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Tuesday Value Overview

Tuesday's edition discusses Barnes & Noble (BKS), SuperValu (SVU), Safeway (SWY), Winn-Dixie (WINN), Kraft (KFT), and News Corp (NWS), as well as a great editorial by Lawrence Lindsey.

Don't look now, but Barnes & Noble shares are now trading below John Malone's $17 buyout price. Shares jumped above $20 after the offer in May. Over the last five days, though, the stock price has cratered. There are two primary reasons why: The company announced worse than expected results on June 21, missing both on earnings and revenue, and Alethia Research has continued to cut their stake. Alethia's sell-out, combined with lack of buying from Ron Burkle's Yucaipa, has left only sellers. Burkle is limited from purchasing additional shares because of a poison pill. With BKS trading under $17 as of the time of this writing, it looks like an attractive special situation to me.

Lawrence Lindsey had an editorial in The Wall Street Journal today that all investors should read, entitled The Deficit Is Worse Than We Think. Here's an excerpt, "The 10-year rise in interest expense would be $4.9 trillion higher under 'normalized' rates than under the current cost of borrowing. Compare that to the $2 trillion estimate of what the current talks about long-term deficit reduction may produce, and it becomes obvious that the gains from the current deficit-reduction efforts could be wiped out by normalization in the bond market." Either normalization will occur or the Fed will have to continue its intervention indefinitely. Neither of those are an attractive option.

A favorite of some value investing bloggers, SuperValu, jumped more than 5% today. This just gets it back to where it was a week ago, but is still a positive sign. Kroger's recent results bode well for SuperValue, Winn-Dixie and Safeway. Winn-Dixie also jumped significantly today, suggesting better investor sentiment for the lower quality names in the grocery segment. Frank Voisin has been out front on SuperValu and I suggest you take a look at some of his articles on the company.

On the Warren Buffett front, Nelson Peltz acquired a 0.7 position in Kraft. Peltz had previously owned Kraft, but sold out last year after pushing for changes back in 2007. Buffett has publicly questioned some of Kraft's decisions over the past few years, but still owns 6% of the company. It will be interesting to see what Peltz has in mind this time around. No doubt he'll be having a conversation with the Oracle.

Finally, it has come out that News Corp will be unloading MySpace this week. This one will go down as one of the worst acquisitions in corporate history. Not only will News Corp be selling the site at a loss of about $550 million, they also lost an estimated $1.4 billion in ongoing losses. Ouch.

Disclosure: Long SVU

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.

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