Francis Chou is the manager of Chou America Mutual Funds and he has been managing Chou Funds since 1986.
Chou's Equity Opportunity Fund has a mandate: to invest in equity securities of companies located in developed and emerging markets across the world insofar as Chou thinks they are at market prices and less than their value. The idea of the investments is to identify compelling opportunities that, according to the circumstances, ensure a long-term growth of capital. As he puts it: “If you know how to spot a bargain it will make you a good investor.”
In general, the portfolio includes between 10 and 25 securities and the Fund usually invests in common and preferred shares, convertible stocks, American Depositary Receipts, pooled investment vehicles, including private equity and hedge funds, rights and warrants. In his last shareholder letter said: “We believe that equities and debt securities, both investment and non-investment grade, are now close to fully priced. In equities, we believe the financial, retail and pharmaceutical sectors are undervalued. We favor a basket approach versus concentrating on one or two stocks in those sectors.”
As it has been stated before, Chou is a long-run player, but sometimes he may sell a security. When doing so, he believes that: (1) the market has recognized the security’s full potential value; (2) the security’s fundamentals have deteriorated; or (3) alternative investments have become more attractive.
In terms of investments, sometimes the Fund may invest its net assets in debt securities, such as government and corporate bonds, high yield bonds, asset backed securities and repurchase agreements. Other times the Fund uses financial instruments as investments to (1) limit or hedge against losses that may occur because of the Equity Opportunity Fund’s investment in a security or exposure to a currency or market; (2) obtain exposure to financial markets; (3) reduce transaction costs; (4) create liquidity; and/or (5) increase the speed of portfolio transactions.
Chou may decide to maintain a large portion of the Equity Opportunity Fund’s debt investments in short-term fixed income securities during periods of high market valuations and volatility. This strategy may permit Chou to preserve capital while awaiting more favorable market conditions.
The Equity Opportunity Fund may invest in bank debt, lower-rated, distressed or defaulted debt securities, comparable unrated debt securities or other indebtedness of such companies.
Nokia (NOK, Financial): it is the largest manufacturer of mobile devices across the world and it also ranks first in mobile network equipment and software. The mobile phones it produces offer consumers voice, video, gaming, navigation, imaging and music.
Furthermore NOK holds 50% of Nokia Siemens Networks by means of which it can provide equipment and services to network operators, service providers and corporations.
Nokia can profit from the advantages in the wireless handset market. These advantages include massive scale and significant broad distribution, which are great. Nokia still has the chance to become a smartphone player if management can use these advantages in the right way.
Financially speaking, Nokia is healthy. Developing new products should not adversely affect the firm.
RadioShack Corp. (RSH, Financial): RadioShack is a leading small-box consumer electronics retailer. The stores it operates are generally located in major malls and strip centers. RadioShack's retail network also includes 1,300 wireless kiosks, 1,200 dealer outlets, and 200 company-owned stores in Mexico.
The company comprises three segments: wireless (38% of revenue), accessories (25%) and modern home (13%).
In terms of recent actions, management has been able to launch a successful cost cutting measure that increased the stores efficiency. With the cut in costs the company should be able to keep expenses on low-single-digit vis-Ă -vis sales growth.
RadioShack's small-box size should make it a prime beneficiary of the new tablet computing product cycle. Indeed the company obtained Apple's iPad 2 and the tablet market should boost customers´ demand and consumption of accessories.
RadioShack is very well positioned among the best retailers. Lately, it has been the target of many rumors regarding possible acquisition given its small market capitalization, its cash position, its modest debt and constant cash flow.
SK Telecom Co. Ltd. ADR (SKM, Financial): SK Telecom is the largest wireless telecom operator in Korea and also holds 55% in SK Broadband and stakes in other operators across the globe.
Now, SKM focuses on trying to dominate the Korean wireless market and expand in other countries too. The presence in Korea enables SK Telecom to offer wireless and fixed-line telephony and broadband services.
Recently SK Telecom has gained access to the iPhone.
Vodafone Group PLC (VOD, Financial): Vodafone is the second-largest wireless phone company in the world behind China Mobile. It has gained this position thanks to its customer base that is made up of millions of consumers and its 45% stake in Verizon Wireless. Furthermore it is a very important carrier as to the number of countries that receive its services.
The company has majority or joint control in 22 countries and minority or partnership interests in others.
Its prime is to become the communications leader.
In terms of financial health, Vodafone has been improving. Although it has taken on debt to carry out acquisitions, it has recently been able to start selling minority stakes to reduce such debt and repurchase stock. Most importantly, the company has the capacity to produce large cash flow.
In terms of growth, VOD is performing very well. Group service revenue grew 1.5% and the most strategic areas have increased: data grew 25% thanks to the smartphone penetration; fixed, 6% and AMAP, 8.7%.
Vodafone´s scale and scope across the world provides cost advantages. Programs that are launched in one market are then applied to the rest at very low cost.
Last but not least, Vodafone has developed M-Pesa, which allows money to be transferred via cell phone, for emerging-market customers who don't have bank accounts.
BP Plc (BP, Financial): BP is an integrated oil and gas firm with operations across six continents. Upstream operations are expected to produce 3.4 million barrels of oil per day, while downstream operations, 2.4 million barrels.
As regards future expectations, the company is willing to close its asset sales at the beginning of 2012 and is planning an additional divestment of $15 billion before 2014. The idea of the company is to set aside non-core upstream properties and create a stronger portfolio.
This will certainly bring value to shareholders. BP remains one of the more oily super majors, with 63% of production coming from oil.
