This stock may pop once it lists on a major exchange
Yesterday I posted a link to an article about how companies that are emerging from bankruptcy often make excellent investments (Fascinating Article on Investing in Bankrupt Companies). To continue on this subject I have a specific example that one can invest in today if they are so inclined. I may have written about this one back when I added it in CAPS a while ago (+27.78% so far), but I can't recall. Michael Santoli extolled the virtues of Visteon Corp. in his column in this week's Barron's.
For those of you who aren't familiar with the company, Visteon is Ford's former parts manufacturing subsidiary. It was spun-off several years ago and subsequently filed for bankruptcy. The former Visteon was the typical, bloated domestic manufacturer...or at least it was run like one. Today the company has emerged from bankruptcy debt-free with a solid Asian-dominated client list.
Visteon emerged from Chapter 11 on Oct. 1. Since then, it has traded over the counter, currently changing hands on the pink sheets under the symbol VSTO. The company has no Wall Street coverage and is mostly owned by former creditors, but listing on a major exchange is expected soon. It trades erratically, but not always lightly, and at a price of 63.25, (up from the high 40s upon exiting bankruptcy) the debt-free company now has a stock-market value of more than $3 billion.
The majority of that value is attributable to Visteon's Asian interests. It owns 70% of Halla Climate Control, the leading Korean car air-conditioning supplier, which is publicly traded. And the company has 50% ownership of a series of Chinese joint ventures that make auto interiors and electronic systems.
David Markowitz left a hedge-fund career to spend most of 2009 working for the Treasury's auto task force, and last month launched a hedge fund, Oskie Capital, with a few partners. (That should be a nominee for Best New Hedge Fund Name of 2010, incidentally. "Oskie" is a verbal signal by a football player that tells teammates to block the nearest player after his team has won a turnover, a nod to the virtues of a good defense pivoting to effective offense.)
His firm is an investor in Visteon, which he considers about as misunderstood as it is well-positioned. Simply applying peer-group cash-flow multiples to Visteon's Halla stake and its Chinese ventures, Markowitz calculates that at the current share price, the core Visteon business is scarcely more than its forecast earnings before interest, taxes, depreciation and amortization for 2011.
Ford, Hyundai Motor (005380.Korea) and Kia Motors (00270.Korea) account for more than half of Visteon's sales, and they happen to be among the car makers posting the greatest market-share gains.
Markowitz's sum-of-the-parts analysis yields a plausible target value for Visteon of $79 to $90 a share, once the story is better broadcast and it gains an exchange listing.
There is always the risk that once formally listed, the stock will undergo some selling pressure from the former creditors who own most of the stock. But that would be a markdown to be welcomed by opportunistic investors.
After the Stuffing, the Stuff