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« March 2006 | Main | May 2006 »

April 28, 2006

The Lex Take on Comcast

I just came across this take on Comcast (CMCSK/NASDAQ) by the Financial Times' venerable Lex Column, only this is a free link (you don't have to be an FT subscriber to read it):

Better late than never. Comcast has finally lumbered onto the trail blazed by rival Cablevision. Strong growth in high-speed internet and telephony customers drove revenues 10 per cent higher in the first quarter. The strength of those products is also helping to reduce basic cable TV cancellations and even to stimulate some growth.

UBS estimates cable will take 25 per cent of new pay-TV subscribers in the first quarter. In recent years, satellite operators have taken more than100 per cent – with cable going backwards. Comcast has also demonstrated that it can ratchet up growth without too much extra capital expenditure, resulting in stronger cash flows.

Then the Lex editors offer up some caution, which I agree with. And being long the stock, I obviously agree with their conclusion.

It is only one quarter. And the threat from the big telecoms operators – who are laying new fibre to offer their own "triple-play" bundle – is still looming. That will eat into cable's market share and could affect pricing within the next couple of years, just as cable's natural momentum slows. But, in the meantime, cable should thrive. Only a tiny proportion of the homes passed by Comcast take its telephony service and 22 per cent take high speed internet. The more customers sign up to multiple products the tougher it will be for telecoms operators to steal them. Investor greed for a slice of the growth is starting to outweigh their fear of pricing Armaggedon further down the line. In spite of rising 17 per cent from their March lows, Comcast's shares have further to run.

Coming Up Comcast

We're still in early innings with the Comcast (CMCSK/NASDAQ) pick. But first quarter results sure make it look like management's push into services such as digital phone is finally picking up:

Comcast Corp., the world's largest cable-television provider, said first-quarter profit more than tripled as customers snapped up digital telephone service. Net income rose to $466 million, or 22 cents a share, from $143 million, or 6 cents, a year earlier. Sales rose 10 percent to $5.9 billion, Philadelphia-based Comcast said today in a statement. Earnings beat the 12-cent estimate of UBS AG analyst Aryeh Bourkoff.

The linked Bloomberg report continues:

Chief Executive Officer Brian Roberts gained 211,000 digital phone customers, more than the company won in all of last year. Adding phone service to Comcast's package helped attract a record number of digital video and Internet customers. Comcast, Time Warner Inc. and Cablevision Systems Corp. are using bundles of products to drive revenue and win business from phone companies.

"These are finally the numbers that investors are looking for,'' said Craig Moffett, an analyst at Sanford C. Bernstein & Co. in New York who rates Comcast shares "outperform.''

That last paragraph suggests the company may be regaining favor on Wall Street. I believe the stock is up a bit more than 17% YTD. I noticed the Class A Special shares (that I own) closed yesterday at $30.44. Comcast was first recommended here last November at $26.73.

I don't want to curse myself by saying this. But I really, really like the stock. The company. And the CEO.

P.S. The "Current Holdings" menu at the right lists several media-related stocks. I remain cautiously optimistic that they will all eventually work out, especially when taken as a group. I've noticed that DirecTV Group (DTV/NYSE) has been trading north of $17 a lot recently. And even CBS (CBS/NYSE) has at times gone back above $25. The dog of the bunch has been Media General (MEG/NYSE), which I think is down roughly 15% since being purchased.

But, as you know, we're very early in the game with all these picks. This blog is only a year old. Most of the positions were established in the past few months. And with my time horizon being 3-5 years, it's way to early to call any of the holdings a winner or loser.

April 27, 2006

CBS Radio: Going... Going...

I've posted previously that we shouldn't be surprised if CBS (CBS/NYSE) sold off its radio division. CEO Les Moonves said yesterday that he's considering selling at least some of the radio stations:

Moonves said the company will concentrate on stations in large and growing markets and "will sell stations if it makes sense." "We are being quite aggressive about that," Moonves said, declining to elaborate on how many and which stations might be up for sale. CBS operates 179 radio stations. CBS's radio unit posted a 6% decline in revenue to $434.5 million, largely because of the loss of popular on-air personality Howard Stern. Moonves called the radio division CBS's "toughest story," but said it was "extremely valuable" for the group.

I still think Moonves might sell the whole bunch -- if he could get the right price for shareholders, of course.

P.S. CBS's free cash flow rose 12% to $585 million in the first quarter, which Moonves said could pave the way for increasing the dividend. I mentioned when buying the stock that Moonves was committed to increasing the dividend, with stock repurchases potentially coming later.

Standing Pat (for the Moment)

I almost pulled the trigger on yet another Japanese company yesterday. But decided to hold off. For some reason, I want to see if anything else pops up.

I'm getting tired of finding companies that are almost (but not quite) cheap. Or cheap enough for me.

I'm still waiting for a certain pending IPO in the US to take place. Hopefully, it will turn out to be a bargain. But maybe not. Anyway, I've still got my eye on a British company and an Aussie one as well.

I don't know what's going to be next. Maybe I'll go full circle and end up buying that Japanese company after all. I'm not clear on what to buy just yet. And when I feel like that I at least know what to do.


April 26, 2006

3i Group Investing in Gulf

This isn’t a particularly big deal. But it could be something that gets bigger over time:

3i, a world leader in private equity and venture capital announces it is committing $15m to Ithmar Capital, the Gulf-based private equity firm, which is raising its second fund, Ithmar Fund II, expected to reach USD $250 million.

The strategic alliance between 3i and Ithmar Capital is the first example of a foreign private equity firm’s participation in a GCC (Gulf Co-operation Council) fund to date. It also builds on 3i’s strategy to expand its international network into high growth territories, adding value to its $10bn portfolio and to gain exposure to new markets. Ithmar Fund II focuses on growth capital and buyout investments in various attractive sectors of the high growth six GCC markets: United Arab Emirates (UAE), Kuwait, Qatar, Bahrain, Oman and Saudi Arabia.

Again, 3i Group (III/LN) investing $15 million out of its $10 billion isn’t a lot. Yet I imagine a lot of money sloshing around the globe is being invested – or seriously LOOKING to be invested – in the Gulf. Not as much as China or India, to be sure. But looking nonetheless.

