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« June 2006 | Main | August 2006 »

July 31, 2006

Going, Going, Ghosn?

James Mackintosh of the Financial Times sat down in Paris to interview Carlos Ghosn (free link via MSNBC here).

Ghosn pushes the notion of cross-equity stakes between General Motors (GM/NYSE), Nissan and Renault, saying, "Agreements without shareholdings are usually temporary and short-lived. You don't go to the depth of the synergies because you have always the suspicion that this is going to end at a certain point."

But this part at the end catches my eye:

Mr Ghosn said this week he believed the benefits of a tie-up would be billions of dollars but a deal would proceed only if the benefits outweighed the risks by 10 to one.

Ten to one? That strikes some analysts as high. And I can't help but wonder if Ghosn is setting the bar too high on purpose, so everyone can eventually walk away from the proposed alliance with their heads held high.

Ghosn has already been quoted as saying the alliance wouldn't have him running GM. Then GM announced better-than-expected results.

Perhaps the urgency to "do something" -- the alliance -- is dissipating. Especially among GM's major shareholders.

And, as I've stated repeatedly, GM's top six shareholder control more than 60% of the stock. If most of them -- minus Tracinda Corp. -- are willing to give Wagoner more time to carry out his turnaround plan, then he's going to get that time.


July 28, 2006

Fairfax Wild Ride May Continue with Restatement

Portfolio holding Fairfax Financial (FFH/NYSE) said on Thursday it earned $223.6 million in the second quarter of 2006, but said previously reported financial results should not be relied upon due to the discovery of accounting errors:

The Toronto-based property, casualty and life insurer said it had uncovered various noncash accounting errors during a recent review of the accounting implications of a decision to commute a $1 billion insurance instrument reinsured with a Swiss subsidiary.

The linked story from Reuters quotes CEO Prem Watsa as saying the restatement will not impact Fairfax's cash flows or fundamental strength. Though shareholders' equity will be reduced by up to $190 million.

For today, don't be surprised to see the stock price drop. Perhaps sharply. But if you're in Fairfax, you should be in for the long haul and be willing to suffer steep price swings.

Anthony Bolton

Jonathan Davis pens an interesting profile of superstar fund manager Anthony Bolton in the new Spectator. Bolton has managed the UK Special Situations fund for 27 years and will be retiring next year:

Over those 27 years since starting his Special Situations fund for Fidelity, Bolton has become the Harry Potter of the investment world, conjuring up and sustaining a miraculous compound return of 20 per cent per annum for his fund. Thanks to the magic of compounding (once described by Einstein as the eighth wonder of the world), this is enough to have turned every £1,000 invested at launch into £130,000 today.

No other British professional fund manager has sustained such an exceptional rate of return for so long; indeed, nobody else in his chosen sphere of operations comes close. The margin by which Bolton has outperformed the FTSE All-Share index of London stocks is barely 1 per cent less than that by which Warren Buffett, the so-called Sage of Omaha who is usually held to be the planet’s smartest stock-market investor, has beaten the equivalent US market index over his 50-year career.

I'll resist the temptation to call Bolton the "Warren Buffett of Britain" -- unlike business reporters forever in search of a journalistic hook who dubbed Prem Watsa the "Warren Buffett of Canada" some years ago.

Anyway, back to the piece. I'm not overly familiar with Bolton. But value-oriented investors will recognize this trait:

Bolton’s success has come instead the old-fashioned way, by picking stocks on a contrarian basis with the help of reams of detailed financial analysis, a nose for hidden value and an acute sense of timing. Bolton’s best results have come from picking shares that nobody else wants to buy, buying them on the cheap and flogging them back to other investors when they come round to his way of thinking. He is particularly good at anticipating what the investment herd will want to own 12 to 18 months ahead.

This is a neat article and I encourage you to read it in full. It's noteworthy that Bolton is quoted as saying that if he started out today, he'd want to run a global fund and not one focusing on special situations in the UK.

