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« May 2006 | Main | July 2006 »

June 30, 2006

End of the Quarter

This is the last day of the second quarter for 2006. It's also the start of a long July 4th weekend holiday for those of us not working Monday.

I'll try to post results for this site's stock picks -- both life of the blog and YTD -- sometime over the weekend.

Rupert Murdoch: Negotiations with John Malone Have Become "More Substantial"

The Australian Financial Review is reporting that Rupert Murdoch has told the publication that progress is being made regarding Liberty Media's hefty stake in News Corp. AFR is a subscription site. Here's a link to the Sydney Morning Herald's coverage:

Rupert Murdoch appears close to settling a long-running dispute with American media tycoon John Malone in an asset and cash deal worth $US4.7 billion ($6.5 billion).

Analysts say Mr Murdoch could sell six US television stations to Mr Malone's Liberty Media and offer $US3.5 billion in cash in exchange for Liberty's 190 million voting shares and 25 per cent of its non-voting scrip in News Corp.

Mr Murdoch has told The Australian Financial Review that negotiations with Mr Malone had become "more substantial".

It makes sense for this deal to get done. And it should have gotten done a long, long time ago. At times it feels like watch grass grow or paint dry.

But I'm hopeful it will prove worth the wait.

June 29, 2006

Mark Mobius Gala Continues

I've really got to stop posting on Mark Mobius, Templeton's emerging markets guru. But the stuff coming across the wires on him recently has been interesting. And I've always liked the way he applies value investing to a field dominated by the "growth investing/momentum investing/hot money" crowd.

Mobius did a Q&A with readers of the Financial Times to discuss recent turmoil in the markets he invests in. Here are three questions, but there's lots more to read if you subscribe:

Do you think value investing has a future in high growth areas of the world economy like China and India?

MM: Value investing has a place in all types of markets and economies. We must remember that value investing does not ignore the future. Our selection of stocks is based on not only their history of earnings but also what we think they will do in the next five years. A stock that looks expensive now may actually be cheap on a five-year time frame.

Do you consider that emerging markets equities are, right now, seriously underpriced? If so, do you expect a recovery in the short term, or does this mean a stagnation of prices for a considerable time?

MM: Yes, in many cases equities in emerging markets are under priced but this is not true of all companies and markets. Generally speaking, looking at the history as well as comparing emerging markets to developed countries, equities in emerging markets are under priced. As regards to recovery in the short term, we don’t know and can’t predict and also we can’t say that there might be stagnation of prices. However, we can say that there are opportunities to both buy and sell equities in emerging markets and liquidity has improved greatly in recent years so the chances of price stagnation are low.

Where do you currently see value in emerging markets - countries and sectors? Where would you stay well clear of in the short term?

MM: We see good value in many markets but the allocation of our funds indicates the most favoured countries are: Korea, Brazil China, Taiwan, Thailand, Hungary and Russia. We have been concentrated on the consumer and commodity sectors.

3i CEO Yea Buys More Company Stock

Management buying a company's stock doesn't guarantee anything, of course. But if you and I own a stock, we like to see the guys and gals minding the store holding some, too.

That's why this article from the International Herald Tribune catches my eye. The writer reports that European managements are buying more shares in their own companies than at any other time in the past two years. Well, I think that would be more impressive if it were, say, the past five or 10 years, but so what. Back to the article, which mentions portfolio holding 3i Group (III/LN):

So-called insider buying is often seen as reflecting optimism about companies' prospects. The trend may help shares of 3i Group and L'Oréal, which were among companies with the biggest purchases by executives and directors this month.

Then further down the piece:

Philip Yea, chief executive of 3i, Europe's biggest publicly traded buyout and venture capital firm, bought £111,907, or $204,000, of 3i's shares June 13, according to company filings. The stock has since gained 2.2 percent.

June 28, 2006

Reader Provides Link to Markel Portfolio

Controlled Greed.com reader Jim Heggarty provides this link in the comments section of my post yesterday about buying more Fairfax Financial (FFH/NYSE) stock. It's so good that I'm featuring it in a post of its own:

For those of you who are unfamiliar with Markel, it's a niche-focused specialty insurance company that is modeled on Berkshire Hathaway, and like Berkshire CEO Warren Buffett, the executives at Markel have an enviable track record investing in public equities.