April 25, 2006

Takefuji Taking on the Headwinds

This bit from the Lex Column in the Financial Times doesn’t mention portfolio holding Takefuji Corp. (8564/JP or TAKAF/OTC) by name. But it doesn’t have to.

Japan’s $200bn consumer finance industry has never looked pretty, but it has always proved attractive. GE Capital and Citigroup are among those that bought Japanese moneylenders, undeterred by the industry image of loan sharks driving hapless salarymen into bankruptcy and even to suicide. Now regulators are planning their own strong-arm tactics, threatening the industry’s profitability. First came a suspension order on Aiful Corp., the biggest consumer lender, which employed overly aggressive methods for collecting loans. Regulators, backed by ministers, want to lower the 29.2 per cent maximum interest rate charged by moneylenders.

The Lex editors correctly state that it remains unclear how broad government-mandated reforms will be. Standard & Poor’s estimates the damage would be 30% to 50% of the big players’ profits – and Takefuji is a big player – assuming maximum rates are capped at 20% to 23%. What’s more, Wasada University researchers estimate stricter lending rules will deny 10 million Japanese consumers access to loans and jeopardize 0.4% of the country’s GDP growth with the resulting drop in consumption.

The latter looks like scaremongering. But current rates of profitability – Aiful, for example, made operating margins of 27 per cent last year – would be unsustainable without the attractive rewards for risk-taking. High interest charges are coupled with relatively modest delinquency rates of 5 to 7 per cent for the big players. Ultimately, regulators will be guided by expediency. There are perhaps 6,000 consumer finance companies; these sit at the top of the food chain and a surge in bankruptcies would have a ripple effect. Since mainstream banks have not developed unsecured lending in any meaningful way, many borrowers would be shut out – or be forced back into the hands of loan sharks.

I agree that the Japanese regulators won't take action resulting in massage bankruptcies. But make no mistake, there will be uncertainty until the government reveals its reforms. And this uncertainty is one of the headwinds holding back -- and down -- the share prices of Japanese consumer finance companies in general.

UPDATE: In the first sentence of the last paragraph, I meant "massive bankruptcies" not "massage." (Though I'm sure Takefuji would lend to massage parlor owners if the terms were right.)

Technology Issues, Again

I've been having technology issues popping up again that prevent me from getting online. I'm in the process of getting this taken care of. In the meantime, thanks for your patience.

April 21, 2006

London Benefits From US Brain Drain?

This piece by Philip Aldrick in London's Daily Telegraph caught my eye for three reasons.

First, because any headline with the words "American brain drain" is attention-getting by itself.

Second, because I've seen news reports about foreign companies de-listing their ADRs due to the burdens of complying with Sarbanes-Oxley.

And third, because Aldrick's article jives with what I've heard about London's City financial district -- that it has become known as "Hong Kong West."

Anyway, on to the piece:

The City of London will become an even stronger magnet for talent from both the US and eastern Europe over the next decade as it cements its reputation as the "cosmopolitan capital of commerce", a new in-depth study claims. The trend will emerge by 2015 as restrictive regulations in the US drive companies and executives to London, while the capital's hedge funds draw skilled mathematicians and actuaries from eastern Europe.

The size of the highly-skilled migrant workforce is likely to result in fewer bonuses for bankers and greater pressure for Europe's financial centres to deregulate, the report by IBM's Institute for Business Value and The Economist Intelligence Unit says.

Some of the 402 executives from 296 of the world's largest financial institutions interviewed said there would be a US "invasion" of London, as companies and executives flee Sarbanes-Oxley [financial disclosure rules] and other restrictive regulations in the US that take up "20pc to 30pc of financial markets managers' time". One unnamed chief strategist said: "America is taking over London. Generally speaking, the London economy will benefit because there will be increased competition."

Then, further down, the article ends with this:

Sarbanes-Oxley has often been cited as a deterrent for companies looking to invest in the US. Kazakhmys, the FTSE 100 copper miner, is thought to have chosen London for its recent listing to avoid the burden of US regulatory compliance and several UK companies have removed their secondary US listing for the same reason.

I have no firsthand knowledge of any of this. Any readers working on Wall Street or in the industry and care to comment, please do.

Private Equity IPOs

I don't know if individual investors trying to get in on private equity now will end up being played for suckers. I do feel certain that getting in LAST YEAR -- as with 3i Group (III/LN) -- will prove to have been more advantageous.

The Lex Column in the Financial Times reminds me of this with its piece on KKR listing a private equity vehicle in Amsterdam. The editors caution:

Investors should be wary, however, when alternative investments get packaged up and sold to the masses. Look at the recent proliferation of commodity-tracking products. Certainly, average private equity returns are under pressure.

That said, investors have been able to buy shares in the likes of 3i and SVG Capital for years. The $1.5bn targeted by KKR PEI should be set in context: it is one-tenth of the total expected to be raised by KKR’s latest global fund. From an industry perspective, though, cashing in on its big brands and tapping a bigger pool will be hard to resist.

Two points here. First, the more you see IPOs offering individual investors ways to "get in" on private equity, the more you know it's late in the game (or even that the game is really over).

Second, and most importantly, we shouldn't buy any listed security simply because it's a way to participate in private equity. I bought 3i Group last year because I viewed it as undervalued. Period. I liked the fact that it's involved in private equity (as well as investments and venture capital), but that would have meant nothing if it were fully valued at the time.

April 20, 2006

USA Mobility: Bargain or Value Trap?

One of the bad things about this being a busy week is that I didn't have time to post this article I came across the other day. It's the Motley Fool's Rich Duprey on USA Mobility (USMO/NASDAQ). He writes:

I'm not ready to proclaim the company a value trap yet. USA Mobility trades at an apparent discount, and it doesn't appear that its business will vanish any time soon. Even so, I'd be hard-pressed to want to pick up its shares right now.

Well, I do own the shares and I'm underwater as we speak. And I'm continuing to hold them. If that changes you'll read it here.

Cash-Rich Takefuji

As stated in my last post, a full position in Takefuji Corp. (8564/JP or TAKAF/OTC) was purchased Monday at US$62.50 per share.

