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      « August 2005 | Main | October 2005 »

      September 30, 2005

      3i, Fairfax, Quarter Ends And Your Emails

      Here are a few things I want to call your attention to before the weekend:

      3i Group asset sale proceeds up nearly 58% over past 5 months
      Yesterday, 3i Group PLC (III/LN) said that proceeds from the sale, public listing and refinancing of assets increased 57.7% during the 5 month period ending August 31. The proceeds for the first 5 months of 2005 were 910 million pounds (US$1.6 billion), versus 577 million pounds for the same period last year.

      The company gave strong equity markets and a healthy lending environment as reasons for this performance. 3i issued this information in a trading update. It will release full 6-month results for the period ending September 30 (today) in early November.

      Apparently, CEO Philip Yea and management are finding things to do. 3i spent 578 million pounds in new buyouts for these 5 months, as opposed to 365 million pounds over the same period last year.

      In all, it's a strong report from a shareholder-friendly outfit. You can read Bloomberg's article here. I noticed in the coverage in Dow Jones Newswires quoted an analyst as saying 3i's management change was a clear catalyst for its performance. (Yea was installed as CEO in July 2004 and his importance has been discussed in some of my previous posts on the company.)

      And another analyst in London has raised 3i's fair value from 780 pence to 930 pence.

      Fitch clarifies coverage of Fairfax Financial subsidiaries
      On Monday I posted a link to a report about Fitch Ratings and their coverage of the subsidiaries of Fairfax Financial (FFH/NYSE). Well, Fitch "clarified" what it meant yesterday afternoon:

      "Fitch Ratings announced that it has withdrawn or upgraded the ratings of several insurance company subsidiaries of Fairfax Financial Holdings, Ltd. The actions are not a reflection of any change in credit fundamentals. Rather, they reflect simplification of the scope of Fitch's ratings coverage, as well as company mergers, name changes, or other reorganizations that have occurred but were not reflected in the press release published by Fitch on Sept. 23, 2005, or previous research reports."

      You probably also saw a news report the other day that the SEC has requested more documents from Fairfax, in an investigation into the company's finite-risk insurance practices. Prem Watsa says Fairfax is cooperating with the authorities.

      Fairfax continues to be a major holding in the portfolio.

      The quarter ends today
      Which means you should be able to read a post of how each stock has done early next week (hopefully on Monday). Stay tuned.

      Thanks for your emails
      As expected, I've received many more hits on this site and lots of great emails in my mailbox since being added to Seeking Alpha. Your comments, suggestions and stock ideas are most welcomed. Yet, due to time constraints, I probably won't be able to engage in lengthy email exchanges, much as I'd like to.

      I appreciate all of you taking the time out of your days (or nights) to read this site. I hope it will continue to be worthy of your attention. And I urge you to refer this site to 2 or 3 people you know today.

      Most of all, I hope this site turns out to be profitable for us all.

      September 29, 2005

      Googling The Lack Of Action

      The lack of bargain stocks is perfectly illustrated by something Andrew Bary mentions in his excellent feature article (subscription required) on media companies in this week's Barron's.

      Not because I disagree with the article's thrust that many of these companies are undervalued. I don't. The fact is I've been looking at some of them and may well pull the trigger.

      And readers of this site know my portfolio includes Liberty Media (L/NYSE), which is mentioned in Bary's piece (not as a buy itself but in discussing News Corp.), and DirecTV (DTV/NYSE), which is not mentioned by name.

      Instead, this is what (for me) illustrates the lack of bargains in today's market:

      "Some of the best values in the sector now are in the largest names. Icahn's view is that Time Warner is worth about 50% more than its current price of $18 on a sum-of-the-parts basis. He pegs fair value at $26 to $28 a share. A case can be made that Disney, Viacom and News Corp. are similarly undervalued. Google, whose shares last week hit a record $315, now is valued at around $95 billion, or nearly as much as News Corp. and Disney combined."