Vice chairman Steve Markel and chief investment officer Tom Gayner head the firm's stock-picking, and over the last decade their equity investments have appreciated by 13.1% annually, far outpacing the S&P 500's 7.31% annual gain. To put this in perspective, $10,000 invested with the team at Markel 10 years ago would now be worth $34,251, while the same amount invested in the S&P 500 would be worth only $20,251.

Markel's top 10 holdings are:

6.33%   Berkshire Hathaway B
5.95%   Fairfax Financial Holdings
5.89%   CarMax
5.75%   White Mountains Insurance
5.41%   Diageo PLC
4.86%   Berkshire Hathaway A
4.53%   Anheuser-Busch
3.92%   General Electric
2.66%   Brookfield Asset Management
2.60%   Forest City Enterprises

Note that adding both classes of Berkshire stock brings the company to 11.19% of Markel's portfolio assets.

You'll find the rest of Markel's holdings at the bottom of the linked article. Thanks again, Jim.

June 27, 2006

GM

I haven't posted about portfolio holding General Motors (GM/NYSE) for a while. Or at least it seems that way.

I mean, I could post about it every day. Because not a day goes by without some sort of report concerning GM. But, to be honest, we could do that and debate endlessly about whether the investment will work out or not.

I think it will. Many don't. Only time will tell and I don't need to waste my time or yours getting lost in the weeds of daily news reports.

I remain cautiously optimistic that CEO Rick Wagoner and management are taking the steps needed to realize the value in the company. The number of workers taking retirement -- at GM and Delphi -- is another step in that direction.

The "Godfather" of Emerging Markets

When it rains it pours. That's the way it seems lately with the amount of news features focusing on Mark Mobius.

This one is a different to what I've seen in that it concentrates on Mobius' background:

Mark Mobius is the son of a German father and a Puerto Rican mother and he says that he had exposure to very different cultures, which really helped him. One of his brothers, Schroeder, thought he would be a pianist because as Mark told CNBC-TV18, "My parents really forced us into music, in my case the piano and my brothers - the cello and the violin. Ofcourse, I still love the piano but I don't have much chance to play."

He also loved theatre and films and got his undergraduation degree in Fine Arts. From here he moved to psychology and from there he moved onto economics. Then it was consumer behaviour which grabbed his attention - which was a amalgamation of economics and psychology. He explains, "I did a lot of work on consumer surveys with international research associations." So, he studied social psychology and also briefly did clinical psychology from the University of New Mexico.

June 26, 2006

Adding to Fairfax Financial

I bought more of Fairfax Financial (FFH/NYSE) today -- boosting the amount of shares owned by 30%. I paid $92 this morning and the stock closed the day at $96.90.

Fairfax was first recommended here in May 2005 at $132.50 per share. That makes the average price $123.16 for the purposes of the blog’s readers.

Remember, my average cost for the company had been $125, having owned it long before launching this site. So my personal average cost is $117.39.

WSJ.com reports extensive short activity with the stock. I thought the shorts were wrong about Deckers Outdoor (DECK/NASDAQ) and was proven right.

I’m betting the shorts are wrong about Fairfax Financial, too.

June 23, 2006

Top 10 Net-Nets by Market Cap

Clyde Milton lists these on his Cheap Stocks blog:

We admit, this is not our favorite research to distribute here at Cheap Stocks, but it happens to be popular with our readers. This new list has several new names on it, and your editor still holds LKI and DPII.

Then he laments:

The net/net area is still weak these days, (compared to 2001-2003, that is) in terms of sheer numbers of companies trading below NCAV, and in terms of quality. Time was Circuit City, Deb Shops, Ambassadors Intl, Duckwall Alco, Silverleaf Resorts, and GIII Apparel, among others, graced this list. Currently, we are left with primarily unprofitable companies burning through relatively large piles of cash at different frequencies.