Takefuji is a Japanese-based consumer finance company that’s undeniably cheap. The shares currently trade at about 1.1 times book value, just over 16 times earnings and approximately three times sales. I’m not crazy about that price-sales ratio but the current ratio and quick ratio are each roughly 7. This is a hugely overcapitalized company that should return its surplus cash to shareholders either through special dividends or share repurchases. There’s no guarantee either will happen, but with Japan’s financial landscape changing I’m hopeful.

Takefuji could also use its cash to make acquisitions -- or it could be subject to itself being a takeover target. That’s not a prediction. I simply like the idea of holding stock in such a cheap, cash-rich company. I’m betting that something will happen to unlock the value over the course of the next 3 to 5 years.

Of course, there are reasons why Takefuji’s stock is cheap. (Regular readers know that everything I buy has problems.)

For starters, consumer lending companies in Japan have had their share prices held back due to uncertainty relating to legal issues regarding maximum interest rates that can be charged. In fact, two conflicting lending laws have existed for many years on this topic, leading to a “grey zone.” The judiciary and legislative governmental bodies have been working on this, with new legislation to eliminate the “grey zone” in 2007. Some investors worry that a recommendation will be made to radically reduce interest rate caps, which would hurt earnings. I take the view that eliminating the “grey zone” is a positive in and of itself, and that Takefuji’s rock-solid fundamentals can withstand any mandatory lowering of maximum rates.

Another factor holding down the stock prices of consumer lenders in Japan is the recent government action taken against Aiful Corp., the country’s largest consumer finance company. Japan's Financial Services Agency ordered the Aiful to suspend operations as punishment for illegal loan-collection tactics. Investors are concerned that the government is also investigating other consumer lenders, including Takefuji.

Lastly, the company suffered from a wiretapping scandal involving its former chairman a couple of years ago. A manager replaced him with stronger ties to the founding family -- which increased worries about corporate governance.

Despite these concerns, at the end of the day the fundamentals win out for me. I'm paying roughly 1.1 times book value for an overcapitalized consumer finance company generating a lot of cash. I'm patiently waiting for something good to happen -- in time.

UPDATE 8/7/2006: More Takefuji Corp. stock was purchased. The price paid was US$46.90 per share. That makes the average price $57.30.

UPDATE 6/5/2007: Even more Takefuji stock was purchased at the price of US$37.00 per share. The average price is now $49.18.

April 18, 2006

Buying Takefuji Corporation

A full position was established yesterday afternoon in Takefuji Corp. (8564/JP and TAKAF/OTC), a consumer finance company based in Japan. The shares closed the day at US$62.50, or approximately JPY7,340. I normally give a heads-up when I've placed an order, but this is a busy week for me with non-blogging duties and Monday got away from me.

Things are busy today as well, so I don't have time to post a rationale for owning the stock. Except to say that Takefuji is a cash-rich company trading at just over one times book value. There are some risks here, but I think the pluses outweigh the minuses.

I'll try to post a rationale later today or tomorrow.

April 17, 2006

Apart From the Crowd

One thing value investors find constantly is that we're usually not part of the "in" crowd. When the investing world is going ga-ga for exciting stocks such as Google, we're buying boring things like resellers of fax machines and multi-functional printers.

Another example is from this weekend's Globe and Mail in Canada. Columnist Derek DeCloet writes about the recent excellent performance of Canadian banks. One person who's been standing on the sidelines is Wade Burton of Cundill Investment Research in Canada:

His portfolio is an unusual one for a domestic money manager: It contains not a single share of any one of the Big Six, and has been that way for the past two years. Painfully so.

“You're going to say: ‘We missed the banks,' ” Mr. Burton says “And I'm going to say: ‘You can't say there's any margin of safety in these companies.' ” He thinks investors have underestimated the lending risks banks are taking in the amount of credit they are willing to give consumers, a belief that is partly based on experience — he used to be a commercial lender for Canadian Western Bank. “If you experience low loan losses, you become more aggressive in lending to that asset class.”

The article then points out that Canada's ten largest domestic mutual funds all have big positions in the country's banks. They are also major holdings in individual brokerage accounts.

“With these banks, I am on Mars and everyone else is on Venus,” Mr. Burton says. But he is not alone in believing that Canadian banks have been so profitable and so popular for so long that they can't possibly reproduce the returns of the past three years. Price is the big reason. The Big Six now trade at nearly 2.8 times book value, to take one important industry measure. That's a sharp increase from two times book value three years ago. (Book value is a company's net worth — its assets minus its liabilities.)

Christopher Fildes, author of the "City and Suburban" column in The Spectator, believes that finance is human nature in action. This looks to be a case of humans running with the crowd.

Looking to Buy

I'm still looking to make one or two additions to the portfolio in the near future. In fact, I'm collecting information on a company now. Regular readers know I'm a bottom-up guy. But I can't shake the top-down view -- one I've had since launching this blog a year ago -- that things are fairly valued. Not outrageously overpriced. And dirt cheap bargains certainly aren't plentiful. What's more, I can't get excited about stocks like Wal-Mart or Dell. I may be making a mistake in holding that view, but that's the way it is. I know that some well-respected value players are either holding full positions (such as Southeastern Asset Management with Dell) or establishing positions (as Tweedy Browne has reported doing with Wal-Mart) in these types of stocks. They will probably do well in the long run yet I'm holding off. At least for the moment.

April 14, 2006

Private Equity for the Masses

This Bloomberg article pinpoints a way for individual investors without $25 million to get in on the private equity fun:

Shares of SVG Capital Plc, a London-based investment trust, trade at 830 pence ($14.50) on the London Stock Exchange and are up 16 percent this year. SVG has provided about a third of the money Permira Advisers Ltd. is raising for Europe's largest buyout fund. Investors can also buy into funds that invest in a range of private equity funds.

It's a neat piece and I don't know anything about SVG Capital (haven't had time to research it). But regular readers of this blog knew 3i Group (III/LN) was a way of getting in on private equity last May.

In fact, the linked article discusses 3i. Here are the relevant parts:

Shares of 3i Group Plc, Europe's largest publicly traded venture capital firm, tripled in value to a high of 1,769 pence in 2000 as technology investments boomed, only to slump to 407 pence in September 2002. The stock has gained 39 percent since the start of last year.