July 27, 2006

Fairfax Sues Hedge Funds

I'd keep an eye on this, even if I didn't own stock in Fairfax Financial Holdings (FFH/NYSE):

The suit by Fairfax Financial Holdings Ltd. said the hedge funds spread false and negative research reports about Fairfax's accounting and business practices, crippling its reputation. The campaign, which allegedly included harassing employees, helped the hedge funds profit when Fairfax's stock fell, said the suit. The complaint filed in state court in Morristown, New Jersey, seeks $6 billion in damages.

I'm not a short seller, and I'm not a lawyer. I don't know how this suit will play out.

I will say that I remain optimistic that my investment in Fairfax will ultimately prove successful.

Remember that I recently increased my share count by 30% at US$92. But the position as a whole is under water.

Wagoner's Hand Stronger, For Now

No doubt about it. General Motors' (GM/NYSE) first quarter results strengthened Rick Wagoner's negotiating position regarding the proposed alliance with Renault and Nissan:

The profit on making and financing autos boosts Chief Executive Officer Rick Wagoner's turnaround efforts and may ease pressure to accept an alliance with Nissan Motor Co. and Renault SA proposed by billionaire investor Kirk Kerkorian. Wagoner is cutting jobs and selling assets after a $10.6 billion loss last year.

"If there was ever a time when GM needed to look good, this is it, because there's definitely a feeling on Wall Street that people want to believe they're turning around,'' said John Casesa, managing partner of Casesa Strategic Advisors LLC in New York. "An operating profit could be proof of a sustained turnaround, but it's just a quarter.''

I still want to know what GM's major shareholders are saying behind the scenes. The more time that passes without them going public, the more likely it is they're backing Rick Wagoner.

At least for a while.

July 26, 2006

Bullish on Camels?

Who can resist an article with this headline: "The oil-rich kingdom where camels are still a safer investment than shares"?

I sure couldn't. It's from The Spectator. And you'll find this towards the bottom:

Many private investors here lost their dowries in the stock market correction. And many prefer to trade in a more historic form of local wealth, the camel. Almost every city in Saudi Arabia has a camel market.

Jeddah’s is in the east of the city, surrounded by steep hills to discourage escapers. The principles are much the same as in any bourse. The seller exhibits his wares, the buyer conducts due diligence, negotiations follow and money changes hands.

The animals are sold in three categories: for food, transport and racing. In the first category, the female is bought for milk and the male for meat — an expensive delicacy at about $1,500 but one that needs to be well marinated. Cargo-carrying camels are more expensive and racing camels the most highly prized of all. Some can run for 30km without stopping, in races as prestigious as the Derby.

There is no equivalent of the FTSE-100 to rank the best camels, but sales volumes peak during the holy month of Ramadan when demand for slaughtered meat spikes. There appears to be no market regulator, and the animal rights brigade has yet to, ahem, get the hump about this ancient trade.

Ailes: Distribution Remains Obstacle to Launching Fox Business Channel

Broadcasting & Cable reports Fox News Chairman and CEO Roger Ailes as saying he's developed a business plan for a business channel, but that otherwise there's no progress:

“It probably wont happen this year,” he says. “After that it could happen, and we are in active negotiations.” Ailes says that gaining enough carriage for the network to make financial sense continues to be the obstacle to a launch.

Rumors are that Rupert Murdoch wants the business channel, so it's a question of "when" it happens and not "if." I just hope that when it launches, Fox lets Neil Cavuto & Co. focus their skills on financial news.

Way too much of his daily "Your World" show bends to the needs of being part of a general news channel. Most days it has just one segment on market matters. And then it's hyping one of the network's weekend business shows.

And, no, I'm NOT knocking Fox News. It's just the reality of programming a business show on a general news channel. Look at Lou Dobbs' old "Money Line" show on CNN. It was, for the most part, a fine show. Not exactly must-see TV. But a good program.

CNN eventually ditched it and Dobbs now hosts a conventional opinion-dominated cable news show.

Sigh. The more time passes, the more thoughtful observers miss Louis Rukeyser.

July 25, 2006

Glad I Don't Own Dell

The recent, sharp drop in Dell's stock could be another case of value guys like Mason Hawkins and Staley Cates being early. Or perhaps not.

