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Thursday Value Overview: BRK.B, KFT, DNDN, F, GM, MS, ESV, WMT, BK

Today was as bad a day we’ve had in a long time. The Dow is now down 10.5% over the past 10 days. Once I turn CNBC off, all I see is deals. Today I’ve got the Kraft (KFT) break-up, a Berkshire Hathaway (BRK.B) story about no analyst buy recommendations for the stock, no safety in Morgan Stanley (MS), Ford (F), GM (GM), Walmart (WMT), and of course not in Dendreon (DNDN). I’ve also got a link to some John Paulson results and, finally, Bank of New York Mellon’s (BK) decision to charge customers to hold cash. In an otherwise bleak day, Kraft shares are up after announcing plans to break in two. After Warren Buffett’s criticism for the Cadbury purchase, Kraft was careful to get his approval for this plan. Kraft will break into a snacks company and a groceries company. It’s probably a good plan, though I haven’t followed the company too closely. They also got the approval from Nelson Peltz, who is an activist investor often promotes break-ups like this.

Hat tip to Ravi at The Rational Walk for this entertaining Bloomberg piece about Berkshire Hathaway. We’ve spoke over the last few months about how cheap Berkshire shares are trading. They got even cheaper today. Bloomberg talks about how none of the sell-side analysts they track recommend Berkshire’s stock as a buy. Some of them make comments about succession, some talk about the insurance exposure. Some even shrug at the valuation of 1.14 times book. Even Munger and Buffett talking about the stock being undervalued doesn’t move the price.

Let’s do some bottom fishing. Dendreon dragged down biotechs. Ford and General Motors were down big despite great results. Morgan Stanley was down despite a big insider buy from CEO James Gorman. David Einhorn and Robert Rodriguez favorite Ensco shed 9%. Even already cheap Walmart was down more than 2%. There was nowhere to hide, but plenty of places to buy cheap stocks.

The pain of the last two weeks are hurting some hedge funds more than others. John Paulson reported poor results according to Dealbook through July. The two best known portfolios are down 15% and 21.6%. That doesn’t take into account the last few days. The gold fund is doing well though!

Bank of New York Mellon, which is a favorite of mine though I don’t own it, said they would start charging clients who have more than $50 million in cash at the bank. The bank holds money for money market funds and large pension funds. If you want to gauge fear in the market, this is a good indicator. If you are interested in Bank of New York Mellon itself, take a look at Martin Whitman, Chris Davis, and Mason Hawkins, each of whom own significant stakes in the bank.

Disclosure: Long BRK.B, F

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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