The only stock on Clyde's list that I own is Audiovox (VOXX/NASDAQ). As stated numerous times, I bought Audiovox several years ago, long before launching this blog. It doubled in price and I sold half my position. I've continued holding the remaining shares because the company remains undervalued.

But check out the other names on this list. I love looking at lists -- especially when they contain cheap stocks.

Ailes: FOX Business Channel in 2007

Earlier this month, I linked to a report where Roger Ailes quashed talk of launching a FOX Business Channel.

But in a meeting with UBS analysts earlier this week, the FOX News Chairman reportedly said the all-business channel would get off the ground in early-to-mid 2007:

Mr. Ailes said he thinks there is room for both a TV and an Internet competitor to CNBC. He told the analysts the business channel's content will stand on its own and will not need to ride Fox News Channel's coattails to get cable coverage.

If a FOX Business Channel really is a go, I wonder if Rupert Murdoch will make a play for either Dow Jones or the Financial Times. Both have been the subject of takeover and sale speculation for several years.

Purchasing Dow Jones with its roster -- The Wall Street Journal, Barron's, Dow Jones Newswires and MarketWatch -- makes an especially nice content-provider to a business channel headquartered in the US. Though having the FT providing content would be more than acceptable.

Then again, this is television. It might be cheaper -- and more of a ratings winner -- for Murdoch to line up every blond bombshell working on Wall Street.

June 22, 2006

Mark Mobius on the Emerging Markets Scene

With the recent rough patch for emerging markets, it's interesting to come across this article about Templeton's Mark Mobius from a Hungarian website:

“We don't see any reasons why we should be panicking out of these markets. If you are in with a six-month view, then don't touch the market. If your view is more like five years, then there is a good opportunity and good value out there," Mobius said. “There's been a healthy correction. It's good to have a correction. We have taken advantage of it, especially in Turkey," he added.

The article has Mobius praising Turkey's fundamentals and the country's moving toward joining the European Union. Though it also has him saying that whether it gets in the EU or not is immaterial.

Further down the piece, Mobius predicts the price of oil(!):

Templeton, Mobius said, has “quite a lot" in oil and gas, adding that some of these markets have gone up more than they expected and “probably more than they should".“But when they will come down, they will come down to levels that are still much higher than they were. And even at those levels there is a lot of money to be made. Oil is going to come down to USD 40 a barrel. It could happen within the next few months or in years. It's a more viable price."

Sounds good to me, if it happens. But I don't make calls on currencies, much less oil and gas.

June 21, 2006

Third Avenue Real Estate Value Fund Reopening July 1

With a lot of value funds closing their doors to new investors over the last couple of years, perhaps the trend is reversing.

News broke yesterday that the Third Avenue Real Estate Value Fund is reopening on July 1.

"We are very pleased with the quality of our current portfolio holdings, as well as with the Fund's more manageable cash position", noted Michael Winer, Portfolio Manager of Third Avenue Real Estate Value Fund. Mr. Winer added, "As a result of recent market conditions, we are seeing opportunities to buy common stocks of select well-capitalized foreign and domestic real estate companies that own high-quality assets, have strong management teams and whose stocks are trading at significant discounts to our estimate of their net asset values.  We feel it is appropriate to reopen the Fund at this time, to take advantage of the favorable market environment for value opportunities in real estate-related securities."

One fact investors have liked about Third Avenue's real estate fund is that its portfolio includes mostly real estate operating companies, and doesn't rely on holding REITs as other funds do.

3i More Than Doubling Indian Investments

The International Herald Tribune carries this interesting Bloomberg report:

3i Group, Europe's biggest publicly traded buyout and venture-capital firm, is in talks to buy stakes in three Indian companies that could more than double its investment in the world's second-most-populous nation.

The London firm plans to invest between $30 million and $50 million in each of the three companies, said Anil Ahuja, who heads 3i's Indian business. That will add to the $97 million 3i has invested in Indian companies since August.