But they started buying Dell about a year ago -- and they're long term investors. So the final score on this particular investment is yet to come.

I don't own Dell and have a hard time getting excited about it. Though I could always change my mind (especially if it keeps going down over time).

Regular readers will recall my post from last January, discussing Hawkins being bullish on Dell and Fred Hickey of the High-Tech Strategist newsletter being short the stock. Hickey must be smiling about now. Yet, like I said, we're early in this game and Hawkins could end up having a winning pick for his shareholders.

And make me wish I bought Dell when he did.

July 24, 2006

Mr. Market Doesn't Like Takefuji

I got a couple of emails from readers about this article from Friday's Wall Street Journal. The piece is about the Japanese government lowering the maximum interest rate cap charged by consumer lenders, including portfolio holding Takefuji Corp. (8564/JP or TAKAF/OTC).

My reaction? Well, other than I don't like seeing the position underwater since being recommended in April, I don't really have one. ;-)

I think the market is over-reacting. I may be wrong about that, but I don't think so.

Borrowing money at next-to-nothing and lending it at 20% -- or even the high teens -- isn't a bad business. True, it's not as lucrative as borrowing at next-to-nothing and lending at 29.2%. So the company won't be making as much money and Mr. Market isn't happy.

Yet it will make money.

Also, Takefuji was not priced for perfection when bought. It was, and remains, a hugely overcapitalized company with its shares trading at a discount.

I'm waiting to see what happens with its cash and I'm being patient. This pick could always turn out to be a loser for the portfolio. But we'll see about that in the next few years.

Not the past 90 days.

July 19, 2006

Mueller Water Products: Ready to Pipe Profits Into Shareholders' Brokerage Statements

As reported yesterday, Mueller Water Products (MWA/NYSE) was purchased at $15.88 per share. Mueller is the largest supplier of water and natural gas flow-control products used by municipalities.

Mueller was bought by Walter Industries in October 2005 and partially spun off in May 2006 at $16 per share. There are more than 131 million shares outstanding and the market capitalization is approximately $2 billion. The stock currently trades at about one times sales. There is no dividend.

This is a de-leveraging play. Mueller has more than $1 billion in debt -- its tangible book value is a negative $5.60 per share. Yet the company generates lots of cash to pay it down and should continue generating cash for years to come.

Why? Because a lot of new infrastructure and repair projects are on the horizon as US municipalities and water utilities enter a major spending cycle to replace pipes and valves for the first time in as many as 50 years.

Eagle Capital Partners’ Meryl Witmer noted in Barron’s midyear Roundtable that the American Society of Civil Engineers gave the nation’s aging water infrastructure a grade of D minus in 2005. So Mueller should get a good-sized chunk of the new business in the future due to its excellent distribution network and the fact that it is a low-cost producer.

Top executives and directors of Mueller have been aggressively buying the stock. Among them is Chief Operating Officer Dale Smith, with the company through a series of transitions over two decades, who purchased $1.5 million worth of stock in June.

Risks with this pick include:

  • New construction and repair projects could always be fewer than anticipated; foreign competition could erode pricing; and/or materials costs could rise faster than expected. These would hurt the company’s efforts to pay down debt.
  • Walter Industries intends to distribute its remaining shares of Mueller in the coming months. This overhang will probably limit share price appreciation in the near term.
  • Mueller is still in the process of integrating operations that were combined to form the company last year. The company’s operating and earnings potential is likely to be masked by one-time factors and expenses over the coming quarters.

I view the negatives as being concentrated in the short term. With Mueller’s stock being bought below the IPO price, I like this pick as a long term holding.

But please, do your own due diligence before buying.

UPDATE 10/04/06: I bought more Mueller Water Products today at $14.12 per share. The stock ended the day at $14.39. For the purposes of this blog, the average cost is $15.64.


July 18, 2006

Buying Mueller Water Products

A full portfolio position was established in Mueller Water Products (MWA/NYSE) yesterday. Shares closed the day at $15.88.

I'm swamped with non-blogging duties this week, but will post my rationale for owning the stock when I next come up for air.