And then this:

Founded after World War II by Clement Attlee's Labour government to help develop small businesses in the U.K., 3i is boosting spending on overseas businesses, snapping up companies in India and China. In February, the firm made its first investment in Russia, buying a stake in a $140 million Russian private equity fund. The company invests in leveraged buyouts as well as venture and growth capital investments, where it spends from 10 million euros ($12 million) to 100 million euros buying a minority stake in a company it expects to grow.

P.S. 3i has had a decent run-up since last year -- not including its pay outs -- and we may be getting late in the game with private equity. One indication of that is more and more private equity stories being carried in the financial press. Though the subject of hedge funds may be getting more play, for what it's worth.

P.P.S. It's nice to occasionally write a post that doesn't touch on me losing my shirt with GM. ;-)

Controlled Greed Mentioned in WSJ.com's "MarketBeat" Column

This blog reached another milestone when it was mentioned in the MarketBeat column on WSJ.com yesterday afternoon. Thanks to David A. Gaffen and welcome to all new readers making their way here via The Wall Street Journal's online edition.

Take a look around. If uncommon stock picks (and unloved or even hated ones, for that matter) made from a value perspective are your cup of tea, you have a home here.

I hope you'll become a regular reader and recommend this site to your friends and colleagues.

April 13, 2006

Lutz: Worst Over for GM

This could be filed under "What Do You Expect Him To Say?" but I still think Bob Lutz' statements during yesterday's New York Auto Show are worth reading. David Welch, BusinessWeek's Detroit bureau chief, offers up a sound report on Lutz saying that new models and cost cutting will return General Motors (GM/NYSE) to profitability.

This bit caught my eye:

Amid a throng of journalists, Lutz proclaimed: "GM has the worst behind it. Soon all will be revealed," he said, adding that, "I can't mention figures, because I'd get in big trouble."

I'm resisting the urge to get excited -- in the short term. Why? Because GM will almost surely announce further losses before things get better. Still, Lutz' optimism should count for something for those of us holding GM common stock. It's also worth noting that GM's new fleet of SUVs have reportedly been selling well since being launched in January. (So much for the conventional wisdom that people would stop buying them with higher gas prices.)

Oh, I'm sure some bears on the stock suspect the 74-year-old Vice Chairman must be getting senile. Let's see where we wind up further down the road.

April 12, 2006

FT Profiles GM's Money Man

Without even trying, you see press articles on the likes of Rick Wagoner, Bob Lutz and Jerry York. I can't remember reading good profile piece on Fritz Henderson, who was named Vice Chairman and CFO of General Motors (GM/NYSE) three months ago.

That's why this article by James Mackintosh in the Financial Times is such a treat:

Stopping GM running out of money will not be easy. It faces the threat of a strike at Delphi, its former parts arm and biggest supplier, now in bankruptcy protection, which has the power to bring GM to its knees. A Delphi strike would halt production at all GM’s North American factories, a move Merrill Lynch estimates would cost GM $8bn in the first 60 days.

The carmaker has tried to stockpile components but Mr Henderson admits Delphi is the “single biggest overhang over our company”.

Luckily, GM has a lot of cash. When Mr Henderson took over it had more than $20bn, plus limited access to a healthcare fund with another $19bn. He has since agreed to sell 51 per cent of GMAC, the profitable finance arm and GM’s crown jewel, which should bring in another $14bn of cash during the next three years. A $2bn stake in Suzuki has been sold, while yesterday it an­nounced the sale of its $320m stake in Isuzu, also of Japan.

Of course, the company has lots of demands for its money. But at least this piece gives us a look at another major passenger riding GM's bumpy road.

John Ellis Sizes Up CBS, CBS News, Les Moonves and Katie Couric

John Ellis posts his Wall Street Journal column from Monday on his blog. He basically thinks Les Moonves is trying to realize the value in CBS News -- and sell ultimately sell it. I don't know if he's right, but he writes a very interesting piece:

Today, CBS News is a nonessential and under-performing division of a media conglomerate that couldn't care less about journalism and thinks of news as something best practiced at MTV Networks. CBS management would sell the division in a heartbeat if they could, but they can't, at least for the time being. Fiduciary duty thus requires that they do something to enhance the value of the asset, so that it might fetch a higher price when it is finally divested.

The basic math is straightforward. If every broadcast news organization employs roughly 1,000 people and the average salary cost per person is $125,000, then the payroll cost is $125 million. Multiply times three (for overhead, operating costs, special events, etc.) and you have a starting budget of nearly $400 million.

Ellis then points out that the only way to recoup these costs is advertising. And that unless the network also has a cable news channel there isn't enough time to sell. NBC saw this in the 1980s when it created CNBC as a business news channel and later created MSNBC (in partnership with Microsoft) as a news channel. Those two organizations have time to sell seven days a week, 24 hours a day. And all those ads make boost the finances of NBC News.

CBS has no cable news network to spread cost across. It has the CBS Evening News for 30 minutes every night, the successful but aging "60 Minutes" franchise, and its woeful morning news shows. The basic math is therefore untenable. CBS News is not, long term, a viable financial enterprise.

What to do? Ideally, CBS management would like to sell CBS News to Time Warner or -- imagine the culture clash -- to Fox (which has a cable news network, but no broadcast news division). A deal with Time Warner might look like this: TWX buys CBS News for some multiple of revenues. TWX then leases back the "60 Minutes" franchise, the Evening News and a hybrid morning chat-and-news show for inclusion in the regular CBS programming schedule. The costs of maintaining CBS News is transferred to TWX, which can defray those costs across two cable news channels (CNN and Headline News)and repurpose the video and audio libraries of CBS News across those and other TWX channels. CBS gets news programming, ad revenue that easily covers the leasing fees, and the fulfillment of its "public service" obligation that is a requirement of its broadcast license.

I don't know how close this is to happening. Or even if it's on the radar screen for Moonves. We know he's in the process of selling the company's theme parks and it's assumed the publishing house will be next. With Disney selling ABC radio stations, I've thought CBS may eventually sell CBS Radio.

Actually, I've thought Moonves might sell off assets to establish CBS as a pure broadcasting play. And ultimately sell CBS (entertainment and news) to a buyer. Yet Ellis makes the case for selling the news division:

When to do it? Never sell at the bottom. CBS News is just now emerging from the debacle that caused Dan Rather to "retire," the dismissal of four senior employees, and the decent-interval defenestration of the news division's then-president. Having lived through the debacle, CBS Chairman Les Moonves knew better than anyone that he had to rebuild the reputation and image of CBS News if he was ever to realize the full value of the asset. Rearranging the deck chairs wasn't going to cut it. He needed something that changed the perception of CBS News and, if possible, wrought some havoc upon the competition.