Regular readers know that most of portfolio holding 3i Group's (III/LN) business is in the UK and Continental Europe. That and the fact its competitive advantage is in doing small-to-medium sized deals were central to my buying the stock last year when it was undervalued.

But its relatively smaller (though growing) involvement in India and on mainland China look to benefit shareholders more over time.

More on Media General

On the heels of ace stock picker Meryl Witmer picking Media General (MEG/NYSE) in this week's Barrons, came news yesterday that the company expects 2006 revenues to rise 14% to 16%.

One thing Media General has going for it is that most of its newspapers are community papers and not major dailies. As the linked Dow Jones Newswires story reports:

Media General's outlook seemed to demonstrate a recurring theme for newspaper publishers over the past two years - that companies with holdings in medium-size and smaller markets have been less affected by the precipitous declines in advertising revenue and circulation that have been so damaging in large metropolitan markets.

And, as Witmer stated in Barron's and I stated in my original rationale for owning the stock, the company's internet assets are growing:

Echoing a theme that will be heard throughout the two-day conference, Media General underscored its Internet operations. By year's end, the company expects its interactive media division to become cash-flow positive on revenue of $30 million. Web-based revenue is seen rising to $40 million in 2007 and $50 million in 2008.

The stock closed yesterday at $40.21.

June 20, 2006

Redesigned FT.com

I agree with Paul Kedrosky that the Financial Times' redesigned website is a winner.

I still place Barron's Online and the WSJ.com above the FT.com as must-have subscription sites. Yet the FT delivers excellent coverage of financial news and events -- with its non-US reporting being particularly valuable.

The new design gets the thumbs up from me.

Reader Questions

Moon, a Controlled Greed.com reader, asked some questions in his comment to this post of last week. I’ll answer them here for him and other readers.

Are all your long-range funds in the portfolio?

The vast majority of my investment funds consist of my positions in the “Current Holdings” menu at the right.

I also hold shares in three companies not in that group -- NipponKoa Insurance, Korea Electric Power and Audiovox. I bought those long before launching this site. They are not included in the “Current Holdings” menu because I limit those names to positions I’ve established or added to since this blog’s launch in April 2005. Regular readers know I’ve taken profit in Korea Electric Power and Audiovox.

I'm also holding a decent amount of cash.

Does each pick involve some regular unit of cash, or do you throw whatever cash is available at the pick?

I typically put 4% to 5% of the portfolio’s value into each position.

Do you reinvest dividends, or marshal them for future picks?

I am not reinvesting dividends. But in my posting the other day about Bill Thomas and Capital Southwest, I stated that if I ever bought that stock I’d reinvest in that case.

And regarding longevity, how did you settle on the 3-5 year holding period? Philip Durell of the newsletter Inside Value (I was a subscriber for a year) states the same expected holding period for his picks, so I was wondering if you and he are getting that timeframe from the same place, or perhaps you each derived it independently. Does it have anything to do with the elusive "business cycle"?

Companies I invest in typically have “problems” -- real or perceived. If I’m right, these are short-term challenges that will be overcome and recognized by the market later. Sometimes I get lucky the whole process takes a few weeks or months. Those are exceptions. Usually it takes several years.

I also wonder about information overload: do you see yourself topping out at a certain number of holdings? I'm most certainly not questioning your mental faculties; it's just that one human brain can only efficiently service a finite number of things at one time.

I agree. I’m just one person. For me a fully invested portfolio is 20-25 companies. I could perhaps go as high as 30 -- but I couldn’t keep track of much more than that and do a good job.

The number of stocks to hold is a personal decision. Seth Klarman has stated that a fully-invested portfolio can be as few as 10 or 15 stocks. He's right, though I wouldn't be comfortable with that number.

On the other hand, I couldn't hold 100 securities like some managers do.

June 19, 2006

Meryl and Media General

It feels good seeing Meryl Witmer of Eagle Capital Partners picking Media General (MEG/NYSE) in the Barron's Roundtable mid-year update.

I'd feel even better if the stock was doing better since being recommended here in March at $47.05 a share. It closed Friday at $38.10.

