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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Michael Burry who wrote (4387)	7/8/1998 11:51:00 AM
From: Wallace Rivers	Respond to of 78746

I'm with you, Mike...value investors are a forgotten breed, I guess. I'm frustrated as can be by the internet tulip mania. See my reply to the response of Tim Luke on "beaten down fundamentally sound stocks" thread concerning that internet investment gem egghead.com.

To: Michael Burry who wrote (4387)	7/8/1998 8:41:00 PM
From: James Clarke	Read Replies (2) \| Respond to of 78746

Mike, let me tell you as an institutional holder of New Holland (and soon to be an individual holder too) that you weren't the last to know anything. The selling has been irrational, preannouncement or not. That was not the reason the stock sold off. There are three reasons why it has been so weak: 1) Cyclicals, and especially agriculture equipment (falling corn and wheat prices) have been very weak. Ag has sold off for good reason, but I think its overdone, especially with New Holland. 2) The stock is an orphan. Its not real liquid, management is European (no affirmative action in the stock market). 3) There are a few very large investors, given that only 30% of the stock (give or take) floats. The rest is closely held by Fiat. One or two of those investors are clearly exiting whatever it takes. BUT...Mike, at least, I hope you read on this far. I spent the last 24 hours in State College with the top 10 executives of New Holland and institional investors and analysts. Earnings miss or no earnings miss, the selloff is way overdone. And the stock actually rose today on the earnings miss even though Deere was down hard. I sat next to the CEO at dinner last night. He is baffled by the share price (though he may be more upset that Italy lost to France in the Cup). He started the question and answer session with institutional investors with a question of his own. "We sell more tractors worldwide than Deere, we had higher margins last quarter than Deere. Why is our stock trading at 7 times earnings when Deere is trading at 12 times earnings?" He didn't get an answer. This stock is a screaming buy anywhere below 20. There is no catalyst on the horizon, and there is a lot of fear on the ag cycle, but let's get real. Deere is the U.S. leader, but New Holland sells more tractors globally than anybody in the industry. The business produces about $300 million in free cash flow (they did $400 last year, so I'm being conservative) and the market cap is under $3 billion. They are reinvesting that free cash flow (I define free cash flow as cash flow less the capital expenditures required to maintain the franchise - if they reinvest beyond that at a good return, that's even better than paying it in dividends) back into a non-U.S. business franchise that I think is a real winner. (Wall Street analysts and institutional investors are very U.S. oriented in this industry despite saying they want global leaders. New Holland is at the very least neck-and-neck with Deere globally). The stock trades at 7 times earnings. Senior management is honest and capable. They have done virtually everything they said they were going to do. Fiat will not sell its shares at anything under 30, nor will I. Wall Street analysts agree that the stock is extremely cheap, but don't want to upgrade without a catalyst. As I see it, your downside is 17-18, and your upside is 30. The stock trades at 19. Do your own homework, but don't let anybody tell you that this is a mediocre company until you find something in the financials or the management to back that up. I know both very well, and I don't see it. The risk is the ag cycle. Although at this price, I don't know how much risk there is even if corn falls to $2.20 again. Yeah, I'm saying buy the stock. What you should be looking for is a virtually risk free 20% gain, with the potential for $28-32 if there is a drought in the midwest this summer. (Droughts aren't great for farmers, but would be very bullish for ag stocks. Don't ask me why.) I think the downside is not far below where the stock trades. Mike Burry was early, though I probably would have gone with him if I did not cover the stock insitutionally - his logic was not wrong at all - a lot of institutional investors with all the information thought they had a bottom at $22-24. (I can't say on this thread what I've been doing professionally - that would be crossing the line). But personally, I am buying tomorrow unless of course my firm wants to add to its position. Sorry for the long post. Hope it was worth the read. Jim

To: Michael Burry who wrote (4387)	7/8/1998 11:15:00 PM
From: Paul Senior	Read Replies (2) \| Respond to of 78746

Mike, Wallace: re investing climate. Well I don't understand it either. Man, I can't recall when so many of my stock picks and long term holds have been trading at such lows. And in such an apparently great investment climate. OLS, SFLX, EX, PGTZ, WDC, APM, CYM, ICOC, TCMS, OEA, TIMT, UNMG, CAG, NTAIF, ELAMF, CCRO, HDCO, RACCQ, ESST, LODG, UC ------ whew! wow! Losers all. I still own 'em. And I can dig up a few more if I look. I'd be upset if I had to judge myself by these downtrodden clunkers --g--. Taking profits recently in Durakon (was twice mentioned in Barron's as undervalued), CSTM (accepted buyout offer), LQU (was a bought as a short term speculative buy), FLEXF (slight position trimming), ABT (position trimming --- and I bought after reading Peter Lynch write in early '95 in Worth to avoid because it was overvalued. HA! Half the fun is seeing him wrong -g-). Starting this week a new small position in HOT (Starwood Hotels & Resorts - an aggressive gorilla in the hotel business.) It would seem to me that people who want to invest in the stock market to make reasonable profits or very good profits, would want to develop some methodology around which to operate. Given that most --all-- successful investors seem to be people who invest over a long period of time -- many years or decades, there should be some framework or guiding principles developed and repeated (with occasional tweaking) over this long timeframe. To me, internet "investing" - either by the general public or by insiders who have secured millions of shares of stock-- that is not a long term strategy because there is not a repeatable methodology with it. (Well, maybe a few entrepreneurs can repeat their success, and maybe a few investors can play fads over and over again-- that's rare and not practical for the rest of us.) Of course for those people who have "taken a shot" and made a couple of million or the several insiders with $billion in profits - they could care less if it's repeatable or a viable method because they've secured brass ring. That's good for them, but I say this is not the way for most investors to optimize their risks/rewards and secure a profitable future. Of course in looking back... I'd rather be with them for a couple of thousand shares of AOL (at last year's low price), than any of the more than 20 problem stocks I've got now -g-. However, the game for us value investors is not yet over - or so I keep telling myself. And sometimes I actually believe it. FWIW. Paul.