And that's where Katie Couric comes in:

Launching her as the new face of CBS News gives the CBS publicity machine five months to reposition and redefine the news division. Given the resurgence of its prime time schedule and long-established hold on older, less-urban viewers, it seems unlikely that the ratings for the CBS Evening News will be hurt over the time leading up to Ms. Couric's arrival. Given Ms. Couric's proven appeal to baby-boomer women, it seems likely (amid a huge publicity blitz) that the ratings for the evening newscast will tick upward shortly after she assumes the anchor post. And given Ms. Couric's proven ability to hold the viewers she acquires, it seems likely that her $15 million annual salary will be more than covered.

Assuming the prime time schedule continues to perform, it is not hard to imagine that Ms. Couric will lead CBS News into a more competitive stance. At which point, the value of the asset can be realized in a deal. Katie Couric is, metaphorically, the transitional figure between a once-great broadcast news organization and what will almost certainly be the first news division ever sold off by a broadcast network. Given the options available to Mr. Moonves and the playing field he inherited, he could have done a lot worse.

Here I thought owning CBS stock would be like watching paint dry or grass grow. Looks like it might be an interesting ride after all. ;-)

April 11, 2006


This blog has been receiving loads of hits from RealMoney.com since the weekend, but I have no idea why (it's a paid site and I'm not a subscriber). All visitors arrive here via my "Book Values" post last week. If anyone can provide details, please post a comment or email me.

A couple of times recently James Altucher has mentioned this site in his blog column. Those times I could access a snippet to find out that Controlled Greed was mentioned by him and what he said. This time, nothing.

In any event, I am grateful and welcome all new readers from RealMoney.com. I hope you'll look around and, if you like what you see, come back often and recommed my blog to your friends and colleagues.

USA Mobility Mobiles Downward

I've recieived emails from readers wondering my thoughts on the recent drop in USA Mobility's (USMO/NASDAQ) stock price. My answer is that I don't have one.

The company has a market cap under $700 million with less than 30 million shares outstanding. So it wouldn't take much to move the stock in any direction. All I can say right now is that I continue to hold the stock -- which I first recommended here last August at $26.34 per share. I added to my position in October at $25.53 per share. The stock closed today at $22.78, which is the 52-week low according to WSJ.com. And which leaves my investment underwater.

There are risks owning USA Mobility. I stated so when initially buying it. But I remain cautiously optimistic about over the long term. If that changes you will read it here.

Technology Issues

I haven't been able to post anything since Friday morning because technology issues have prevented me from getting online. I think everything has been cleared up and should resume posting shortly.

Thanks for your patience and for your continued readership.

April 07, 2006

Forbes' Flint: Lutz for CEO

Several commenters have made the point that Bob Lutz hasn't exactly set General Motors (GM/NYSE) on fire since coming on board to oversee vehicle designs. Fair enough. Maybe Lutz, at age 74, has lost his fast ball. Or perhaps not.

Jerry Flint, Forbes auto industry columnist, is a big fan of Lutz. Even to the point of making him CEO if Rick Wagoner should step down:

If it were up to me, Bob would be the new GM boss. Bob, of course, is Robert Lutz, GM's vice chairman in charge of global product development. He's responsible for the vast improvements we are beginning to see in GM vehicles. Lutz knows the car business as no other American: He was an executive vice president at Ford Motor and president of Chrysler. In his younger days, he led the great BMW sales charge in Europe. He isn't a college-trained engineer--for which some snub him--but a self-taught car guy. He's Detroit's best, a hot driver who also owns a jet fighter and a helicopter, an ex-U.S. Marine fighter pilot and the best-looking 74-year-old I know.

Ah, there's the rub. He's 74.

But age isn't the only thing working against him:

Lutz is not a backstabber, and this is a business in which backstabbing is fine art. He's loyal to the core, and he won't push Wagoner down the stairs.

Lutz has run into some problems at GM, which is natural for someone who attracts the press like a rock 'n' roll god. In an age when public relations departments carefully coach and script every public word uttered by their chief executives, Lutz never learned how to be politically correct. Sometimes Lutz speaks with too much candor, such as the time last year when he called Pontiac and Buick damaged brands--which, of course, is the truth. Dealers thought Lutz wanted to kill Pontiac and Buick, and they went berserk. In fact, Bob was working hard to save those nameplates, but he was just being honest.

Then Flint writes this further down the piece:

His immediate effect on GM was electric. The company pushed out Ron Zarrella, the generally despised president of North American Operations, and junked its ridiculous product-development program, which had made real product development all but impossible. For the first time in ten years, car people began to have some leverage over the accounting and marketing people at GM.

Even with Lutz, GM is still struggling. I say that without Lutz, the company wouldn't have a chance. Today the product is improving, quality is up, designs are much better, the interiors are good and the fit and finishes are top flight. So far, there haven't been any "gotta have" cars--to use a Lutz term--but many of the new vehicles are at least moderately successful. The new big trucks are world class.

And closes with this:

I'm not saying Lutz will become head of General Motors. But I'll tell you this: If he did, they'd have a "Semper Fi" leader who would say "follow me" and mean it. And people would follow him.

GM would come back--or go down fighting, not whimpering.

Moses was 120 when he led his people to the promised land.

So why not Bob?

Why not? Well, I hope it won't come to GM getting a new CEO. If it does, I'd be willing to see Lutz get the job.

3i Pours $$$ into Mainland China

Regular readers know that 3i Group PLC (III/LN) has a competitive advantage doing small-to-medium sized deals in the UK and across Continental Europe. I based my original rationale for buying the company's undervalued stock last year based on that fact plus its management. I said that the company's Asian prospects -- including mainland China and India -- could be had for free.

Further proof of this came yesterday, with 3i telling China Daily that it will be investing in four or five companies in mainland China every year in the coming years. 3i says it will put between US$20 million and US$100 million into each company:

"We are realizing the opportunities in the economic growth of the Chinese mainland and India," Jamie Paton, managing director of 3i Asia Pacific, told China Daily. "Over the past five years, we have poured about US$400 million across Asia."

