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Wednesday Value Overview

Wednesday’s edition promotes Walmart (WMT), Caterpillar (CAT), Microsoft (MSFT), IBM (IBM), Altria (MO), Prudential (PRU), XL Group (XL) and Paul Singer’s view of the world.

The Dow broke its losing streak with the first up day in nine days after some QE3 talk. If it would have fallen, like it appeared it would for most of the day, it would have been the first nine-day losing streak since 1978. Instinctively this run should make value investors salivate. There is a range of Dow stocks that are cash-rich and trading at cheap valuation levels. This doesn’t mean their stock price can’t go lower, but it does mean you can put them in your portfolio, close your eyes for a few years, and feel a great degree of safety. I suggest taking a look at these Dow components: Walmart, Caterpillar, Microsoft, and IBM, among others

It turns out insider trading investigations are going on high and low. Today, the low. Business Insider reported that William Marovitz, also known as Christie Hefner’s husband and Hugh Hefner’s son-in-law, has been busted for allegedly trading on buyout tips. Nice work SEC. The time period in which he’s accused of doing this is from 2004 to 2009, when his wife was CEO of the company. Marovitz formerly served in the Illinois House and Senate between 1974 and 1993. No word on whether Hef himself ever pulled him aside, but apparently Christie warned him not to trade company shares, as did Playboy’s general counsel.

Here's another safe bet in this difficult investing environment, Altria continues to bring in the cash. Trefis counts Altria as nearly 15% undervalued right now. The company sold fewer cigarettes in this past quarter, but they were able to raise prices. Marlboro led the way. The cigarettes division makes up three-fourths of the stock value, according to Trefis, and they continue to figure out ways to generate cash. The company has a dividend yield of 5.8%. James Barrow seems to love the stock and owns more than 1% of the company.

Prudential handily beat earnings estimates after the close. Revenue is up more than 30% YoY, assets under management are up more than 20% and book value was up nearly 8%. Another one to look at is XL Group, whose stock jumped more than 8% today after blowout earnings yesterday. Net income and revenue flew over last year’s totals. John Paulson owns more than 9% of XL Group.

NY Times’ Dealbook profiled what they are calling a “manifesto” from Elliot Management’s Paul Singer. It is actually Singer’s Q2 investor letter where he attacks the Fed, the stimulus plan, and government intervention in general. He also reserves a section of the letter for Europe’s insolvency. Does anyone disagree with Singer’s contention that the off balance sheet items, i.e. Social Security, Medicare, etc., in the U.S. are not much different than the off balance sheet items that were on the books of, for example, Lehman?

Disclosure: Long XL, CAT, MSFT

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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