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Three Guru Owned Stocks Hitting New Lows: HGG, IBKR, PWRD

February 15, 2011 | About:
Guru ownership in stocks hitting new lows are interesting both to see the stumbles that well known investors make, and to try to learn from them, and because it may highlight a significant mis-pricing in a security. The three stocks below have significant guru ownership and have also had significant recent stumbles. Analyst downgrades, poor earnings, and increased competition have battered these three names. At the same time, it’s often the period of most uncertainty and pessimism that makes for the best returns on investments. Use these profiles as idea generators, and don’t blindly follow these investors in.

H.H. Gregg (HGG): H.H. Gregg again hit new lows today after analyst downgrade because of the company’s most recent disappointing earnings. This consumer electronics retailer had benefited over the past year after Circuit City liquidated, but competition remains fierce from Best Buy (BBY), Amazon (AMZN), and other online plays. Revenue was down YoY for their last quarter, and gross margins are compressing.

Ron Baron and Arnold Van Den Berg are current owners. Baron owns 3.8% of the company. Steve Cohen bought into the company in the 2nd quarter last year, but then sold out in the 3rd.

Interactive Brokers (IBKR): Jim Simons and Steve Cohen made purchases of this brokerage firm last quarter at prices above the current price. Six total gurus own the stock: the two previously mentioned and Mario Gabelli, Chuck Royce, Lee Ainslie, and Ron Baron. Baron owns more than 7% of the company. Each one of these investors has lost money on the name.

Interactive Brokers is a $670 million market cap company hurt by a 4th quarter loss caused by accounting requirements and currency hedges. More importantly, you can look at their operating income, which was down, but certainly not negative. Interactive Brokers’ primary business, market-making, will continue to be difficult according to analysts.

Perfect World (PWRD): Perfect World is a Chinese-based online game maker. Shares have slid to new lows as the Chinese market and gaming industry has had recent difficulties. Perfect World sports a $1 billion market cap. Its leading games are Perfect World, Legend of Martial Arts, and Fantasy Xhu Xian. The stock is relatively cheap compared to its potential growth rate, but the online game industry is full of competitors and players can be fickle. The stock took a big plunge after its mid-November earnings release, and has trended downward since then because of analyst downgrades. Their next release in March should provide some much-needed clarity.

Luckily for Steve Cohen and George Soros, they sold out of the stock in the 4th quarter. Lee Ainslie was not as lucky. He continues to own 8% of the company and the majority of his purchases were around $40 a share. Jim Simons and Jeremy Grantham are also owners.

Disclosure: No positions

About the author:

Steven Kiel
Steven Kiel is the president and chief investment officer for Arquitos Capital Management, a Virginia-based investment management firm. He is a graduate of George Mason School of Law and a captain in the Army Reserves. He manages two spoke funds, The Freedom Fund, a value-oriented portfolio, and The Hayek Fund, a portfolio dedicated to free market principles. He can be contacted at steven.kiel@arquitos.com or through the firm's website at www.arquitos.com.

Visit Steven Kiel's Website


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