Managing US$11.7 billion globally, 3i Group said it is in talks to invest in three mainland firms and wishes to finalize the deals in two to three months. One is in the manufacturing sector and two are in consumer sector, Paton said. All three firms are still in developing stages and it may take two to three years to make them strong, he said.

3i says that if it does invest in these three companies, it plans on exiting them by listing each oversees in three years. 3i opened an office in Shanghai last year (and also one in Mumbai, India) and plans to open another in Beijing this year. It has had an office in Hong Kong for sometime. The China Daily article continues:

"We are realizing the opportunities in the economic growth of the Chinese mainland and India," Jamie Paton, managing director of 3i Asia Pacific, told China Daily. "Over the past five years, we have poured about US$400 million across Asia."

Managing US$11.7 billion globally, 3i Group said it is in talks to invest in three mainland firms and wishes to finalize the deals in two to three months. One is in the manufacturing sector and two are in consumer sector, Paton said. All three firms are still in developing stages and it may take two to three years to make them strong, he said.

3i says that if it does invest in these three companies, it plans on exiting them by listing each oversees in three years. 3i opened an office in Shanghai last year (and also one in Mumbai, India) and plans to open another in Beijing this year. It has had an office in Hong Kong for sometime. The China Daily article continues:

Starting from 2001, 3i has invested in a number of mainland firms and witnessed fat returns. One of its most successful investments was buying a US$8 million stake in media company Focus Media at the end of 2004. The firm was listed on the NASDAQ Stock Market in July of last year, raising US$700 million. The deal also marked the first mainland media company to be listed overseas.

Another example includes investment in the mainland's leading fire alarm system manufacturer GST, which floated its shares in the Hong Kong Stock Exchange last year.

And the latest deal of 3i was the acquisition of chain store retailer Printemps for US$31 million at the end of 2005. The retail group has five outlets in the mainland and plans to extend that to 15 by 2008. 3i's Paton expects the market cap could expand by 15% to 20% over the next five years. The article concludes:

Overseas venture capitalists are attaching greater importance to the mainland market on the back of its consumption spree and fast- growing economy. The mainland's small and medium-sized enterprises, which often encounter difficulty getting bank loans, are now resorting to venture capital.

The total amount of venture capital in the mainland reached US$1.07 billion in 2005, and that figure is expected to rise to US$1.5 billion this year, according to Zero2ipo.com Ltd, a venture capital market research company in Beijing.

April 06, 2006

WSJ on GM and the GMAC Sale: Devil is in the Details

This morning's Wall Street Journal has a piece by Ian McDonald and Serena Ng picking apart General Motors' (GM/NYSE) sale of GMAC:

The buyers of the 51% chunk of General Motors Acceptance Corp., a group of investors led by investment fund Cerberus Capital Management LP, can walk away from the complex transaction without paying a cent if GM's credit rating deteriorates in the coming months, for example. And even if this cash infusion does recharge GM's business, and the car maker can buy back GMAC's lucrative automotive-finance business in the future, analysts say GM will face the same bind as pawn-shop customers: paying through the nose for something sold for peanuts.

Shares of GM have fallen 6.4% to $19.91 on the New York Stock Exchange since the start of the week. Over the same stretch, its benchmark 8.375% bonds due in 2033 have lost 3.1 cents to trade at 71.75 cents to the dollar, yielding nearly 12%, according to data from MarketAxess.

"The deal doesn't do anything to fix their auto operations," says John Novak, a stock analyst at Morningstar Inc., Chicago, who advises investors to acquire shares only if they fall below $9 apiece. "It's also pretty easy for Cerberus and the others to walk away."

Nine bucks a share? Look, I'm underwater on my GM holding. And it's a big position for me. Yet I'd be tempted to buy more stock if it got that low and nothing had changed my current view. But I hope it never sinks that far down.

Anyway, the article goes on to state that if GM's unsecured long-term debt sinks four notches deeper into below-investment-grade ranks to a triple C rating, Cerberus can back out of the deal before it closes. Cerbus can also bolt if GMAC's credit rating slips below its current level of double-B or if the company's residential-mortgage or insurance units see a credit tumble.

Such "escape clauses" aren't unusual in big acquisitions such as this one. But in GM's case, there is a real chance the deal might be derailed by factors somewhat out of the auto giant's control -- chiefly, a strike by workers at its biggest supplier Delphi Corp., which could cripple GM's manufacturing and cause it to bleed cash fast. If a walkout happens, GM's credit rating almost certainly will be downgraded. GM's auto sales also have slumped and are another factor that could cause its ratings to deteriorate.

The piece continues and touches on the Pension Benefit Guaranty Corporation:

Few analysts expect the PBGC to veto the GMAC stake sale. Instead, they expect the agency to require GM to commit a portion of the $14 billion proceeds from the sale toward the auto maker's pension fund, which the PBGC says is underfunded, a characterization that GM disputes.

As usual with these feature pieces from the Journal, there's more than just what I've highlighted. So be sure to read the whole thing.

Katie Bar the Door

From an investor's viewpoint, there's really nothing to say about Katie Couric leaving NBC to host the CBS Evening News. Except my understanding is that improving CBS News is one of Les Moonves' priorities in boosting the company's fortunes.

So in that respect, maybe. Otherwise my hunch is that when we look back 3-5 years from now, it will all just be noise. Deafening at times if you happen to watch "entertainment" type newscasts, to be sure, but noise nonetheless. (It is interesting that Couric will apparently be paid less at CBS than NBC. But the CBS Evening News only makes a fraction of the Today Show's revenues, so it makes sense.)

I remain cautiously optimistic about owning CBS (CBS/NYSE). I think the company is cheap. Some say it deserves to be, being an "old media" company. I think they're underestimating the company's assets. Then again, the stock is down a bit since I bought it. So I could always be wrong.

Book Values

This is a fun article by Craig Karmin on WSJ.com:

The most successful investors, it is often said, don't play by the book. Still, the savviest investors are often voracious readers. For insight into where to find good advice on international investing, we asked five top global-fund managers to share their favorite books.