Rest assured, there are risks with this pick, as most investors no doubt know. Especially in the short term. Yet over the longer term I think we have a good chance for a decent performer.

July 17, 2006

New Order Placed

I've placed an order to buy stock in a company that will be a new holding in the portfolio.

The company manufacturers water infrastructure and flow control products for use in water distribution networks, water and wastewater treatment facilities, gas distribution systems and fire protection piping systems.

Assuming the order gets filled, I'll post a rationale for owning the stock later today or before the market opens tomorrow.

Still Liking Takefuji

Even though Takefuji (8564/JP or TAKAF/OTC) gained on the news last week that legendary value investor Peter Cundill is now the company’s second-largest shareholder (behind the founding Takei family), the stock is still down 16.6% in USD terms since I bought it in April.

Why has the consumer finance company’s stock faired poorly? Because of uncertainty about the future of consumer lenders in Japan. The uncertainty existed when I recommended Takefuji. I just thought it’d be more of a dead money holding until the uncertainty cleared up.

I was wrong about that.

The ruling Liberal Democratic party unveiled a plan last month to lower the maximum interest rate on consumer loans from 29.2% to 20%. The final decision will be made later this year.

Investors fear a rapid reduction in the rate cap would hurt the consumer lending companies. And analysts fear that would also lead to a credit crunch, forcing many weaker borrowers to turn towards illegal loan sharks and depress consumption.

On the other hand, if the ruling party lowers the cap over many years to minimize the impact on Japan’s economy, the impact on consumer lenders would not be that significant.

I think the latter scenario will play out. Meaning Takefuji will continue making lots of money, just not as much as before. I hope that means the share price will recover, and reward my brokerage statement in the future.

Put simply, I remain optimistic about this pick. Its balance sheet is rock-solid and the stock is cheap -- it was when I bought it and it’s even more so now.

Plus, with the aging of the founding shareholder and the consolidation of Japan’s financial services industry, the possibility of a takeover definitely exists.

Cundill now owns 8.53% of Takefuji’s stock. The founding family owns about 25%. Foreign (non-Japanese) investors as a group own 56%.

I don’t know what’s going to happen. But with a dividend yield of more than 3%, I’m content to wait and see.

July 14, 2006

New Blogger Sentiment Poll

Birinyi Associates' Ticker Sense has launched the first-ever "Blogger Sentiment Poll." I am honored to be included among what they call "the web's most prominent investment bloggers." The poll asks "What is your outlook on the US stock market for the next 30 days?"

The Ticker Sense site explains further:

Conducted on a weekly basis, the poll is sent to participants each Thursday, and the results are released on Ticker Sense each Monday. The goal of this poll is to gain a consensus view on the market from the top investment bloggers -- a community that continues to grow as a valued source of investment insight.

I should remind readers that my stock picks are made with a 3-5 year time horizon. I'm happy to buy shares in a company regardless of what the market might do in the next month.

That said, the idea of a blogger sentiment poll is spot on and the Birinyi folks deserve enormous credit for coming up with the concept. I'm both humbled and excited about being a participant.

July 13, 2006

TypePad Problems

TypePad has been experiencing some problems the last day or so that have prevented me from posting. Some earlier posts were not showing up and I needed to re-publish them to get them back up.

Apologies to everyone for any inconvenience. In the meantime, thanks for reading.

July 12, 2006

Chet Currier on Marty Whitman

Bloomberg columnist Chet Currier's latest piece profiles Marty Whitman of Third Avenue Value Fund. Be sure to read the whole thing. But this bit at the end is something all value players strive to remember:

To keep a focus on investment risk, once cannot be fixated on short-term results in comparison with market indexes. "Ignoring market risk will mean that, from time to time, performance will be lumpy,'' Whitman say. "The fund is unlikely to outperform benchmarks consistently. Rather, the goal is to outperform on average, most of the time, and over the long run.''

GM Major Shareholders Not Going Public -- Yet

This morning Bloomberg is running a story on Kirk Kerkorian's stake in General Motors (GM/NYSE). The thrust is that his shares have returned to the black since he publicly proposed an alliance with Nissan and Renault.

