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Thursday Value Overview

We had another strong rally today on more good economic news as well as good results from retailers, and progress on negotiations to raise the debt limit. Despite some calls that the last week and a half has been a short squeeze, Bespoke Investment Group ran some numbers showing that conclusion to be unlikely. Today we've got some links about Apple (AAPL), IBM (IBM), Google (GOOG), Priceline (PCLN), Charter Communications (CHTR), CIT (CIT), Seahawk Drilling (HAWKQ), Six Flags (SIX), and Visteon (VC), as well as a warning from Whitney Tilson and Warren Buffett's CNBC comments.

The debt limit is one step closer to being lifted. Congressional leaders met with President Obama today and are scheduled to return on Sunday. John Boehner put the odds of an agreement at 50-50. While Democrats are demanding tax increases be part of the bill, it appears that both sides are looking for some sort of political cover by making it a more comprehensive bill. The president has said that they should think about doing something big, even possibly including Medicare and Social Security. That makes it look like he has a weak hand to play to me, but I'm all for it and I think the markets would be as well. Incidentally, follow this link to see Warren Buffett's thoughts on the subject from CNBC this morning.

A post at Barron's highlights a Sanford Bernstein analyst's call for Apple and IBM to split their stock. Apple is in the $350 range and IBM at $175. The argument is that each of the companies have a large amount of retail ownership, so by splitting the shares they may help the multiples to expand. I would think cheaper shares would affect volatility, though, as well. I'd be interested in seeing a study done to prove if that volatility argument is true or not. A few other high priced shares in the tech space are Google and Priceline.



Here's a great list of stocks at the Distressed Debt Investing blog to work through when you find some time. The list contains dozens of names that are either "Post Re-Org Equities, Equities trading at distressed levels, Companies currently in bankruptcy, [or] Equities that used to trade at distressed levels and are still held by a number of distressed funds." You'll recognize a lot of these names including Charter Communications, CIT, Seahawk Drilling, Six Flags, and Visteon.



Over at ValueWalk.com there is a quick piece that came from Whitney Tilson showing how dangerous it is to act on overall market valuations. Here, a Morgan Stanley analyst concludes that the market is cheap, with the largest stocks being cheap and the others being fairly valued. However, the comment is that investors will then buy stocks that are considered fairly valued or worse, those that are already overvalued, and stay away from the cheap ones. This drives up the valuations even more, while the good companies remain cheap. The point is that the market is made up individual stocks and not a single market. Buying indiscriminately gets you into trouble, and makes those long-term holders of Microsoft and Wal-Mart miserable.

Disclosure: Long GOOG

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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