Still, regular readers know how much I respect Witmer as a stock picker. And I like having my money invested alongside her firm -- even if I'm hurting in the short term. Here's some of what she says:

At Media General, circulation has been declining by about 1% a year. But advertising revenue per subscriber has been growing by 5%. This growth has been masked by increased newsprint costs, which affected earnings per share by 25 cents in 2005. But they are now under control. On the broadcast-TV side, they are good operators who consistently outperform their competitors in the local markets. Also, with broadcast signals upgrading to digital, the company will be able to broadcast up to six additional stations per market. These TV stations have a lot more bandwidth. Cable stations that want to reach people who can't get cable can buy up some airwaves from these broadcast stations. That's not in my numbers, but it could be significant.

In addition, Media General just acquired four NBC stations, which have upside due to the company's operational capabilities and an NBC recovery. The company also will get $150 million in tax shelters from this acquisition. Like other names in newspaper and TV, Media General's share price has been trounced by concerns about ad dollars shifting to the Internet. The company is capitalizing on this trend with its online enterprise. Online revenues are growing 50% a year, and their top Websites already are profitable.

Do they charge for it?

No. Revenue comes from advertising. Media General would have a much higher stock price if its management allocated capital more judiciously. In the past decade the company has overpaid for newspaper and TV stations instead of repurchasing shares at a tremendous discount to their value. The shares are so cheap right now that this makes up for their lack of financial savvy. Media General is generating a significant amount of free cash, which will be used for capital expenditures and debt repayment in the next few years. In mid-'08, assuming little growth, the company will have good interest coverage and generate free cash flow of just under $6 per share. The stock is $36 and our target is $60 to $70 a share.

I totally agree with her that Media General's management should have been -- and should be now -- buying back its stock.

Management has stated in previous conference calls that it isn't because there aren't that many shares out, that the majority are already held by institutions, with the result being little float.

Understood.

Yet the company's first obligation should be enhancing value for EXISTING shareholders. Not making it easier for new shareholders to come aboard.

Did I know all this before buying the stock? Yes. But like Witmer says, the stock is so cheap that it's compelling even with management's failure to repurchase shares.

June 15, 2006

Reader Question

A reader identifying himself/herself as Moon posted a comment to my previous post. Moon then asked this question:

"I meant to ask yesterday when I stumbled into your blog: do you publish a scorecard (transaction date and share price) for your positions?"

The answer -- which is being posted here for the benefit of new readers as well as Moon -- is yes. I update the performance of my stock picks quarterly.

Life of the blog performance. From this blog's launch in April 2005 through the first quarter of 2006, my stock picks averaged +18.9% not including dividends. Here's my post of April 3 giving the details.

YTD performance. From January 1, 2006 through the end of the first quarter, my stock picks averaged +5.6% versus +3.8% for the S&P 500 (neither figure includes dividends). Here's another post from April 3 providing the details.

Of course, things have been rough for stocks since the end of March. What will the stock picks look like at the end of June? We'll see. So stay tuned.

June 14, 2006

Don't Just Do Something, Stand There

Things sure have been nasty in markets around the globe. As stated yesterday, I'm getting more tempted to buy some stocks but not quite yet.

On the other hand, my brokerage statement is down (big surprise). But I'm still cautiously optimistic about the portfolio's holdings. Both those that are above and below water.

So, what to do?

Right now: nothing.

June 13, 2006

Opportunities Ahead?

You know I don't base investment decisions on top-down analysis. Yet I have the feeling that the recent volatility around the globe may well turn up some buying opportunities.

Some companies I've had my eye on have fallen in price, making them much more attractive. At least compared to what they were trading for earlier this year.

Let's face it. We've had a nice bull run the past three years.

And with inflation fears heating up in the US it's no surprise the markets have pulled back.

I've been looking at companies here in the US as well as Australia, Canada and the UK. I rarely pick the absolute bottom. So any buying I do in the near future is done with the full knowledge -- even expectation -- that what's cheap could become even cheaper in the near term.