If you're a regular reader of this blog -- especially over the last few days -- you won't be surprised that I find this interesting:

Southeastern Asset Management Inc. President Staley Cates said in a May speech to investors that he expects GM shares to gain value, in part because of Kerkorian. Cates said Kerkorian "has one of the best investment records in American history.'' The Memphis, Tennessee-based fund, along with Los Angeles- based Capital Research & Management Co. and Brandes Investment Partners LP in San Diego increased their GM stakes and now own more than a third of the automaker's shares.

Now, we shouldn't read too much into Cates' words. They don't guarantee that Southeastern would back Kerkorian in any shareholder revolt.

But it reminds me of this paragraph from yesterday's column by Bloomberg's Doron Levin:

Kerkorian and Tracinda so far aren't identifying the major institutional investors they say are sympathetic to them. As time goes on, and absent a substantial improvement in GM's performance, investors will demand proof that Wagoner's plan is succeeding.

As I stated last week, GM's top shareholders own a majority of the stock. They're surely making their opinions heard, just privately for now.

Darn it. ;-)

July 11, 2006

Longleaf International Fund Reopens to Investors

Southeastern Asset Management has reopened its Longleaf International Fund, which has about $3 billion in assets.

Third Avenue reopened its Real Estate Fund last month. I guess this means value managers are finding more ideas out there.

Good Cop/Bad Cop, With A Twist

News of UAW President Ron Gettelfinger publicly praising General Motors (GM/NYSE) Chairman and CEO Rick Wagoner reminded me of my post on May 5,2005.

You see, that post was about Kirk Kerkorian buying into GM. I speculated that one of the impacts could be Wagoner and Kerkorian playing a "good cop/bad cop" routine in negotiations with workers. The idea being that "good cop" Wagoner could bargain hard, with "bad cop" Kerkorian lurking in the background.

Gettelfinger's comments suggest this may be happening, after all. But with a few twists.

First, most duos playing "good cop/bad cop" get along. Reports portray GM management as resenting Kerkorian going public with the proposed alliance with Nissan and Renault.

Second, I thought Kerkorian would remain a passive investor in this scenario. It looks like that may not be the case.

Third, and most importantly, Kerkorian shares the "bad cop" role with Carlos Ghosn -- especially in the eyes of Gettelfinger and the UAW. Ghosn led the effort in keeping the union out of Nissan's plant in Smyrna, Tennessee. That, coupled with his well-earned reputation as a fierce cost-cutter, has surely grabbed the attention of the UAW.

No one knows if any of this will "speed up" cost cuts under Wagoner to Kerkorian's satisfaction. Probably not. He may just want Ghosn in charge. No matter what.

Yet we know this much:

Gettelfinger wants to work with Wagoner. And he doesn't want to deal with Kerkorian/Ghosn.

It's not your typical "good cop/bad cop" routine. But the results could be the same.

July 10, 2006

More on the GM Majors

This week's Barron's looks at the proposed General Motors (GM/NYSE) alliance with Nissan and Renault in their Follow Up section. Writer Jay Palmer is cool on the idea. For the record, I'm taking a wait and see attitude.

But hats off to him for pointing out something this blog stated a few days ago. Namely that GM's major shareholders are in position to play a major role in this latest saga:

Under the proposal, Renault and Nissan together would buy up to 20% of GM. Toss in Kerkorian's shares and those of a couple of the five giant investment firms that already own 60% of GM equity, and the foreign alliance would control the American company. (The big investors include Boston's State Street Bank and Los Angeles-based Capital Research and Management, a giant of the mutual-fund industry . . . Both refused to comment on the situation at General Motors).

Actually, Kerkorian doesn't need Nissan and Renault to establish a 20% stake to get control -- if he can get enough of the major shareholders to go along with him.

We'll just have to see what happens.