      I bolded that last sentence for emphasis.

      Would any private buyer pay as much for Google as he or she would for BOTH News Corp. and Disney?

      I wouldn't. Couldn't. But that's just me.

      Maybe Google is just an isolated case. Or maybe its (excessive) valuation is indicative of the investment landscape in general. I can't say -- I've been in the camp that most stocks are fairly valued as opposed to overvalued.

      Anyway, Google's market capitalization reminds me of an interview I read, gosh, it must've been in the early 1990s. It was with Chris Browne and the guys at Tweedy Browne. Wal-Mart stock was all the rage and Tweedy Browne wouldn't touch it. They played a game in their office called (if memory serves), "What Can You Buy With Your Wal-Mart?"

      They took Wal-Mart's huge market cap and looked at what companies you could buy with that amount of money. (I wish I'd saved that list!)

      Funny enough, now some value players are buying Wal-Mart stock. (The company's stock is trading at roughly one-half annual sales, so you can make a case for it.) Who knows? Maybe we'll be lining up to buy Google in 2017 or 2018. Stranger things have happened.

      P.S. Obviously, my discussion of Google is in the context of value investment. Plenty of traders have probably racked up impressive gains with it -- and if so, God bless 'em.

      P.P.S. Yesterday's Wall Street Journal had a great feature piece (subscription required) by Julia Angwin on large media conglomerates spending big bucks on internet properties. It ties in nicely with the Barron's article. Read both of them if you haven't already.

      September 28, 2005

      Qwest For MCI Is Really Over

      Qwest made it official: it has no plans to resubmit a takeover offer for MCI (MCIP/NASDAQ), even if we shareholders vote down the Verizon deal. This clears the way for Verizon to take over the company after the MCI shareholder vote in October.

      The fact is that unless Qwest put its $30-per-share bid back on the table BEFORE the vote, there was no way a majority of MCI shareholders would turn down the Verizon offer of $26 per share. Qwest had been a doing a dance. Since removing its offer a while ago, Qwest had been hinting that it might make another if MCI shareholders voted no on the Verizon buyout.

      That was never good enough.

      Still, we holders of MCI stock do owe Qwest a debt of gratitude. Without its higher offer, we'd have been stuck with a much lower buyout from Verizon -- around $20. Those of us who bought MCI stock in the mid-teens (as reported here previously, mine were bought at $17) would still have profited, just not as much.

      MCI management has been less-than-steller in serving the interests of shareholders in all of this. No one can argue that Verizon's financial strength makes it an attractive partner. But management was too eager to accept a lower bid to get the deal done at the expense of shareholders.

      September 26, 2005

      Random Thoughts On Monday Morning

      Here are a few things to get the week started:

      Imagistics International
      Saturday's mail included a letter from my broker giving official notification that Oce N.V. was offering to buy my Imagistics International (IGI/NYSE) shares for $42.00. I accepted the offer (surprise, surprise).

      Fairfax Financial
      Fitch Ratings has affirmed the ratings of Fairfax Financial Holdings (FFH/NYSE) and removed the ratings from Ratings Watch Negative. The Rating Outlook is Stable. Fitch also said:

      "The rating action reflects perceived improvements in Fairfax's overall financial profile, and Fitch's belief that the company has likely 'turned the corner' in its recovery following a sharp decline in credit fundamentals beginning in the late 1990s.

      "In addition, Fitch has affirmed and/or upgraded the ratings of Fairfax's wholly and partially owned subsidiaries. Upgraded ratings include the Insurer Financial Strength (IFS) ratings of members of the Northbridge Group, and the debt ratings of Crum & Forster Holdings and TIG Holdings Inc. (TIG). Fitch also assigned debt ratings to Odyssey Re Holdings Corp. The Rating Outlook for all affiliated ratings is Stable. A full list of all ratings can be found below. Approximately $2.6 billion of debt is affected by these actions."

