The comeback is even fiercer for the Investment Gurus tracked by GuruFocus.com. GuruFocus tracks the long equity positions of the gurus. From the beginning of the quarter, The Scoreboard of the Gurus shows 50 out of 68 Gurus have their stock portfolio performing better than S&P 500.
Ian Cumming, Chairman of Leucadia National has $890 million invested in five domestic common stocks. The portfolio has returned 67% since March 31, 2009. AmeriCredit (ACF) and Jefferies Group Inc. (JEF) Propelled Ian Cumming to the top of the list. Leading in the Portfolio is AmeriCredit Corp (ACF), whose share prices increased 117% since the beginning of the quarter. ACF accounts for 21.67% of his portfolio. Jefferies Group Inc., which takes up 75.25% of the portfolio, has returned 56.7% since the beginning of the quarter.
AmeriCredit (ACF)
AmeriCredit Corp. is an automobile finance company that provides financing solutions indirectly through auto dealers and directly to consumers in the United States and Canada. AmeriCredit Corp. has a market cap of $1.67 billion; its shares were traded at around $12.71 with a P/E ratio of 210.9 and P/S ratio of 0.6. AmeriCredit Corp. had an annual average earning growth of 13.2% over the past 10 years. GuruFocus rated AmeriCredit Corp. the business predictability rank of 2.5-star.
GuruFocus internal data shows that Leucadia National fist bought 5.6 million shares of ACF in 4Q of 2007 at prices around $13, then added heavily to its position to 29.3 million shares at around $10 per share. It kept adding to it position while the stock price kept dropping. As of March 31, 2009, it owns 32.9 million shares. At today’s price of $12.70, Leucadia’s investment in the trouble car loan company ACF is a very profitable one.
In recent shareholders’ meeting of the Leucadia National, Chairman Ian Cumming and President Joe Steinberg commented on AmeriCredit (for complete meeting transcript, click here):
In terms of AmeriCredit ( ACF), can you talk about why they liked the business and what they see in the future of that business?
Cumming: They have made 4 large investments recently and they feel like they bought too soon on all of them. However, all but ACF are in the money right now. They previously had owned a subprime auto lender. Were forced to sell it when the pricing got too low to compensate them for the risk. So they are knowledgeable and comfortable with the business. Believe that there are going to be cars in this world. Aside from in NY where it is impossible to drive, most people have to drive to work. Poor people will need cars too. Based on today’s margins, ACF would be doing incredibly well. The problem is that there is no credit as the securitization market has dried up. Said that they have been in the Fed’s offices multiples times trying to figure out how to use TALF to get an economically prudent deal done. The Fed has been trying to get liquidity and investors back into the securitization markets but ACF has had no luck with TALF. They are currently shrinking the business, trying to get the capacity within the company’s net worth. Even suggested the old fashioned idea of not lending more money than they had and not levering up at all. Joked that the management team was horrified. Will make money and grow as credit grows.
Have learned major lessons regarding this experience. Believe that 10-15 years from now banks will have forgotten about these past troubles, want to get back into this business and hopefully ACF could be sold to the banks before they drive pricing down enough that ACF can’t be profitable and has to be liquidated.
Claim that ACF has done $58B in securitizations and no one has lost a penny yet
Steinberg: Going forward, there should also be less competition from non-banks. ACF will not be as big as company as before. However, Chrysler credit and GMAC are wounded and are not supplying credit. The car companies are basically out of the subprime space now. ACF will finance itself in the future but will not be as highly levered. The goal is to maintain the book value of the company, which is about $15 per share now. This will allow them to wait and fight another day
Jeffries Group Inc. (JEF)
Jefferies Group Inc. offers a variety of services for institutional investors and middle-market companies. It is a full-service investment bank and institutional securities firm focused on the middle market. Jefferies offers financial advisory capital raising mergers and acquisitions and restructuring services to small and mid-cap companies. Jefferies Group Inc. has a market cap of $3.59 billion; its shares were traded at around $21.63 with and P/S ratio of 2.2. Jefferies Group Inc. had an annual average earning growth of 21.9% over the past 10 years.
Leucadia bought Jefferies shares with its own LUK shares when LUK shares were at $54 per share and JEF was around $17 per share. Reflecting on the investment the company a year ago, here is the comment from Cumming and Steinberg in the 2009 shareholder’s meeting:
You keep talking about durable businesses, but isn’t Jeffries ( JEF) in a levered and tough business right now?
Cumming: Bought their shares of JEF with LUK shares that were close to $54. Thought the price of JEF was attractive. In retrospect they believe it was even more attractive. Was a financing as well as a cheap asset deal
Steinberg: JEF is not a troubled investment bank. Do not have toxic assets. Trading is going to be a disproportionate component of earnings going forward. The government needs to borrow a lot of money and JEF should be in a good position to benefit from that. However, they are in a tough business for sure. They have applied to be a broker dealer, which is a very competitive business
JEF did not have a near death experience like Goldman Sachs and Morgan Stanley. However, the guys at JEF were paying attention when Bear Stearns and Lehman went away. They are being more cautious and acting differently now
Today on May 30, 2009, JEF closed at $21.63 per share, much higher than the price Leucadia bought at (around $17). And the since LUK bought the shares with its own shares, it makes the investment return even more attractive.
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User Comments:
1. Gangstarr says on May 30, 2009 at 3:13 PM:
Just bought more LUK. Made enough money off the march low to buy an engagement ring for my sweetheart. Thank you Ian and Joseph.
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