GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

Martin Whitman buys Alliance Data Systems Corp., MGIC Investment Corp., adds to Radian Group Inc., MBIA Inc., Cimarex Energy Co.

Lengendary investor Marty Whitman looks for "Safe and Cheap" in his investments. He does not pay a lot of attention to earning, he looks at the balance sheet of the company, and calculates its worth. Over the past 15 years, he has achieved more than 16% with his fund. His recent purchases have been discussed a lot since many of them are in beaten down financials and real estates. These are his buys and sells over the past month.

Martin Whitman buys Alliance Data Systems Corp., MGIC Investment Corp., adds to Radian Group Inc., MBIA Inc., Cimarex Energy Co. during the 3-months ended 10/31/2007, according to the most recent filings of his investment company, Third Avenue Value Fund. Martin Whitman owns 102 stocks with a total value of $10.5 billion. These are the details of the buys and sells.

Added: Radian Group Inc. (RDN)

Martin Whitman added to his holdings in Property & Casualty Insurance company Radian Group Inc. by 316.52%. His purchase prices were between $11.94 and $24.05, with an estimated average price of $19.9. The impact to his portfolio due to this purchase was 0.95%. His holdings were 10,359,150 shares as of 10/31/2007.

Radian Group, Inc., through its subsidiaries and affiliates, operates as a credit enhancement company that provides credit protection products and financial services to mortgage lenders and other financial institutions. Radian Group Inc. has a market cap of $971.40 million; its shares were traded at around $11.7 with P/S ratio of 0.72. The dividend yield of Radian Group Inc. stocks is 0.7%.

Added: MBIA Inc. (MBI)

Martin Whitman added to his holdings in Property & Casualty Insurance company MBIA Inc. by 29.22%. His purchase prices were between $49.76 and $66.96, with an estimated average price of $58.4. The impact to his portfolio due to this purchase was 0.66%. His holdings were 7,077,906 shares as of 10/31/2007.

MBIA, Inc., through its subsidiaries, provides financial guarantee insurance and credit protection products, as well as investment management services to public finance and structured finance issuers and investors, and capital market participants. MBIA Inc. has a market cap of $2.51 billion; its shares were traded at around $18.74 with P/E ratio of 4.49 and P/S ratio of 1.35. The dividend yield of MBIA Inc. stocks is 7.3%.

With regard these purchases, Martin Whitman wrote in his shareholder letter:

Second, the good side of these investments:

1) In each instance, TAVF is acquiring common stocks at meaningful discounts from readily ascertainable NAVs. In the case of certain financial institution common stocks – MGIC Common, MBIA Common and Radian Common, the prices the Fund is paying are no more that 40% of book value, or adjusted book value. For each of these companies, a normalized Return on Equity (equity equals book value) (“ROE”) ranges from 8% to 14%. Assuming a 10% ROE sometime in the future, and no further dramatic deterioration in book value during the interim, probably a realistic assumption; and current pricing at 40% of book value, Third Avenue would be paying only four times future normalized earning power. There seems to be a reasonable probability, too, that TAVF is really paying less than four times normalized earnings, even assuming that future normalized earnings are fully taxed and even assuming some modest dilution of the common stocks.

2) Each common stock acquired, is acquired in a company which enjoys a strong financial position. While there can be no guarantees, the probabilities are that each of these companies will survive as solvent going concerns either without requiring major access to capital markets for new funding, or by obtaining new funding from others on terms that are only modestly dilutive for TAVF. On December 10th, MBIA announced that it is obtaining $500 million of equity financing from Warburg Pincus; and another $500 million from a rights offering which Warburg Pincus will backstop, i.e., underwrite. Assuming that Third Avenue participates in the rights offering and also takes advantage of any oversubscription privileges, the capital infusion should be, at worst, only modestly dilutive for TAVF.

3) Each company seems very well managed.

Added: HENDERSON LAND DEV (HLDVF.PK)

Martin Whitman added to his holdings in Land development company HENDERSON LAND DEV by 6.83%. His purchase prices were between $6.4 and $8.1, with an estimated average price of $7.4. The impact to his portfolio due to this purchase was 0.62%. His holdings were 113,328,000 shares as of 10/31/2007.

No business summary available for HLDVF.PK. HENDERSON LAND DEV has a market cap of $ million; its shares were traded at around $9.4 .

Added: Cimarex Energy Co. (XEC)

Martin Whitman added to his holdings in Exploration & Production company Cimarex Energy Co. by 324.08%. His purchase prices were between $35.11 and $39.23, with an estimated average price of $37.2. The impact to his portfolio due to this purchase was 0.6%. His holdings were 2,000,630 shares as of 10/31/2007.