Barron's on Publicly-Owned and Privately-Held Fund Companies

In their latest Mutual Fund Quarterly, Barron's pointed out an interesting difference between mutual funds run by publicly-traded companies and those that are privately held:

Private firms can do certain things more easily to benefit performance. They can close popular funds to new investors, take contrary investment positions and start new funds only when investment opportunities appear to be ripe, rather than coming out with one because marketing types think the company should participate in a certain sector or a fad.

Check out this bit concerning General Motors (GM/NYSE):

It probably shouldn't come as a surprise that private investment firms -- Southeastern, Brandes Investment Partners and Capital Group -- are among the top holders of one of the country's most controversial stocks, General Motors. It's very tough for a public firm to be associated with an investment often portrayed as a loser.

"GM is so widely written about in negative terms and rehashed so often that it's hard not to hate," Staley Cates, Southeastern's president, said in a May speech, as reported by Bloomberg. "It's less than 4% of our assets but easily over 75% of our client discussions." Southeastern's persistence is starting to pay off because GM is up 50% this year, to 29, making it the top performer in the Dow industrials. Southeastern runs over $30 billion.

July 07, 2006

Where Do GM Shareholders Come Down on the Proposed Alliance?

The Wall Street Journal piece linked in my previous post says this toward the bottom of the article:

Charles Lemonides, chief investment officer of ValueWorks LLC, which owns GM stock, said GM can't afford to get distracted. "I think companies in this situation are well served sticking to the basics ... not engaging in financial engineering as a way to find a silver bullet." He said it is hard to rationalize a massive three-pronged alliance that includes GM. "It's not like GM does not have enough scale," the investor said. "They operate all over the world."

I also saw a quote from another GM shareholder yesterday pretty much saying the same thing, in that it was cool on the proposed alliance with Nissan and Renault. I can't recall the name of that particular institution offhand, but I do remember the report stated they were one of the company's top 50 shareholders.

The WSJ article doesn't report where ValueWorks ranks in GM stock ownership.

I'm wondering if the upcoming days will reveal more opinions about the proposed alliance from even more GM shareholders. Especially the top six accounting for 63.5% of the company.

But I doubt the top six will say too much publicly for now. Especially Mason Hawkins and Staley Cates. The Southeastern Asset Management folks are most likely to offer their thoughts to GM management privately.

And remember, their Longleaf International Fund owns Renault stock. Other accounts at Southeastern may own even more. So these guys and gals probably have useful insight into the pluses and minuses of any alliance.

P.S. Speaking of news reports on the proposed alliance. I've seen at least a couple speculating on Kerkorian gaining control of GM. The idea is this: If the alliance goes through, Nissan/Renault will own 20% of GM stock, adding Tracinda's 9.9% gives Kerkorian almost 30% of GM. The speculation is that that could give Kerkorian effective control of the company.

But he can get that NOW if -- if -- he can swing enough major shareholders to go along with him. And 63.5% packs a lot more punch than 30%.

Jerry York Not The Only Impatient GM Board Member?

This Wall Street Journal piece by John D. Stoll, Lee Hawkins Jr. and Neal E. Boudette delivers a great roundup of recent events surrounding General Motors (GM/NYSE). I've noticed over the months that Lee Hawkins in particular does a standout job reporting on GM, whether writing as a contributor or filing stories solo.

This paragraph -- halfway down the article -- stands out:

Mr. Wagoner has the support of several board members and top management at the company, but a handful of board members, including Mr. York, have grown impatient with the company's steady loss of market share and are disappointed with managerial missteps, including accounting irregularities being investigated by the Securities and Exchange Commission.

I bolded some of the above. I'd be interested to know which GM board members -- and how many -- have been persuaded by Jerry York (and by extension, Kirk Kerkorian).

If anyone knows or has seen any solid reporting naming names, post a comment or shoot me an email.

If no such reporting yet exists, perhaps we'll see some shortly.

July 06, 2006

Six Investors Own 63.5% of GM Stock

I wondered yesterday what action, if any, major shareholders of General Motors (GM/NYSE) besides Kirk Kerkorian were taking behind the scenes.

