Interview with Whitney Tilson, co-manager of Tilson Focus,
Sheds His Macro Bearishness To Buy.
By Avi Salzman, Barron's | 5 January 2009
|
|
|
Barron's Online: What can we expect this year? Does the S&P 500 end 2009 lower than 2008?
Whitney Tilson: My guess would be the S&P 500 is 10% higher. It rises by 10% next year but with a heck of a lot of volatility. The economic fundamentals are going to continue to get worse. The housing market, the housing bubble is going to continue to burst and be terrible so there will be tremendous economic headwinds. The reason I think the stock market might go up a little bit is because I think the stock market is already reflecting this and probably toward the end of next year the decline will start to taper off and we will start to see a bottom both in terms of the housing market and stock market.
We are very invested and very long right now. The things we own are unbelievably cheap. We have never seen bargains like this before so that overcomes our sort of macro bearishness.
Q: How do you find bargains these days?
A: Number one is companies where we are not buying earnings but we are buying the balance sheet, where companies are trading near or below liquidation value and so the balance sheet is providing downside protection. It almost doesn't matter what earnings are in 2009. The other types of companies that we are purchasing are in areas of extreme distressed selling— companies that are heavily owned by hedge funds where we think there is forced selling due to liquidations, redemptions, delivering and year-end tax selling.So we think there are companies that are very out of favor where the selling has been massively overdone and where they are being priced as if the company is about to go bankrupt and we don't think it is.
Q: What are a few of those companies with promising balance sheets?
A: I'll give you three examples with good balance sheets: a big cap; a mid cap; and a micro cap. We have been trimming our Berkshire Hathaway (ticker: BRK-A) position because the stock has rallied off its lows substantially but we think Berkshire Hathaway has somewhere between $75,000 and $80,000 per share of cash and investments and the stock hit $74,000 a share roughly a month ago and we more than doubled our position at that point [[so they bought it below $37000: normxxx]].
We took some of our profits above a $100,000 but today with the stock in the low $90,000s [[back down to $77,000 today, 2/20/2009: normxxx]] we think Berkshire Hathaway has probably $5,000 per share of pretax earnings power and if you assume let's say $77,000 of cash and investments and the stock is at $92,000 give or take. That means you are paying $15,000 a share for the operating businesses of Berkshire Hathaway, so you are paying three times pretax earnings.
Example number two is EchoStar Technologies (SATS). The stock is somewhere around $13 [[jumped to $16.01 today, 2/20/2009: normxxx]]. They have cash and investments of about $16 a share and so it's sort of an odd collection of businesses. It was a spin-off that went public Jan. 1 of 2008 and the stock has been a terrible performer and nobody wants to own it. But we think today it is trading at a discount to cash and investments and you are getting a set-top box business and a satellite business for free— less than for free. You get paid to own them.
And then a third example I will give just to give you a sense of what is out there among micro caps. We own almost 10% of a little teenaged-girl-apparel retailer, a mall-based retailer called Delia's (DLIA). The thing has got a $60 million market cap and it is trading at about a 40% discount to its cash. It has no debt. And the company is profitable. [[Since backed down about 20% to $1.76 today, 2/20/2009: normxxx]]
Q: How about companies that are oversold or have large hedge-fund exposure?
A: I can give you three examples of companies where we think the selling is massively overdone.
Number one is Huntsman (HUN). It's the busted Apollo Management acquisition. When the deal with [private-equity firm] Apollo broke down, all the arbitrageurs who owned it immediately had to sell. Now insiders have been buying like crazy. We more than doubled our position and we have trouble figuring any outcome here south of $10. [[Currently at $2.30 today, 2/20/2009, down from 1/5/2009: normxxx]]
Another example I will give you is Crosstex Energy (XTXI). There's a general partnership and a master limited partnership. XTXI is the ticker for the general partnership. XTEX is the ticker for the limited partnership and we own both. It's a natural-gas pipeline company and natural gas pricing has fallen. We thought it was interesting at $30. We started buying it a bit under $10 and the bottom has just fallen out of it and I think investors are particularly panicked… I think it's easily worth $10 if it merely survives. [[Currently at $2.36 today, 2/20/2009, down sharply from 1/5/2009: normxxx]]
The third company is Resource America (REXI), a small cap. It's got everything people would hate in this marketplace. It's a collection of sort of odd businesses. They've got a leasing business. At one point during the bubble they put together CLOs and CDOs (collateralized loan obligations and collateralized debt obligations). But they didn't keep any of it on their books so they're currently a servicer for these CLOs and CDOs. They collect a fee for just managing it, so it's sort of like an annuity. But of course they're tainted by that.
They have a small equipment-leasing business which is doing quite well. They've got a distressed real-estate business that's doing very well. We think any of the pieces of this business is worth the share price. Combined, the pieces are worth north of $10 a share. [[Currently at $3.04 today, 2/20/2009, down from 1/5/2009: normxxx]]
Q: Value guys often talk about investing in stocks with maybe 20% to 30% upside. Are you thinking the stocks that you are in very long have even 60% to 100% upside?
A: Virtually everything we own we think is a double and in some cases a triple next year.
Q: Thanks.
[[Maybe they bought in just a little early. Old Wall Street adage: "A stock is never so low it can't go lower— unless it's already at zero!" : normxxx]]
ߧ
Normxxx
______________
The contents of any third-party letters/reports above do not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.
The content of any message or post by normxxx anywhere on this site is not to be construed as constituting market or investment advice. Such is intended for educational purposes only. Individuals should always consult with their own advisors for specific investment advice.
No comments:
Post a Comment