The five and their books are:

  • Mohamed El-Erian, former head of emerging markets investing at PIMCO, onetime International Monetary Fund official, and currently manager of Harvard University's $26-billion endowment. He recommends Against the Gods: the Remarkable Story of Risk by Peter Bernstein.
  • David Herro, manager of the $7-billion Oakmark International Fund since 1992, suggests Mr. China: A Memoir by Tim Clissold.
  • Mark Mobius, president of Templeton Emerging Markets and himself author of four books on investing, recommends Aspirin: The Remarkable Story of A Wonder Drug by Diarmuid Jeffreys.
  • Reiner Triltsch, head of international investments at U.S. Trust Corp., offers up The Tipping Point: How Little Things Can Make a Big Difference by Malcolm Gladwell as his recommendation.
  • George Greig, head of international investing at William Blair & Co. says he draws insight from the 1964 classic, Understanding Media: The Extensions of Man by Marshall McLuhan.

Each manager gives his reasons for his picks in the article. I must confess that I haven't read any of these selections -- though I should have read Against the Gods by now, I've always had it "on my list" of books to read and it has only been out about a decade now. I also have to say that Mobius' pick is intriguing after reading his description of it.

Anyway, I'm a sucker for these types of pieces. So, if you enjoy them as well -- enjoy!

P.S. I'm not in the same league with the investors above. But if anyone is wondering what's on my nightstand, I'm reading Warriors: Portraits from the Battlefield by Max Hastings and Foreign Strands: A British Council Journey by Stephen Alexander. No, I don't think either of those is going to make you money in the stock market but, hey, reading is A Good Thing. Certainly better than watching too much TV or spending too much time in front of a computer(!).

April 05, 2006

Mobius: Asian Stocks to Outperform Latin America

And the reason will be because of faster economic growth in countries such as China and South Korea, according to Mark Mobius, Templeton's emerging markets guru:

"One of the problems in Latin America is that the growth rate in the economies has not been as fast as in Asia,'' Mobius, 69, said in an interview in Sao Paulo. "The reason for that is the governments' policies.''

Asia's emerging market growth may double that of Latin America this year. The International Monetary Fund's estimate for growth in Asia, excluding Japan, may be increased to 8.0 percent from 6.9 percent, according to a presentation by the fund's Asia and Pacific department yesterday. That compares with a 4.1 percent expansion in Latin America, according to forecasts by the United Nations' Economic Commission for Latin America and the Caribbean.

The Morgan Stanley Capital International Asian region index is up 12% this year, on its way to a fourth yearly increase.

Korea's Samsung Electronics Company is the largest holding in the Templeton Emerging Markets Fund, which rose 31% last year and is one of 29 funds Mobius oversees. South Korea has the largest weighting in that fund, at more than 20%, followed by Taiwan and Brazil, Bloomberg data shows. Mobius manages a total of $22 billion worth of emerging markets stocks for Templeton:

"If you look at the two main countries, Mexico and Brazil you'll find lots of great companies with very fast earnings growth,'' he said. "There's a chance that these markets could still keep on moving ahead.'' Elections across Latin America may bring some volatility to share prices. In Brazil and Mexico, politics are unlikely to erode prospects for stocks, he said.                

Argentina, Bolivia and Peru are "question marks,'' he said. "Argentina is a question mark because the current government has not being doing too well from the view point of price controls and other controls which are not good for the economy long-term.''

Bloomberg reports Mobius as saying further opportunities may be found in Poland, Russia and South Africa. He also states that his team is finding a lot to buy, despite prices having gone up so much.

Mobius said he sees potential in Brazilian banking companies such as Banco Bradesco SA and natural resource companies such as iron miner Cia. Vale do Rio Doce and state- controlled oil company Petroleo Brasileiro SA.

"Provided the government continues to allow to be run professionally and provided the government gradually lifts restrictions on pricing, then the company should do very well,'' he said of Petrobras.

I'm by no means a major investor in emerging market stocks, yet I've always been an interested observer in Mobius' activities. Mostly because he's a value guy in an area populated mainly by players looking for growth and hot markets. Then again, managing $22 billion is A LOT to manage even in the developed world. But hey, there's worse problems to have, right?

P.S. On a related note, news broke yesterday that Franklin Templeton will be rolling out a BRIC fund (Brazil, Russia, India and China) this July in the US. The manager? None other than Mark Mobius. He's already the manager of Templeton's UK-based BRIC fund. Does that make 30 funds he's overseeing?

April 04, 2006

Time Is On His Side

At least for the moment, that is.

This morning's Wall Street Journal has a feature article about Rick Wagoner, CEO of General Motors (GM/NYSE), gaining time from the Board in his efforts to turn the company around. I don't know if he was ever on the verge of going or not. But today's piece by Lee Hawkins, Jr., Monica Langley and Joseph B. White is an excellent piece on recent events concerning GM and Wagoner:

GM's announcement yesterday that it was selling 51% of its highly profitable finance arm, General Motors Acceptance Corp., came with a bonus for Mr. Wagoner: A public statement of support from GM's lead outside director, George Fisher, after a week of speculation that Mr. Wagoner's job was in jeopardy.

"This transaction, along with the other progress GM has been making on its turnaround plan, is an important milestone," Mr. Fisher was quoted as saying in GM's statement on the GMAC deal. "While there is still much work to be done, the GM Board has great confidence in Rick Wagoner, his management team and the plan they are implementing to restore the company to profitability."

The statement came at a time when GM directors have been discussing Mr. Wagoner's future, according to people familiar with the situation. Some have raised questions about the pace of Mr. Wagoner's efforts, but others have worried about the timing of any management shake-up, given that GM is engaged in high-stakes negotiations with its largest union, the United Auto Workers, these people said.

Then further into the article:

Besides Mr. Fisher's statement, Mr. Wagoner recently has won the backing of two prominent GM dealers. John Bergstrom, chairman of Wisconsin-based GM dealership chain Bergstrom Automotive, sent a letter to the board late last week to "share with you my total support and respect for Rick Wagoner...who has earned the respect of all of us in the retail network."

Another dealer, Carl Sewell, who has 15 GM franchises in the Dallas area, recently began talking to other dealers to say, "We need to come to our company's and Rick's defense." GM is providing his dealerships with "the best product we've ever had," he said, adding that Mr. Wagoner is "a wonderful human being of intellect and integrity."