According to GM's proxy statement, six entities owned 5% or more of the company stock as of March 31, 2006:

State Street Bank and Trust -- 16.5%
Capital Research and Management -- 14.3%
Brandes Investment Partners -- 10.6%
Trancinda Corp. -- 9.9%
Southeastern Asset Management -- 7.1%
Morgan Stanley -- 5.1%


This may not mean anything in the short term. Especially if things go smoothly. But if Kerkorian and Jerry York find Rick Wagoner and GM management an obstruction to a turnaround, the major shareholders will eventually have to come down on one side or the other.

Whether they do so publicly or privately is the question.

But the bigger question is whether or not entities with a majority of the stock will hang together.

Reader Email on USA Mobility

A Controlled Greed.com reader working in New York emails:

John -- Because USA Mobility pays out large dividend sums to its shareholders, the stock will drop in response as capital is being returned to the investor base.  You must calculate dividends on this stock to get a fair assessment of return.

This is an important reminder that simpler may be easier, but not always more accurate.

I don't include dividends and payouts when calculating YTD and Life of the Blog results for stock picks. Because it keeps things simple and easy as well as being a time saver.

But only four of the 13 stocks listed in the "Current Holdings" menu at the right don't pay any sort of dividend -- Comcast, Deckers Outdoor, DirecTV Group and Liberty Media. The rest do. So dividends ARE important.

Plus, with USA Mobility's management being committed to returning cash to shareholders, dividends and payouts are a bigger factor in judging the success or failure of this stock pick.

And I thank the reader for emailing to remind me of that fact.

July 05, 2006

What Do GM's Other Major Shareholders Think?

We know what Kirk Kerkorian thinks of the potential alliance of General Motors (GM/NYSE) with Nissan and Renault. What we don't know -- or at least I haven't seen -- is what do GM's other major shareholders think?

I'm particularly interested in the thoughts of Mason Hawkins and Staley Cates. Not just because I respect them immensely, but because Southeastern Asset Management owns stock in BOTH GM and Renault.

Southeastern Asset Management owned more than 40.6 million GM shares as of March 31, according to WSJ.com. It added 537,000 shares in the first quarter (no information yet about the second quarter).

Southeastern's Longleaf International Fund listed Renault as its sixth-largest holding on March 31, holding almost 1.6 million shares in the company.

Don't expect Hawkins and Cates to say anything publicly. It's not their style. Though I can't imagine them objecting to the companies talking. Yet by owning stock in both GM and Renault, they might have a head start in foreseeing benefits (or negatives) in the potential alliance.

This is also a good time to point out that Kerkorian's Tracinda Corp. is one of several investors owning big chunks of GM common stock. Others include State Street Global Advisors, Capital Research and Brandes Investment Partners. I don't know offhand if any of these or other major players own stock in either Nissan or Renault.

Are these and other GM shareholders saying anything behind the scenes?

P.S. The Financial Times reported late yesterday that GM's Chairman and CEO Rick Wagoner has already had talks with Carlos Gohn, CEO of Nissan and Renault. And that the two will meet in Detroit this month.

July 02, 2006

Controlled Greed.com Portfolio Picks Average +3.5% YTD Through Second Quarter of 2006

As a group, the 13 stocks making up the portfolio’s current holdings have achieved an average gain of 3.5% through the second quarter. That compares to the S&P 500 being up 1.8% during the same time period. Both figures do not include dividends. Here’s how each of the holdings have performed so far this year:

General Motors +53.4%
Deckers Outdoor +40%
Comcast Class A Special +27.6%
DirecTV Group +16.9%
3i Group +14.4%
Liberty Capital/Interactive +8.1%
CBS Class B +5.6%
Molson Coors Class B +1.3%
Takefuji Corp. -4.5%
Media General Class A -11%
Nikko Cordial ADR -17.9%
USA Mobility -40%
Fairfax Financial -48.4%

Performance in the second quarter dampened the YTD performance of this site’s stock picks. General Motors’ shares have done nicely in 2006, getting a boost on Friday with news breaking about a potential alliance with Nissan and Renault. The media-related stocks are doing well, especially Comcast and DirecTV Group, with the exception being Media General.