      Also, Fairfax has announced plans to repurchase and cancel up to 9.6% of its outstanding shares over the next 12 months. Prem Watsa must think Fairfax is a bargain. He should know. Most of his net worth is tied up in the company.

      Nikko Cordial, DirecTV, Liberty Media
      You may have noticed that Nikko Cordial (NIKOY/OTC) has been doing nicely. The company is Japan's 3rd-largest securities firm and said recently that be raising its dividend payout. The ADRs have risen sharply (adjusted for a recent split).

      Yet, to be fair and balanced here, DirecTV (DTV/NYSE) and Liberty Media (L/NYSE) have been trading lower. I'm still holding them and my rationale for buying them remains unchanged.

      The quarter ends this Friday, September 30. I'll post more about the performance of all stocks mentioned on the site soon after that.

      You've probably read several bloggers writing about The New York Times charging to read its columnists. Most of what I've read about the move is negative. My take is that the Times' stable of columnists has been over-rated for a long time now, especially compared to what you can read (and still get for free) in The Washington Post.

      For example, Thomas Friedman is always interesting and can really turn a phrase. But I think the Post's Jim Hoagland, Davide Ignatius and Sebastian Mallaby are even more insightful in writing on foreign affairs. Paul Krugman strikes me as far less credible (and objective) than Robert Samuelson on economics issues. And I haven't read Maureen Dowd for a couple of years or more now -- she became a bit too shrill for my taste.

      September 23, 2005

      Special Welcome To New Readers

      This site reached a milestone yesterday when David Jackson added it to The Stock Market Blog Resource Page on Seeking Alpha.

      I emailed David yesterday thanking him, and thank him again here. He mentioned to me that I might see a dramatic increase in readership.

      And I have -- BIG time.

      So this is a good time to tell new readers a few things about what Controlled is. And isn't.

      Here goes:

      • I'm a stock picker. And this site is about investing in individual stocks using a value approach.
      • I personally own EVERY stock recommended here. That means if you follow my moves and I make money on a stock pick, you make money. If you lose your shirt, well, at least you have the satisfaction of knowing that I feel your pain.  ;-)
      • I'm a long-term investor, NOT a day trader. I invest with a 3-5 year time horizon for each stock, though some work out sooner (like Imagistics International, which was bought in June at $26.60 and is getting bought out by Oce N.V. for $42.00 cash).
      • EVERY company I invest in has problems. Every single one. That's why its stock is trading at a bargain price. If I'm right, things will work out and I'll stand to make a nice profit over time. But nothing is guaranteed.
      • Speaking of which, some stocks will turn out to be losers. Sir John Templeton has said that mediocre investors get 4 out of 10 picks right over time, while top-notch investors get 6 out of 10 right. Take that to heart. I do.

      Okay, after reading the above, you can probably guess what you won't find on this site. Things like commentaries on why the broad market did this-and-that and didn't do such-and-such. Or forecasts on which industry sectors will be up or down for whatever reason. There are a lot of great sites doing that type of thing. Many are the blogs linked in the menu on the left.

      Visiting for the first time? Be sure to check out the "Current Holdings" menu on the right under the Google Ads. You can click on the name of the companies listed and see the original rationale for owning them. There are 9 stocks listed, which will be reduced to 8 when Imagistics gets bought by Oce. I think a portfolio needs to have 20-25 positions to be fully invested, so we've got a ways to go to achieve that.

      But there aren't a lot of bargains out there now. And there hasn't been for some time -- even before this site was launched in April. The portfolio holds a lot of cash.

      So, welcome.

      I hope you find Controlled worthy of your time and a profitable source of uncommon investment ideas.

      One of the most gratifying things that's happened since starting this site is the number of positive emails I've received from professional investors in hedge funds and money management firms and industry analysts.

      Judging by their reaction, you and I are in good company.

