the media just want a hook for their stories. That probably sounds cynical, but it's likely true in at least a few cases.