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Monday Value Overview

Welcome back from the hurricane this past weekend and to the hurricane that was today’s stock market. Today’s edition discusses Berkshire Hathaway (BRK.B), XL Group (XL), J.P. Morgan (JPM), BNY Mellon (BK), Mosaic (MOS) and Barnes & Noble (BKS). Insurance stocks did particularly well today as Hurricane Irene didn’t do as much damage as expected and a solution was proposed for the never-ending European crisis. I think most of the gains were just a relief from oversold conditions, though. Berkshire Hathaway had a particularly nice day after having taken a beating in the last month. One of my other favorites, XL Group, shot up nearly 7% today. John Paulson owns about 9% of XL and James Barrow owns about 7%. XL announced great earnings a month ago and the stock trades at a significantly lower price than before the earnings announcement. Factor in that the stock yields more than the 10-year government bond, and you can’t go wrong.

Banks also did very well today. Analyst Dick Bove thinks they’ve got much more room to run though. He lists seven banks trading below tangible book value. Think of these kind of like net-nets, only with the potential for improper reserves. The way to guard against that is to choose the banks with good management. J.P. Morgan and BNY Mellon are two on the list with great management. Valuations across the space are much lower than they should be. For those two banks to be trading this cheap, you should know that the recent bank sell-off was more emotional than anything else.

Forbes points out that a group of gurus has been buying into Mosaic. James Tepper, Daniel Loeb, Richard Perry, Andreas Halvorsen, and John Paulson are among the big buyers. The stock was up 4.7% today but is still down on the year. It appears the stock is very reasonably priced, trading at just 12 times earnings, below its historical average.

If you haven’t already, I suggest you read Geoff Gannon’s piece on GuruFocus, Barnes & Noble: Anatomy of a Screw Up. For all investors, I think it would be worthwhile to focus on your mistakes more than your wins. Being intellectually honest with yourself maybe one of the most important traits for a value investor. Doing it publicly keeps you honest. I had bought into Barnes & Noble as well and don’t regret it at all. My thesis was slightly different than Geoff’s, but his ideas did play a part in my thought process. That’s another good lesson. Don’t blindly follow another investor’s ideas. Certainly look to them for inspiration or to round out your research, but you have to own your position.

Disclosure: Long BRK.B, XL

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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