Banks and Restaurants Swoon / Knuckles Boom / Two shocking articles
Man I can't believe the carnage in financials right now. Take a look at the bloodbath that is Washington Mutual. After trading as high as $41 per share last July it closed yesterday at $3.23!!!! Ouch! Guess who has been short WaMu...no it isn't me though it might be in my dreams tonight...it's our good friend Ken Heebner. Man that guy has been knocking the cover off of the ball lately.
I was perusing the holdings of his CGM Focus Fund the other day and I noticed that he has built substantial positions in two Brazilian banks Banco Itau (ITU) and Uniao DeBancos Brasilerios (UBB). Both have taken a hit lately as Brazil's central bank raises interest rates to fight inflation, but Brazil is still my personal favorite BRIC. This might be a good entry point for them. I am going to try to cull my CAPS herd to fit them in.
Shares of restaurants continue to get pounded. According to an AP story, at least eight of them hit new 52 week lows yesterday (see article: Sector Snap: Restaurants slide). Geee, who would have seen this coming...oh yeah me ;). According to the article, "Analyst Robert M. Derrington said in a note to investors that 'the double-whammy of weak top-line growth and escalating operating costs from commodities, labor, and utilities are (again) expected to weigh on restaurant-level margins in the second quarter.'" Sound familiar?
I personally covered my restaurant shorts in real life a couple of days ago pocketing 30% gains in a couple of weeks rather than risking that the stimulus checks will cause them to beat estimates when their Q2 earnings are reported, but I am keeping my shorts open in CAPS. I will likely short any restaurants that do pop after their earnings announcements, if there are any.
Yuck. I did not have positions in any of these particular stocks. I cannot mention which ones I was short within 10 days of trading them, but suffice to say that this group is very representative of how they performed.
Anyone who casually follows what Warren Buffett is up to these days knows that in May went on a European tour looking for family owned businesses to invest in for Berkshire Hathaway. A recent article in Forbes magazine contends that he is doing so with good reason. According to Raphael Amit, a professor at the Wharton school of business, "Our research shows that as long as the founder is at the helm, either as a chairman or chief executive, on average the retail investor will be better off buying shares of the family-controlled firm than in a widely held non family-controlled firm."
A recent joint study conducted by some big brains, said Wharton professor and one at Harvard, looked at the performance of family-controlled companies over several generations. The study found that the founders aka first generation of family-controlled businesses usually enjoys a share premium while the second generation usually is given a share discount. The third generation and beyond enjoy premiums again (though never as large a one as the company's original founder enjoyed).
It is difficult to say why the numbers stack up like this. Perhaps the company has a larger pool of competent family members to choose from its executives from in the third generation or perhaps they are smart enough to remove nepotism (something that I personally detest) out of the equation and bring in a good outside manager. Another theory is that the buyout premium rises as one gets further away from the company's founder. Anyhow, it appears as though it often makes sense to purchase a stake in the second generation and sell it in the third. Interesting stuff.
OK, back to Europe. The Forbes mentioned several family-controlled stocks that investors might want to take a look at. The one that caught my eye is Palfinger. It trades OTC here in the U.S. under the symbol PLFRY.PK. Established in 1932 by the Palfinger family of Austria, which still owns 34% of the outstanding shares, the company builds knuckle-boom cranes which are usually mounted on the back of trucks. It currently holds a 30% share of the global market for this product. Over the past years it has grown its sales by 19% and its net income by 45% on average. Impressive stuff, yet concerns about the European economy (probably justifiable ones) have hammered Palfinger's stock, causing it to fall by 40% in Euro terms over the past year. This company which sports an impressive track record now trades at an attractive 11 times trailing earnings and at2.8 times its book value (which is a lot more realistic a book value than those works of fiction that banks publish).
A real knuckle-boom cranes (I didn't know what the heck one was either until I saw this picture)
Dollar Falls to Record Versus Euro; Credit Woes May Damp Growth: I told you that all of those fools, and there was a lot of them, calling the bear market rally in the U.S. dollar a bottom were dead wrong. I'm not a huge fan of the Euro or Yen, but look for more strength in oil and gold as the government's mind-blowing mismanagement of our country causes the dollar to continue to drop.
Electro-Shock Therapy: A huge article on the plug-in electric vehicle that General Motors is currently working on. I admit that I haven't had a chance to read the entire thing yet, but I will. As someone who has worked in the auto industry for well over a decade I personally feel as though the Volt has the potential to be a revolutionary breakthrough...assuming that General Motors doesn't find some way to screw it up, which is a huge assumption. Here's a short description of it that I recently wrote elsewhere:
"The Chevrolet Volt have a battery that is capable of taking it up to 40 miles using an over night (6 or so hours) charge from will a conventional household plug. For longer trips, the Volt will still have an on-board gasoline/E85 engine that the will act as a generator and recharge the battery pack when its initial charge gets low. The total range of the car will be around 400 miles on a full tank and charge. The initial charge uses absolutely no gas and subsequent recharges get the equivalent of around 50 MPG. Of course, the Volt is not out yet, so a lot of this is just speculation. Time will tell how well GM and other companies execute this idea, but it has the potential to be revolutionary."
If plug-in vehicles are successful, it has the potential to be a huge boon to power companies, which I have been building large real-world positions in.
No position in any of these companies