June 12, 2006

Murdoch-Malone Deal Reportedly Close

The Financial Times reported late last night that Rupert Murdoch's negotiations with John Malone over Liberty Media's stake in News Corp. are reaching a "decisive stage":

US regulators are set to approve a long-standing request for ownership changes to News Corp television stations that could pave the way towards fresh talks between the media moguls.

This bit you'll find further down the article:

“We have had discussions with News Corp about them selling an asset to Liberty [in exchange for News Corp shares], which is more attractive for Liberty following the recent rise in News Corp’s share price,” Greg Maffei, chief executive of Liberty Media, told the Financial Times. “There are no guarantees a deal will get done this time, but there appears to be a confluence of events which could make it happen.”

Let's hope so.

June 09, 2006

Grant: Gold Will Resume its Bull Market When the Dollar Resumes its Bear One

James Grant is a value investor when it comes to stocks. A bull on gold. And he explains the difference in his latest Forbes column:

Value investors buy stocks or bonds by the numbers. They compare price with value and buy if the discount is suitably deep. They turn a deaf ear to macroeconomic theorizing. Whether the gross domestic product is rising briskly or not at all is immaterial if a particular company is priced at less than its readily ascertainable net asset value.

Gold is something different. You buy it solely for macroeconomic considerations. I buy gold as a hedge against the stewards of paper money. I buy Krugerrands, the metal itself, suitable for burying in the turnip patch. I expect the price of the South African gold coins to keep going up, but I don't know how high.

Unlike Grant, I don't own any Krugerrands. Or any gold coins. But like him, I do own some Japanese stocks.

Which reminds me. With the recent (mostly) sinking action of stocks in The Land of the Rising Sun, how do you say "Ouch!" in Japanese? ;-)

June 08, 2006

Bill Thomas

Every year I look forward to reading Bill Thomas' annual letter to shareholders of Capital Southwest Corporation, which trades on NASDAQ under the symbol CSWC. Capital Southwest is a venture capital firm based in Dallas, Texas, with a market cap of $390 million.

Thomas' letters are blunt. He doesn't mince words. He openly admits mistakes. And he runs the company in the interests of shareholders. This year's letter blasts executive pay.

Oh, and Thomas is something of a value investor. I don't know if he calls himself that, but you probably would.

Put simply, these annual letters are a joy to read. Even if you don't agree with some of his opinions.

Foolishly, I've never owned the stock. Several times its shares have traded down. It was in the $70s last year I believe. I almost bought but didn't. I definitely should have taken some opportunities to buy the stock at various points between 2000 and 2003.

If I ever do -- or if you check it out and keep in on your list of stocks to buy -- here's the path to follow:

  • Remember Capital Southwest trades VERY THINLY. Less than 4 million shares are outstanding. As I recommend with everything, use limit orders.
  • Buy a chunk of the stock, tell your broker to reinvest the dividends, and forget about it for a while.
  • Why forget about it? Because this stock is like a closed end fund. Sort of like 3i Group PLC (III/LN). It has a lot of individual investments. So it won't "pop" and double in price overnight. You also won't wake up one day and find your holding cut in half.

Anyway, that's how I'd go about investing in Capital Southwest. If I buy the stock you'll read about it here.

In the meantime, be sure to read Bill Thomas.

The Chairman Spots Some Value

MaoXian reveals the stocks his sees qualifying as value in his blog. He names names in sectors including financials, healthcare and what he calls "oldies but goodies."

I don't own any of the 13 stocks The Chairman mentions from his perch in China's mainland, but his site is one I read daily.

June 07, 2006

Reader Email

Max, a reader of Controlled Greed.com, emailed me on Monday. He wrote:

"John -- As a fellow GM shareholder (and Buffett follower), I thought you might find this article interesting."

Then he linked a Fortune article:

Warren Buffett isn't one of those guys who always needs to have the fanciest bling on the block. This is, after all, the billionaire who loves to dine at Dairy Queen.

And his daily commute takes only five minutes. But after he saw Rick Wagoner, the chairman and CEO of General Motors, on CBS's Face the Nation in early April, Buffett decided it was time to splurge for a new ride.