      September 22, 2005

      Kerkorian Increasing His GM Stake Again; May Seek Board Seat

      News came yesterday (subscription required) that Kirk Kerkorian, through his Tracinda Corp., intends to boost his stake in General Motors (GM/NYSE) to 9.9%. That's up from the 9.5% announced in a filing on September 5. Which was up from the 7.2% he held before.

      But what got people buzzing was that Tracinda's official SEC filing said it may contact GM "concerning a possible representation on its board."

      That brought back memories of Kerkorian's takeover attempt of Chrysler and speculation that he's "turning up the heat" on GM's Chairman and CEO Rick Wagoner.

      I have no idea if that's the case, and no opinion on whether or not it would be a good thing if it was.

      The news that Kerkorian was investing in GM came after the stock was first mentioned here on April 29 at $26.75 per share. I liked -- and continue to like -- his investing in the company because it shakes things up. It helps focus attention on the various pieces of GM and ways of potentially unlocking the company's value. And it helped end the (I think) foolish bankruptcy talk earlier this year.

      Plus, Kerkorian's rising stake in GM does provide one amusement: watching and reading observers get all bent out of shape over a billionaire buying such a non-glamorous company. Hey, folks, buying a lousy company in a tough, capital-intensive business can still be profitable -- if you buy at a good price.

      I think GM was mentioned here at a good price. Whether that turns out to be true or not, we'll just have to wait and see. I will repeat that I've always viewed Longleaf Partners and Brandes Investment Partners being major shareholders of GM more important than Kerkorian. But he's going to get the media headlines.

      Speaking of the media. When reading various news accounts yesterday on Kerkorian perhaps wanting a board seat, more than one report stated that this development is happening just as Rick Wagoner is in "delicate" negotiations with the UAW.

      As though that is a BAD thing for GM management.

      Look, I have no idea how much contact Kerkorian and Wagoner are having. But if they were playing "good cop/bad cop" with the UAW they couldn't do it any better. (If you're reading this and don't know who the "bad cop" is in that scenario, you can rest assured the UAW does.)

      That's not a prediction. I just try to buy stock cheap with the willingness to wait a few years to see the value realized. I have no idea what the catalyst will be that ultimately leads to the value being realized.

      In the case of GM, the catalyst might be solely the work of Wagoner and GM's management. It might involve Kerkorian asserting influence. Or it might be anything.

      As long as we make money, I don't care. And (according to this morning's we're getting a fat 6.39% dividend yield while we wait.

      September 21, 2005

      Long Term Cash Is Trash, But It's Also King In The Portfolio

      Cash is the single largest position in the portfolio. Which means I should amend my previous statements that General Motors (GM/NYSE) and Fairfax Financial (FFH/NYSE) have been dueling it out for that distinction, depending on the closing prices of the day.

      GM and FFH have been dueling it out for number 2. But now Imagistics International (IGI/NYSE) is right up there since the announcement that Oce was buying it for $42.00 per share caused the Imagistics' stock to skyrocket.

      My hunch is that the cash position may well grow.

      For one thing, remember that Oce is paying cash for Imagistics. And for another, the Verizon acquisition of MCI is supposed to close in October. The Verizon deal is payable partly in cash and partly in Verizon stock (my preference is for all-cash buyouts). So that's more money in the till and, if I decide to dump the Verizon shares I get, even more after that.

      Yet the biggest reason for this cash position is something you've read here before: the lack of compelling bargains out there.

      I'm optimistic something will turn up. Maybe a gem will be uncovered via a disappointing 3rd quarter result. Recall that it was disappointing results for the 1st quarter of this year that gave us the opportunities in Imagistics and Molson Coors (TAP/NYSE). (Yes, I think Molson Coors will turn out okay.)

      We'll just have to see what happens.

      Though I hope it won't be too long, since yours truly is sitting in US dollars. I'm not a currency trader, but I have a feeling holders of dollars over the longer term will do better with Canadian ones.