Cimarex Energy Co. operates as an independent oil and gas exploration and production company. It primarily operates in Texas, Oklahoma, New Mexico, Louisiana, and the Gulf of Mexico. Cimarex Energy Co. has a market cap of $3.46 billion; its shares were traded at around $41.97 with P/E ratio of 12.84 and P/S ratio of 3.29. The dividend yield of Cimarex Energy Co. stocks is 0.6%.

Added: CIT Group Inc. (CIT)

Martin Whitman added to his holdings in Specialty Finance company CIT Group Inc. by 400%. His purchase prices were between $33.76 and $41.51, with an estimated average price of $37. The impact to his portfolio due to this purchase was 0.34%. His holdings were 1,250,000 shares as of 10/31/2007.

CIT Group, Inc., a commercial and consumer finance company, provides financing and leasing products and services to various industries. Its products primarily include asset based loans; secured lines of credit; operating, capital. CIT Group Inc. has a market cap of $4.67 billion; its shares were traded at around $23.37 with P/E ratio of 16.48 and P/S ratio of 1.32. The dividend yield of CIT Group Inc. stocks is 4.3%.

Added: Nabors Industries Ltd. (NBR)

Martin Whitman added to his holdings in Oil Equipment & Services company Nabors Industries Ltd. by 11%. His purchase prices were between $27.56 and $31.67, with an estimated average price of $29.8. The impact to his portfolio due to this purchase was 0.27%. His holdings were 10,090,000 shares as of 10/31/2007.

Nabors Industries, Ltd. operates as a land drilling contractor. The company conducts oil, gas, and geothermal land drilling operations in the United States, Alaska, Canada, South and Central America, the Middle East, the Far East, and Africa. Nabors Industries Ltd. has a market cap of $4.35 billion; its shares were traded at around $27.61 with P/E ratio of 8.35 and P/S ratio of 1.40.

Added: The St. Joe Company (JOE)

Martin Whitman added to his holdings in Real Estate Holding & Development company The St. Joe Company by 9.78%. His purchase prices were between $31.47 and $39.23, with an estimated average price of $34.4. The impact to his portfolio due to this purchase was 0.19%. His holdings were 6,666,078 shares as of 10/31/2007.

The St. Joe Company, together with its subsidiaries, operates as a real estate development company in Florida. The company operates through four segments: Residential Real Estate, Commercial Real Estate, Rural Land Sales, and Forestry. The St. Joe Company has a market cap of $2.61 billion; its shares were traded at around $34.61 with P/E ratio of 42.47 and P/S ratio of 2.44. The dividend yield of The St. Joe Company stocks is 1.8%.

Added: USG Corp. (USG)

Martin Whitman added to his holdings in Building Materials & Fixtures company USG Corp. by 20%. His purchase prices were between $35.9 and $40.12, with an estimated average price of $38.1. The impact to his portfolio due to this purchase was 0.19%. His holdings were 3,000,000 shares as of 10/31/2007.

USG Corporation, through its subsidiaries, engages in the manufacture and distribution of building materials worldwide. The company manufactures and markets gypsum and related products in the United States, Canada, and Mexico. USG Corp. has a market cap of $1.62 billion; its shares were traded at around $36.42 with P/E ratio of 16.50 and P/S ratio of 0.33.

Added: Forest City Enterprises Inc. (FCE-A)

Martin Whitman added to his holdings in Real Estate Holding & Development company Forest City Enterprises Inc. by 3.77%. His purchase prices were between $53.56 and $59.67, with an estimated average price of $56. The impact to his portfolio due to this purchase was 0.14%. His holdings were 7,011,858 shares as of 10/31/2007.

Forest City Enterprises, Inc. engages in the ownership, development, management, and acquisition of commercial and residential real estate properties in the United States. Forest City Enterprises Inc. has a market cap of $4.44 billion; its shares were traded at around $57.69 with P/E ratio of 41.03 and P/S ratio of 3.68. The dividend yield of Forest City Enterprises Inc. stocks is 0.6%.

Added: Colonial Bankshares Inc. (COBK)

Martin Whitman added to his holdings in Banks company Colonial Bankshares Inc. by 127.35%. His purchase prices were between $10.81 and $13.87, with an estimated average price of $11.6. The impact to his portfolio due to this purchase was less than 0.01%. His holdings were 36,890 shares as of 10/31/2007.

Colonial Bankshares, Inc. operates as the holding company for Colonial Bank, FSB, which provides various banking services primarily in Cumberland and Gloucester Counties, New Jersey. Colonial Bankshares Inc. has a market cap of $45.89 million; its shares were traded at around $10.15 with P/E ratio of 30.03 and P/S ratio of 5.21.

New Purchase: Alliance Data Systems Corp. (ADS)

Martin Whitman initiated holdings in Financial Administration company Alliance Data Systems Corp.. His purchase prices were between $72.9 and $80.6, with an estimated average price of $77.9. The impact to his portfolio due to this purchase was 1.15%. His holdings were 1,486,200 shares as of 10/31/2007.