Nikko Cordial ADRs being down more than 17% in 2006 is an example of how deceptive statistics can be. The company’s ADRs are up more than 50% since being recommended last year. So it’s been a winner for the portfolio.

Takefuji is a relatively new holding, and I remain optimistic about its long-term prospects. Japan as a whole has been suffering a natural correction so I expect Takefuji shares to rise over time.

The big losers this year have been Fairfax Financial and USA Mobility. Fairfax does not have a large share float and is the subject expensive short positions. These can impact the share price negatively, and sharply, at times. Fairfax management has issued a statement saying it knows of no business-related reason why the stock price has recently dropped. I believe Prem Watsa and his team and, as posted recently, I have boosted the amount of shares I own in the company by 30%. And I’m keeping my fingers crossed about hurricane season! ;-)

I probably get more reader emails about USA Mobility than any other holding. I do not know why its share price has suffered so much. I do not know of any major shareholders dumping their shares on the market, though that could always be the case. This company has a relatively small share float, is not covered by Wall Street or the financial press. That makes owning the stock frustrating at times, but I’m maintaining the position.

That’s it for now. I’m content with these holdings, if not the share price performance in every case.

I’m hopeful that two or three new portfolio positions will be established in the near future.

Controlled Greed.com Portfolio Picks Average +14.8% Through Second Quarter of 2006

I’ve made 14 stock purchase recommendations since then launching this blog on April 27, 2005. Here’s how they have each performed from their selection through the second quarter of this year, not including dividends, listed in the order of being recommended.

  • General Motors was mentioned on 4/29/05 at $26.75. It closed 6/30/06 at $29.79 for a gain of 11.4%.
  • Fairfax Financial was mentioned on 5/3/05 at $132.50. More shares were purchased for an average cost of $123.16.It closed 6/30/06 at $95.03 for a loss of 22.8%.
  • 3i Group was mentioned on 5/17/05 at $12.73 (adjusted for a 16-for-17 reverse stock split). It closed 6/30/06 at $16.67 for a gain of 31%.
  • Nikko Cordial ADR was mentioned on 5/26/05 at $8.64 (adjusted for a 5-for-1 ADR split). It closed 6/30/06 at $13.00 for a gain of 50.5%.
  • Imagistics International was mentioned on 6/30/05 at $26.60. It was bought by Oce, N.V. later in 2005 for $43.00 cash for a gain of 58%.
  • Molson Coors Class B was mentioned on 6/13/05 at $60.35. It closed on 6/30/06 at $67.88 for a gain of 12.5%.
  • DirecTV Group was mentioned on 7/21/05 at $15.50. It closed on 6/30/06 at $16.50 for a gain of 6.5%.
  • Liberty Media Series A was mentioned on 8/4/05 at $8.52. The company then distributed to shareholders two tracking stocks, Liberty Capital and Liberty Interactive, this year. I view those two as a single position in the portfolio. Capital closed 6/30/06 at $83.77 and Interactive closed at $17.26. This position has lost less than 0.01%.
  • USA Mobility was mentioned on 8/24/05 at $26.34. It closed on 6/30/06 at $16.60 for a loss of 37%.
  • Comcast Class A Special was mentioned on 11/28/05 at $26.73. It closed on 6/30/06 at $32.78 for a gain of 22.6%.
  • Deckers Outdoor was mentioned on 10/18/05 at $20.92. It closed on 6/30/06 at $38.56 for a gain of 84.3%.
  • CBS Class B was mentioned on 2/16/06 at 25.61. It closed on 6/30/06 at $27.05 for a gain of 5.6%.
  • Media General Class A was mentioned on 3/21/06 at $47.05. It closed on 6/30/06 at $41.89 for a loss of 11%.
  • Takefuji Corp. was mentioned on 4/20/06 at $62.50. It closed on 6/30/06 at $59.66 for a loss of 4.5%.

In all, the stock picks made on this blog have averaged a gain of 14.8% during the life of this blog. The “life of the blog” picks averaged 18.9% at the end of the first quarter, so this most recent quarter has dampened my overall performance.

Four 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 stated, these results do not include dividends and payouts. So the total return for the group 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.


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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.