He faxed Wagoner a note that praised him for being "candid, composed, and rational" in his discussion of problems GM faced that weren't of his making, and added a P.S.: "I don't buy cars very often, but the next one will be a Cadillac."

Wagoner wrote back offering to help Buffett with the purchase, but it wasn't necessary. Buffett dispatched his daughter to a nearby dealer so that he could, as he put it, "cast one vote for the guy." She picked out a DTS--a sedan that is the model of choice for senior-citizen drivers and starts at $41,990. "I think I'll become a car salesman, because I would have no trouble selling this car to anyone," Buffett says. "I'm behind GM 100%." In case you were wondering, he paid cash.

I replied to Max's email saying I hadn't seen the story and that, yes, I found it very interesting.

Of course, I'd find it much more interesting if news broke that Berkshire was buying GM stock in a big way. (Buffett sometimes buys stocks for his personal account but I have no idea whether he's buying GM or not.)

I will say that Buffett's kind words about Rick Wagoner reinforce the view stated here repeatedly that the problems GM faces do not include its current CEO.

June 06, 2006

Ailes: no FOX Business Channel

Roger Ailes has killed speculation about a new FOX Business Channel:

Hoping to reel in the rumors, Fox News Chairman Roger Ailes tells Flash! that he’s not even close—no programming plans, no staff, nada. "If it’s imminent," he says, "it’s imminent without me."

One hangup is that cable operators will likely agree to carry Fox Business only if Fox News offers a lower-cal sweetener.

But Ailes is firm: "We’re never going to bundle it. Why negotiate down the price of Fox News? I know what the value of Fox News is. We’re not prepared to lower that rate."

Dorfman: Book Value Bargains

John Dorfman's new Bloomberg column is yet another good read. He's penned a lot lately, several of which have been linked on this blog.

Today's piece is devoted to book value bargains:

About 2 percent of all U.S. stocks sell for less than book value -- that is, less than the company's per-share assets minus liabilities. This might appear to be a paradox. After all, if a company were liquidated -- selling all assets and paying off all liabilities -- there would seem to be more cash than the market value of the stock.

What's the catch? Liquidation may be unlikely. And it's always possible that the liabilities are understated or the assets overstated. Therefore, buying stocks below book value isn't a sure-fire strategy. Yet it is often a good one.

Among the company's mentioned in Dorfman's column is none other than General Motors (GM/NYSE).

We'll end with last year's loser, General Motors. GM still sells below book value (0.96 times book), and I recommend it again, even amid speculation that it may need to declare bankruptcy. GM has agreed to sell a controlling stake in its finance arm, and I believe there is additional financial engineering it can do to shore up results.

Detroit-based GM's troubles are universally known. It faces high costs for labor, pensions and health care. It has been losing market share for three decades to competitors, especially Toyota Motor Corp. and Honda Motor Co. Already, GM is taking drastic steps. It plans to close nine factories and has offered buyouts to 113,000 union employees, encouraging them to take early retirement.

GM also looks very cheap based on the price-to-revenue ratio. The stock sells for just 0.07 times per-share sales. For the moment, it yields 3.8 percent in dividends, but the dividend -- which was sliced in half in 2005 -- may soon have to be cut more or eliminated.

I've been wrong about GM in the past, and I could be wrong this time. Suppose for a moment, however, that I'm right. If GM got back to its year-end 1999 level of $72.68, that would be a 174 percent jump from the present price of $26.05.

I can't say I'm a long-suffering GM shareholder (though at times I feel like it). I've only been in the stock since early 2005. And despite what anyone may think, that's not long enough for me or Dorfman or anyone to be wrong about Rick Wagoner and company.

June 05, 2006

Murdoch and Malone Continue Their Dance

John Malone would love for Liberty Media to do a deal ridding itself of its News Corp. stake. Rupert Murdoch would love to rid of Malone. Because Malone's Liberty owns 18% of News Corp., making Murdoch uncomfortable.