Alliance Data Systems Corporation, together with its subsidiaries, provides transaction, marketing, and credit services in the United States, Canada, and internationally. Alliance Data Systems Corp. has a market cap of $6.04 billion; its shares were traded at around $73.67 with P/E ratio of 35.16 and P/S ratio of 4.08.

New Purchase: MGIC Investment Corp. (MTG)

Martin Whitman initiated holdings in Property & Casualty Insurance company MGIC Investment Corp.. His purchase prices were between $19.35 and $36.6, with an estimated average price of $31.3. The impact to his portfolio due to this purchase was 0.19%. His holdings were 1,000,000 shares as of 10/31/2007.

MGIC Investment Corporation, through its subsidiary, provides private mortgage insurance to the home mortgage lending industry in the United States. The private mortgage insurance covers residential first mortgage loans and expands home ownership. MGIC Investment Corp. has a market cap of $1.98 billion; its shares were traded at around $21.85 with P/S ratio of 1.36. The dividend yield of MGIC Investment Corp. stocks is 0.5%.

Sold Out: Levitt Corp. (LEV)

Martin Whitman sold out his holdings in Home Construction company Levitt Corp.. His sale prices were between $2.01 and $6.03, with an estimated average price of $2.9. The impact to his portfolio due to this sale was less than 0.01%.

Levitt Corporation, together with its subsidiaries, operates as a homebuilding and real estate development company in the southeastern United States. The company operates in two divisions, Homebuilding and Land. Levitt Corp. has a market cap of $39.65 million; its shares were traded at around $2 with P/S ratio of 0.06. The dividend yield of Levitt Corp. stocks is 4%.


Rating: 3.2/5 (25 votes)

Comments

danielw
Danielw - 6 years ago


Thanks for the service you provide. One comment: Henderson Land Development is not an insurance company but rather a holding company focused on the acquisition and development of property (both in HK and Mainland China).

Since I own this one and follow it closely, I think it's very likely that TAV's purchase price was closer to the bottom than the top. During the period reported, Henderson sold off strongly to around 50, and then rebounded to where it is today--a little over 73 (HKD).

If Whitman purchased the Company, he most likely took a huge lot off someone's hands at the time of panic, which makes sense as that's when he said he was buying like crazy too. I doubt he caught the bottom (and neither did I--though I did doubled down at 52), regardless it's worth keeping in mind for those who follow the fund.

That said, I should mention that I think GuruFocus's strategy of using an average is the correct one. I just stated the above because, with Whitman and others, there results in real life may be better (or worse) than what the averages here suggest...

--Daniel
vgm
Vgm - 6 years ago
Daniel:

I've been considering getting into Henderson (and Wheelock too). Any thoughts on whether the subprime and/or credit squeeze will have an impact in HK and China? Was the sell-off in Henderson you mention due to this? Thanks.

GuruFocus:

Thanks for the service. For interest, there is a business summary and other info (mkt cap etc) on Henderson at this Reuters link (US$1 is approx HK$8) -

http://stocks.us.reuters.com/stocks/overview.asp?symbol=0012.HK
danielw
Danielw - 6 years ago


The ride down and up was due to the subprime sell-off. At first they were sold off, with everything, and then people realized that if interest rates in the US were going to head lower, the HK property stocks (most of which have a healthy amount of exposure to the Mainland) were going to be the main beneficiaries.

Based on the above, the prices have since exploded higher. Even the larger-cap names, like Henderson and Cheung Kong, are up around 50% since the sell-off--and even more for the year. This is justifiable, given that the general thesis is true, but at current prices I would not be excited about buying into the names or buying more of them.

I really like Henderson's management team, their strategy, and their position within the property sector (of having a large amount of recurring FCF from HK that is being re-invested at attractive returns in the Mainland).

However, I think the 40 cent dollar last year is now 90 cents. It's something that can compound at a good rate many years forward, as it has in the past, but almost nothing but good news is expected going forward now too. I think some of the Japanese property stocks are better bets at this point. Third Avenue recently bought a bunch of PYI Corporation--and that's a very cheap way to still play the rise of China...

--Daniel

vgm
Vgm - 6 years ago
Interesting commentary. Thanks. I may wait for a pullback. I agree Henderson et al will likely compound nicely in coming years - ideally like Brookfield. Marty knows how to pick 'em.

Victor
dividendvalue
Dividendvalue - 6 years ago
Danielw and Vgm - thanks for the comments. DanielW, is it easy to purchase these Hong Kong developers which are pink sheets listed? I've been kicking myself for not buying months ago, and am debating buying Third Ave's Real Estate fund instead.

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK