I can't help noticing plenty of Extreme Value recommendations made new highs yesterday: Berkshire Hathaway, Anheuser-Busch InBev, Forest Laboratories, Altria Group, and Philip Morris...
They're not as cheap as they were a couple months ago... but they're not nearly overvalued, either.
When you buy a stock and it goes up or down 20%, you're always left asking, "What next?" You can't predict stock price movements consistently, but I'm confident the list of businesses I just rattled off will keep generating strong cash flow, paying dividends, and maintaining their strong balance sheets. It's hard to tell how the economic winds will blow, even if everything looks wonderful or everything looks terrible. The best you can do is buy a great business at a cheap price and wait.
At least one big-cap, high-quality business has found yet another new growth platform. Wal-Mart is opening 30-40 small- and medium-sized stores in the U.S. next year. Most of the new stores will be 40,000- to 60,000-square-foot grocery stores in urban areas (and a few in rural areas where Wal-Mart doesn't yet have a presence). The stores will compete more directly with the few grocery chains Wal-Mart hasn't bankrupted since it entered the grocery business in the late 1990s.
Porter, Sean, Frank Curzio, David Eifrig, and I attended the Value Investing Congress (VIC) this week in New York, which took place Tuesday and Wednesday. In addition to Grant's investment conference and Ira Sohn conferences, the VIC is one of the premier investing events. What I saw yesterday may have pushed the Value Congress to the top of the short list of must-attend events...
David Einhorn of Greenlight Capital yesterday gave by far the best presentation I've ever seen in years of attending the Value Investing Congress. Einhorn put up 139 slides. He presented before lunch, knowing his presentation would run longer than his allotted time.
He showed us photographs and videos he shot while on site inspecting his target company's property. He showed us slide after slide that tore the company's financials apart and put them back together again. The presentation was as much an education on a great investor's thinking process as it was a brilliant investment idea.
The idea was a short sale recommendation. Einhorn painted a vivid picture of a company destined for the corporate scrap heap. He made a compelling case that management needed to take write-downs to assets. The company may also be capitalizing costs that might not be retrievable – like the cost of changing the direction of a road through its property. As Einhorn spoke, investors sold short, and the stock price dropped 8%. He drew a straight line "from something to nothing," as a friend of mine put it later. It was, as more than one conference attendee put it, a "tour de force." It's what every professional investor should aspire to.
Einhorn's presentation inspired me. It made me want to work harder, learn more, dig deeper, and be better. It was energizing...
But it started out terrifying. Einhorn's brilliant short sale recommendation is a buy recommendation I've been writing about for years, St. Joe Company (JOE). St. Joe owns more than half a million acres of land in northwest Florida, much of it within a few minutes' drive of the Gulf of Mexico, including a five-mile strip of pristine beachfront.
Not everyone sold St. Joe shares as Einhorn spoke. One man bought, and bought big.
This morning, the company's largest shareholder, Fairholme Capital Management, filed a document with the SEC saying it had increased its stake in St. Joe from 24% of the company to 29% of it. Morningstar's "Fund Manager of the Decade," Bruce Berkowitz runs Fairholme Capital Management. With about $18 billion under management, Berkowitz is one of the most successful investors in the world.
The filing indicates that yesterday, as Einhorn's tour de force speech drove down the price of St. Joe, Berkowitz stepped in and bought another 135,600 shares between $22.01 per share and $22.21 per share.
I'll update Extreme Value readers on St. Joe this Monday in my regular weekly update.
John Burbank of San Francisco-based Passport Capital blew me away on Tuesday when he said: "You have to analyze the United States like it was a Third-World country." He contemplated the United States' miserable financial state in the private and public sectors and concluded, "The U.S. is a turnaround." It called to mind a familiar quote by Warren Buffett: "Most turnarounds don't." Burbank put up a slide that said, "The U.S. is changing and so am I."
For a few years now, Burbank has been buying what China buys and selling what China sells. His newest long idea is coking coal. His largest investment is in Australia, a company called Riversdale Mining. It's got two coal projects in Mozambique and one in South Africa. Its partners in Mozambique are India's Tata Steel, China's Wuhan Iron & Steel, and China Communications Construction Company.
We all know the U.S. economy is struggling. I must admit... I got a little jealous when another speaker, my friend Amitabh Singhi of AMRIT Investment Funds, gave a presentation on India. Singhi lives in a country where the economy is growing rapidly and good quality stocks often trade at single-digit price-to-earnings (P/E) ratios. Amitabh told the audience, "I hate buying stocks at double-digit P/E ratios." Good thing he's not based in the U.S. He'd hardly ever buy anything worth owning.
I don't think it's a slam-dunk that China will be the largest and richest nation 30 years from now. India is a clear contender for that role. It's got more than a billion people, many of them educated. And it has a strong tradition of land ownership and gold ownership among its people. In China, you can't own land. The government owns it all. You just lease.
In India, lots of people own land, and the entitlement system is strong. When you want to build a factory or an industrial park or even a road, you have to deal with hundreds, perhaps thousands of small landowners.
Carlo Cannell of Cannell Capital is a smart investor and a colorful and entertaining speaker. Yesterday at the Value Congress, he delivered an updated version of a presentation he's given before. He discussed extinct animals like Steller's Sea Cow and the Irish Elk. He compared them to industries with poor track records, like computer hardware, semiconductor equipment, and (perhaps his least favorite) restaurants. On the long side, Cannell likes businesses like pest control and funeral homes. In past presentations, he's named Roto Rooter, owned by Chemed (CHE), as a favorite.
This is the longest new highs list I remember putting together in a long time. Everything's in a bull market... biotech, oil, gold, silver, and blue chips.
New highs: Berkshire Hathaway (BRK-A), Esperanza Resources (EPZ.V), Market Vectors Gold Miners (GDX), Silver Wheaton (SLW), PowerShares Dynamic Biotech & Genome (PBE), Anheuser-Busch InBev (BUD), Coca-Cola (KO), Enzon Pharma (ENZN), Forest Labs (FRX), DirecTV (DTV), Penn Virginia Resource Partners (PVR), Barrick Gold (ABX), HMS Holdings (HMSY), iShares Silver (SLV), Enterprise Products (EPD), ConocoPhillips (COP), Dorchester Minerals (DMLP), Washington REIT (WRE), Altria (MO), Philip Morris (PM).
Porter will give his views on the conference in tomorrow's Digest. In the meantime send any questions to feedback@stansberryresearch.com.
Regards,
Dan Ferris and Sean Goldsmith
New York, New York
October 14, 2010