As today's Lex Column in the Financial Times points out, Murdoch has been looking for a way to buy Malone out:

That must look more attractive for Mr Malone now that News Corp shares have recovered and his roughly $10bn stake is showing a bigger profit. Meanwhile, Mr Malone’s obsession with tax leakage may have been heightened by the recent creation of Liberty Capital, a tracking stock. Most of the new entity’s value is tied to the performance of large passive investments in media or telecoms companies. And one key lever to maximise the share price will be minimising roughly $6bn of deferred tax liabilities on those stakes.

Lex points out that if Liberty swapped its News Corp. shares for some TV stations or other media assets plus cash, its resulting tax bill could be minimized. The benefit for Murdoch -- in addition to Malone no longer being around to threaten his family's control of News Corp. -- is the deal could be done without paying Liberty a controversial premium. Lex goes on to say the tax savings alone might be enough to keep Malone happy.

In addition, such a deal could fit in with News Corp’s share buy-back programme. It would help clear the air for investors worried about how the Malone/Murdoch stand-off ends. And it might help avoid a shareholder revolt in October led by Mr Malone against News Corp’s plans to extend its poison pill. There is no guarantee of a deal. Mr Malone could try riding News Corp’s shares further. And there would be the thorny issue of valuation and which asset to swap. But the logic is there for the two sides to get talking again.

It's made sense to get this done for a while. I remain hopeful and patient. And I continue holding both Liberty Media tracking stocks -- Liberty Capital (LCAPA/NASDAQ) and Liberty Interactive (LINTA/NASDAQ).

June 02, 2006

Currier: How Plunge Returns Stocks to Their "Rightful Owners"

Check out this morning's Bloomberg column by Chet Currier:

Whenever the stock market suffers a painful decline, a pungent bit of investment philosophy comes to mind. It's an old aphorism, variously attributed to J.P. Morgan and other legendary investors of yore, that states: "In bear markets, stocks return to their rightful owners.''

This simple assertion meets two key tests of truth-telling. First, it allows for life's natural ambiguity; depending on the hearer, it may strike some as callous and arrogant, others as refreshingly honest. Second, it doesn't sugarcoat its message.

Then further down the piece:

On to another interpretation of our adage. This one promises more practical use to people who are convinced they must get involved with stocks sooner or later to have a well- rounded money-management plan. In this reading, "rightful owners'' are people who, in the apt phrase popularized by former Fidelity Investments fund manager Peter Lynch, know what they own and why they own it. Included in their knowledge is an awareness that, in the short run at least, stock prices are fickle to a fault.

The emotional extremes that stocks go to, both up and down, far exceed any changes in the dispassionate arithmetic of business earning power that determines their fundamental value. In a recent calculation, Jeremy Grantham, chairman of Boston- based Grantham, Mayo, Van Otterloo & Co., figured, "The market is 19 times as volatile as the underlying fundamentals would seem to justify.''

The why of this is fascinating. It's the basis for a whole burgeoning field of research known as behavioral finance. But that isn't our concern today. For the purposes of being a "rightful owner'' of stocks -- that is, an investor with the staying power to ride out declines -- all that is necessary is to know when you buy that sudden sell-offs will inevitably occur.

My advice to those of us with money invested in equities today is to read -- and then read again -- that last sentence. And then make sure we remember it.

I'm glad summer is here. But there's no guarantee it will be a sunny season for stocks.

June 01, 2006

Tender Action

I've reported previously that I initially bought Liberty Media shares (now represented by two tracking stocks traded on NASDAQ) before starting this blog. And I've also reported that I received shares in Liberty Global when Liberty Media spun it off.

I never added to the Liberty Global Class A or C shares, meaning it was just a tiny holding for me. And since it amounted to so little I have never included Liberty Global in the "Current Holdings" menu. But I've made it a practice to update readers on my pre-Controlled Greed stock activity and am reporting now that I've tendered my Liberty Global Class A and C shares.

Why? Because the company is offering a premium to the current share price. Because I'm pretty sure that I'd be adding to my stakes in Liberty Media's tracking stocks before I would the Global shares. And mostly because I'm optimistic that some good investments will turn up before too long and I wanted add to my cash level.

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