      Note to new readers: This site's first posting mentioned 3 holdings to give readers a glimpse at the types of investments made here. They were MCI (MCIP/NASDAQ), Korea Electric Power (KEP/NYSE) and Audiovox (VOXX/NASDAQ) and I bought them long before this site was launched.

      I continue to hold all (though I've sold half of my original positions in KEP and VOXX) and report on my activities in them. But none are currently being purchased and because of that are not listed in the "Current Holdings" menu at the right under the Google Ads.

      September 18, 2005


      In the post below, I said Imagistics was recommended at $26.06. The correct figure is $26.60.

      Oce To Acquire Imagistics International For US$42 Per Share

      If you follow the stocks mentioned on this site, you probably heard the great news on Friday concerning Imagistics International (IGI/NYSE).

      Netherlands-based Oce N.V. has entered into a definitive agreement with Imagistics for Oce to acquire all the outstanding shares of Imagistics for US$42.00 per share in cash. You can read the press release announcing the agreement here.

      Imagistics was first recommended on this site on June 6 at $26.06. Assuming the deal goes through, we'll enjoy a 57.89% gain on this investment. And its only been a portfolio holding for a little over 3 months.

      I wish every portfolio investment worked out so fast. But I buy stocks anticipating holding them for 3-5 years. So while this result is more than welcomed, it's certainly not typical of what we should expect.

      You can view the original rationale for owning Imagistics by clicking on the company name in the "Current Holdings" menu at the right below the Google Ads.

      September 16, 2005

      Is Merck A Short?

      S. Anthony Iannarino of The Sales Blog posted a comment to my entry of a couple of days ago -- the one where I stated (again) that I might be making a mistake NOT buying Pfizer or Merck.

      Anthony's complete comment is:

      "Are you kidding about MRK? They are about be lambasted in another court case. Their big drugs come of patent protection in the next year. They are a great buy . . . sometime . . . just not now. MRK is a short . . ."

      While I haven't bought Merck, I am certainly not short it. (Full disclosure: I've never shorted anything in my life. It's not my game.)

      My view is that, if we look beneath the headlines and if we are willing to travel a rocky road the next few years, Merck has some things going its way.

      First, as stated here recently, Thomas Graham Kahn of the legendary value investing firm Kahn Brothers points out that Merck -- with its high dividend yield over 5.00% -- can be viewed as a "supercharged money fund." Merck DID fail to raise its dividend last July for the first time in 34 years, but no one foresees it getting cut in the near term. The company balance sheet has $14.4 billion in cash and investments alone.

      Second, Merck spends $2 billion to $3 billion a year on research that can easily result in other blockbuster drugs. Nothing is guaranteed, of course. Yet here I would say that Merck has an advantage over Pfizer -- Pfizer's market cap is roughly 3 times that of Merck. A new blockbuster drug can impact Merck's balance sheet very favorably, where it would have the effect of helping a gigantic outfit like Pfizer simply tread water.

      Third, there have been some wild estimates (up to $50 billion) of what Merck's potential liability will be. Most fall within the $10 billion to $20 billion range with payments spread out over a decade. Barron's reported that analyst Richard Evans of Sanford C. Bernstein says the stock is already discounting $25 billion in liabilities. Even more interesting is Kahn telling Barron's that Merck could pay $30 billion and still maintain its dividend.

      Put simply, I wouldn't short Merck unless I was absolutely certain the company's liabilities would be $45 billion or more.

      And that assumes the company is actually guilty of anything once the appeals are done. Which is a whole other story.

      Anthony, thanks for reading. I'll hope you'll continue visiting and that your shorting Merck works out (unless I turn out to be a buyer, that is!).


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        • All information posted on this web site has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. Under no circumstances is this an offer to sell or a solicitation to buy securities discussed on this site. Past performance is no guarantee of future success. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. CONTROLLED, its editor and/or related parties have positions in companies discussed. All data, information and opinions are subject to change without notice.