The Journal feature mentions other interesting stuff, such as GM's planned growth in Asia and other emerging markets. But how much time does Wagoner have? I have no idea. I suspect that he hasn't just been "hanging on" but I have no idea about that, either. I will say that if GM dealers in general support the guy, that says something since they're on the front lines, so to speak.

Lee Hawkins and the Journal reporters have done consistently top-notch work covering this story. Today's piece is just the latest. Be sure to read the whole thing here.

April 03, 2006

Controlled Greed.com Portfolio Picks Average +5.6% YTD Through First Quarter of 2006

As a group, the 12 stocks making up the portfolio’s current holdings have achieved an average gain of 5.6% in the first quarter of the year. That compares to the S&P 500 being up 3.8% during the same time period. Both figures do not include dividends. Here’s how each of the holdings performed:

Deckers Outdoor +46.8%
DirecTV Group +16.2%
3i Group +11.9%
General Motors +9.5%
Nikko Cordial ADR +4.4%
Liberty Media Series A +4.3%
USA Mobility +2.7%
Molson Coors Class B +2.4%
Comcast Class A Special +1.7%
Media General Class A -1%
CBS Class B -6.4%
Fairfax Financial -25.3%

Overall, I am content with the first quarter results, especially since the portfolio outperformed the S&P 500. With this site's stock picks averaging more than the S&P 500 in 2005, I feel the need to stress that value investors often underperform the major averages. And that will certainly happen to me in the future.

Deckers has been the big contributor for the quarter. It's good to finally see DirecTV performing well. And, if you're like me, I bet you're enjoying a bittersweet chuckle over GM gaining nearly 10% for the first three months of the year. (Talk about lies, lies and damned statistics!)

Fairfax has been the biggest hamper to portfolio performance. We'll just have to see what results from the government supoenas. One thing I think the portfolio has going for it in the future is the media-related stocks. They've basically been flat, with the exeption of DirecTV this quarter, and continue to be cheap. So the portfolio is doing well with almost no participation from the media-related stocks (remember that 5 of the 12 holdings are in that sector). When the market eventually realizes the value of the companies making up this group, we should see decent price appreciation.

I'll add CBS and Media General being down is really meaningless, because both were bought recently.

That's it for now. Remember you can click on the name of any holding in the "Current Holdings" menu at the right to see the original rationale for owning the company's stock. In the meantime, the hunt for values continues into Spring.

Controlled Greed.com Portfolio Picks Average +18.9% Through First Quarter of 2006

I’ve made 13 stock purchase recommendations since then launching this blog on April 27, 2005. Here’s how they have each performed from the date of being recommended through the first quarter of this year, not including dividends. They are as follows:

  • General Motors was mentioned on 4/29/05 at $26.75. It closed 3/31/06 at $21.27 for a loss of 20.5%.
  • Fairfax Financial was mentioned on 5/3/05 at $132.50. It closed 3/31/06 at $107.21 for a loss of 19.1%.
  • 3i Group was mentioned on 5/17/05 at $12.73 (adjusted for a 16-for-17 reverse stock split). It closed 3/31/06 at $16.31 for a gain of 28.1%.
  • Nikko Cordial ADR was mentioned on 5/26/05 at $8.64 (adjusted for a 5-for-1 ADR split). It closed 3/31/06 at $16.53 for a gain of 91.3%.
  • Imagistics International was mentioned on 6/30/05 at $26.60. It was bought by Oce NV in the Netherlands in the Fall for $42.00 cash for a gain of 58%.
  • Molson Coors Class B was mentioned on 6/13/05 at $60.35. It closed on 3/31/06 at $68.62 for a gain of 13.7%.
  • DirecTV Group was mentioned on 7/21/05 at $15.50. It closed on 3/31/06 at $16.40 for a gain of 5.8%.
  • Liberty Media Series A was mentioned on 8/4/05 at $8.52. It closed on 3/31/06 at $8.21 for a loss of 3.6%.
  • USA Mobility was mentioned on 8/24/05 at $26.34. It closed on 3/31/06 at $28.48 for a gain of 8.1%.
  • Comcast Class A Special was mentioned on 11/28/05 at $26.73. It closed on 3/31/06 at $26.12 for a loss of 2.3%.
  • Deckers Outdoor was mentioned on 10/18/05 at $20.92. It closed on 3/31/06 at $40.54 for a gain of 93.8%.
  • CBS Class B was mentioned on 2/16/06 at 25.61. It closed on 3/31/06 at $23.98 for a loss of 6.4%.
  • Media General Class A was mentioned on 3/21/06 at $47.05. It closed on 3/31/06 at $46.62 for a loss of 1%.

In all, the average stock pick has gained 18.9% during the life of this blog.

A few points need to be made. First, these are not “annualized” results or year-to-date results. These are simply how the stock picks have performed since being recommended. I will post YTD results next.

Second, these are not “audited” results. They’re just my calculator and me and I’m subject to correction.

Third, as they stated, these results do not include dividends and payouts. So the total return for the portfolio is a bit more.

Fourth, I live in the US so I track my portfolio in US Dollars. Someone following my picks and residing in another country may see results better or worse than mine.

April 01, 2006

Congratulations to Charles Kirk

This week's Barron's has a feature article on blogger and top-notch trader Charles Kirk of The Kirk Report. It's an excellent piece written by Kathy Yakal:

There are two ways to drive the 12 miles north from St. Paul to Charles Kirk's house in Hugo, Minn. You can join the long line of cars speeding along the six-lane I-35E past countless car dealerships and a giant Wal-Mart. Or you can cruise the road Minnesota native Bob Dylan made famous, Highway 61. It gradually narrows from four lanes into a slower-paced country road surrounded by beautiful farmland the closer you get to Hugo (population 10,000). Highway 61 seems like the better route to reach Kirk, the 34-year-old trader whose uncommonly genuine personal style, coupled with outstanding performance, have made his online blog one of the Internet's best-read financial sites.

Reading the entire article gives one the impression that Charles is a good guy as well as a great trader. So hats off to Charles for being the subject of such a worthwhile feature.


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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 GREED.com, its editor and/or related parties have positions in companies discussed. All data, information and opinions are subject to change without notice.