Category: value investing

Value funds catching falling knives in financials

More evidence in a WSJ article, “Value Funds Seek Opportunity in Volatility.”

“Adversity creates opportunity for value managers, especially long-term value managers,” said Neil Eigen, a managing director at J&W Seligman.

Buying BofA, JP Morgan, Countrywide…

Mr. Eigen said some stock sectors, such as commercial-banking shares, have gotten cheap. One name he likes is Bank of America Corp. Chairman and Chief Executive Kenneth D. Lewis “is certainly one of the premier bankers in the world,” he said. And, Mr. Eigen noted, the stock offers a 5.15% yield. J.P. Morgan Chase & Co. is “the same thing. It’s a great bank, with great trading activity. It’s very well managed, and it’s depressed because of the mortgage markets,” he said.

Though it is too early to look at housing, some of the mortgage brokers, such as lender Countrywide Financial Corp., offer value, he said, noting that Bank of America recently invested $2 billion in Countrywide. Bank of America “did its due diligence, and I guess they feel [Countrywide] will survive,” Mr. Eigen said. “Countrywide Financial was making one of six mortgages in the U.S. at their peak, and they will survive.”

With the Fed as backstop…

Mr. Eigen said he doesn’t think investors have seen a bottom to the market in terms of fundamentals, but he expects that if the Federal Reserve cuts interest rates later this month, the stock market will rally.

“That doesn’t mean we’re out of the woods fundamentally, but I think we’re closer to a bottom than we were a few weeks ago,” he said.

My comment: Growth investors were the dupes during the 2000 tech bubble; value investors are the bagholders for the current credit bubble.

Value investors bottom fishing in financials

Bear Stearns
As Bloomberg reported:

Billionaire Joseph Lewis, the British-born, Bahamas-based currency trader, paid $860.4 million for a 7 percent stake in Bear Stearns Cos., making him the beleaguered brokerage firm’s largest shareholder.

Radian Group
Fabled value investor Marty Whitman upped his stake in the mortgage insurer:

Third Avenue Management LLC more than quadrupled its stake in mortgage insurer Radian Group Inc. to 11 percent of outstanding shares.

My comment: There will be plenty of pain to go around as this credit bubble unwinds, some of which is likely to be endured by otherwise shrewd investors catching falling knives.

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