Chou's Equity Opportunity Fund has a mandate: to invest in equity securities of companies located in developed and emerging markets across the world insofar as Chou thinks they are at market prices and less than their value. The idea of the investments is to identify compelling opportunities that, according to the circumstances, ensure a long-term growth of capital. As he puts it: “If you know how to spot a bargain it will make you a good investor.”
In general, the portfolio includes between 10 and 25 securities and the Fund usually invests in common and preferred shares, convertible stocks, American Depositary Receipts, pooled investment vehicles, including private equity and hedge funds, rights and warrants. In his last shareholder letter said: “We believe that equities and debt securities, both investment and non-investment grade, are now close to fully priced. In equities, we believe the financial, retail and pharmaceutical sectors are undervalued. We favor a basket approach versus concentrating on one or two stocks in those sectors.”
As it has been stated before, Chou is a long-run player, but sometimes he may sell a security. When doing so, he believes that: (1) the market has recognized the security’s full potential value; (2) the security’s fundamentals have deteriorated; or (3) alternative investments have become more attractive.
In terms of investments, sometimes the Fund may invest its net assets in debt securities, such as government and corporate bonds, high yield bonds, asset backed securities and repurchase agreements. Other times the Fund uses financial instruments as investments to (1) limit or hedge against losses that may occur because of the Equity Opportunity Fund’s investment in a security or exposure to a currency or market; (2) obtain exposure to financial markets; (3) reduce transaction costs; (4) create liquidity; and/or (5) increase the speed of portfolio transactions.
Chou may decide to maintain a large portion of the Equity Opportunity Fund’s debt investments in short-term fixed income securities during periods of high market valuations and volatility. This strategy may permit Chou to preserve capital while awaiting more favorable market conditions.
The Equity Opportunity Fund may invest in bank debt, lower-rated, distressed or defaulted debt securities, comparable unrated debt securities or other indebtedness of such companies.
Nokia (NOK, Financial): it is the largest manufacturer of mobile devices across the world and it also ranks first in mobile network equipment and software. The mobile phones it produces offer consumers voice, video, gaming, navigation, imaging and music.
Furthermore NOK holds 50% of Nokia Siemens Networks by means of which it can provide equipment and services to network operators, service providers and corporations.
Nokia can profit from the advantages in the wireless handset market. These advantages include massive scale and significant broad distribution, which are great. Nokia still has the chance to become a smartphone player if management can use these advantages in the right way.
Financially speaking, Nokia is healthy. Developing new products should not adversely affect the firm.
RadioShack Corp. (RSH, Financial): RadioShack is a leading small-box consumer electronics retailer. The stores it operates are generally located in major malls and strip centers. RadioShack's retail network also includes 1,300 wireless kiosks, 1,200 dealer outlets, and 200 company-owned stores in Mexico.
The company comprises three segments: wireless (38% of revenue), accessories (25%) and modern home (13%).
In terms of recent actions, management has been able to launch a successful cost cutting measure that increased the stores efficiency. With the cut in costs the company should be able to keep expenses on low-single-digit vis-Ă -vis sales growth.
RadioShack's small-box size should make it a prime beneficiary of the new tablet computing product cycle. Indeed the company obtained Apple's iPad 2 and the tablet market should boost customers´ demand and consumption of accessories.
RadioShack is very well positioned among the best retailers. Lately, it has been the target of many rumors regarding possible acquisition given its small market capitalization, its cash position, its modest debt and constant cash flow.
SK Telecom Co. Ltd. ADR (SKM, Financial): SK Telecom is the largest wireless telecom operator in Korea and also holds 55% in SK Broadband and stakes in other operators across the globe.
Now, SKM focuses on trying to dominate the Korean wireless market and expand in other countries too. The presence in Korea enables SK Telecom to offer wireless and fixed-line telephony and broadband services.
Recently SK Telecom has gained access to the iPhone.
Vodafone Group PLC (VOD, Financial): Vodafone is the second-largest wireless phone company in the world behind China Mobile. It has gained this position thanks to its customer base that is made up of millions of consumers and its 45% stake in Verizon Wireless. Furthermore it is a very important carrier as to the number of countries that receive its services.
The company has majority or joint control in 22 countries and minority or partnership interests in others.
Its prime is to become the communications leader.
In terms of financial health, Vodafone has been improving. Although it has taken on debt to carry out acquisitions, it has recently been able to start selling minority stakes to reduce such debt and repurchase stock. Most importantly, the company has the capacity to produce large cash flow.
In terms of growth, VOD is performing very well. Group service revenue grew 1.5% and the most strategic areas have increased: data grew 25% thanks to the smartphone penetration; fixed, 6% and AMAP, 8.7%.
Vodafone´s scale and scope across the world provides cost advantages. Programs that are launched in one market are then applied to the rest at very low cost.
Last but not least, Vodafone has developed M-Pesa, which allows money to be transferred via cell phone, for emerging-market customers who don't have bank accounts.
BP Plc (BP, Financial): BP is an integrated oil and gas firm with operations across six continents. Upstream operations are expected to produce 3.4 million barrels of oil per day, while downstream operations, 2.4 million barrels.
As regards future expectations, the company is willing to close its asset sales at the beginning of 2012 and is planning an additional divestment of $15 billion before 2014. The idea of the company is to set aside non-core upstream properties and create a stronger portfolio.
This will certainly bring value to shareholders. BP remains one of the more oily super majors, with 63% of production coming from oil.
