5 Interesting 13F Buys (Q4-07)

Keeping up tradition from the last quarter, below is a list of 5 stocks that were added to the portfolio’s that I watch. These are either potentially interesting investments or just companies to keep an eye on.

1. Sears Holdings (SHLD) — Fairholme Fund, Pabrai Investments, Pershing Square — More super-investors realizing that Sears isn’t your traditional retail investment. Real estate and brand liquidation values provide downside protection (as opposed to being Lampert’s “strategy” as some claim). There are many possibilities for upside, but here are a few: (1) The sale or monetization of coveted assets; (2) A successful turnaround of the retail stores; (3) The allocation of capital from poor-performing cash generators (Kmart) to higher return divisions (Lands End) or new investments.

2. Acxiom Corp. (ACXM) — ESL Investments (Eddie Lampert) — An information services provider, trading at just over 4x cash flow. For the year ending March, 2007, Acxiom had before-tax free cash flow of $374 million. Currently, the entire company sells for $1.6 billion (including debt), only 4.3x that number. You can see from an amended 13F filing that Eddie Lampert’s purchase price was probably somewhere around $25 per share. So if it was cheap then, he must think it’s extremely cheap now.

3. Office Depot (ODP) — Gotham Asset Management — Joel Greenblatt, author of The Little Book That Beats the Market, took a small position in Office Depot, the second largest office products retailer. If ODP can maintain its competitive position and earnings power, it looks like a good buy. It’s run by Steve Odland, former CEO of AutoZone (another past Greenblatt holding), who’s working on improving margins. In the December 2007 issue of Value Investor Insight, Randall Abramson said he believes ODP could have earnings power of $3 per share in a few years. That would put the current price at just under 5x earnings.

4. Kraft Foods (KFT) — Berkshire Hathaway — Buffett’s widely reported 8.6% stake in Kraft makes him the single largest shareholder. Kraft was fully spun-off of Altria Group earlier last year, when shares traded over $32 per share. This is another one of Buffett’s large-cap bets that will probably outperform the market over time. A great company that trades for 13.5x last year’s operating income. This may be a good selection for the “defensive” investor. But for the “enterprising” investor, there are probably more advantageous purchases that could be made in smaller, cheaper stocks.

5. Walgreen Co. (WAG) — Longleaf Partners, Greenlight Capital — I haven’t looked at Walgreen’s, but it could be interesting. It’s a great company, but is it selling for a cheap price?

Via: Futureblind

Volatility in Stock Market

Volatility in Stock Market

Fluctuation is the key story of stock market. It may be shocking and worrying for you when you find that morning newspaper discloses that market is2% down this morning? If you are, then maybe the best thing is that you stop looking at what the stock market does on an regular basis basis. We've left the great mitigation behind, and stock-market volatility with regular swings of 2% or 3% in a day is going to be here for the predictable future.

Maybe you're not worried about the stock market itself, but rather with the terms you often go through : an index measuring service-industry executives' business activity dropped to 44.6 in January from 54.4 in December. But here's the thing: an index called the NMI, which the stock market is (supposedly) reacting to. Yes, the NMI was at 44.6 in January, but there's no NMI figure for December. The 54.4 figure was in the business activity index, which fell to 41.9 in January, but that's a narrower and more volatile measure.

So yes, this is a pessimist survey. I expect there will be many more such pessimist surveys released in the next few months. The thing to remember is that it's not the bearishness which is jolting the markets, it's the fact that the survey came in below market expectations. But those expectations can hardly have been very finely calibrated, given that they were expectations for an index which has never before been published. In other words, it's probably fair to treat today's stock-market fall - like nearly all one-day moves in the stock market - as noise rather than signal. Last week the market went up, this week the market is down. It's normal.So next time when you are investing money be very careful and go through various trends and updates to finalize your investment.

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