Investing Linkfest 3/22/08
Life is “solitary, poor, nasty, brutish, and short.” Thomas Hobbes might say the same about life in the stock market for hedge fund managers. The mortality rate found in the hedge fund world is extremely high; it is an ecosystem that is filled with predators and would-be predators. By mid-2007, an estimated 9,700 hedge funds controlled approximately $1.7 trillion in assets. According to Hedge Fund Research, 1,518 launched in 2006 and nearly as many called it quits. The battle for investment survival mirrors Hobbes’ State of Nature found in his Leviathan, where life is a war of all against all (bellum omnium contra omnes).
As an asset manager, I aim to exist in this world with selective company, wealth, civility, and longevity. This Investing Linkfest deals primarily with the State of Nature as we find it. We find the world in a state of war and our homes plummeting in value. We have witnessed the demise of Bear Stearns (BSC) and the thinning of the investment banking species. Fear, not greed, permeates a volatile atmosphere and these are conditions ripe for skilled hedge fund managers to protect wealth. Staying in the game is the name of the game.
Will we continue to call on our defense sector companies to provide services that help us to protect our homes? Even if our houses continue to depreciate in value into negative equity territory, would we not still defend what little value we retain? Defense related stocks take the limelight while we examine the dark recesses of housing related stocks.
IHS Q1 results top Street estimates, ups ‘08 rev view - I’ve always found Jane’s Intelligence Solutions to be peculiarly named. Jim’s Intelligence Solutions might be more apropos for its implied masculinity. In parallel, the hedge fund world is filled with macho names like Tiger Global, Cerberus Capital, Pirate Capital, and Fortress Investment Group (FIG). Then again, only an estimated 7.8% of hedgies are women. The military relies on IHS (IHS) to provide technical information, logistics support, safety handbooks, and consulting. Chances are that a Democrat will take the White House, our best prediction markets say so, and this would be a high risk investment.
Moog sees China sales more than doubling in 2-3 yrs - Founder Bill Moog started the company in 1951 and was probably an alpha male as well as a brilliant engineer. Moog (MOG-A) manufactures precision control systems that are primarily used by the aerospace and defense industry for satellites, missiles, and aircraft. The company also has a medical device division building pumps for delivering nutrition to hospital patients. This is obviously not a household name like Lockheed Martin (LMT), Northrop Grumman (NOC), or Boeing (BA), but it pays to look where no one else is looking.
ManTech Q4 earnings rise, sees Q1 above Street view - This is a quintessentially manly name befitting a company in the business of providing information technology products and software that help the military secure its data, manage logistics, and organize intelligence. ManTech International (MANT) has seen strong growth in the recent past but of course the real question is whether it will see strong results in the future. Prediction markets should explore the differences between a potential Clinton presidency versus an Obama presidency as well as the implications for the defense sector. The highly unlikely McCain presidency would probably keep the defense stocks healthy with government orders.
CRH says agrees to buy U.S. Pavestone for $540 mln & Ireland’s CRH to enter India with MHIL buy - Prudently run companies should take advantage of a downturn in the economy and grab market share from flailing rivals. CRH (CRH), an Irish producer of cement and building supplies seems to understand the opportunity at hand to capture market share and position itself for the inevitable recovery. Emerging markets continue to demand copious amounts of the company’s products. Beware of debt, it is relatively manageable compared to the competition but significant nonetheless.
Global Prefabricated Housing Market to Exceed 836 Thousand Units by 2010 - This little note is a rare bright spot in the abyss that is the housing market. Of course, it is easy for analysts to cite “global” demand in “emerging” economies as offsetting the slump in the domestic market. I am skeptical of the arguments for decoupling. In ancient times when isolationism prevailed, decoupling was a natural phenomenon. In this era of global integration, decoupling seems highly unlikely. I would argue that we are more interdependent and correlated than ever before. Tangentially, it is this argument that lends credence to the theory that democracies never go to war with each other. Cavco Industries (CVCO) has a clean balance sheet and may be able to weather the current storms on the housing front. Marty Whitman, the legendary aggressive conservative investor at Third Avenue Management’s Value Fund (TAVFX) seems to agree. I think things get worse before they get better, but that’s probably what Whitman thinks too.
Avatar 2007 earnings fall on weak market - Florida and Arizona remain two of the weakest real estate markets in the country. Avatar Holdings (AVTR) happens to be concentrated primarily in these two states. Foreclosures and negative equity threatens to plunge real estate values further. Have we reached the depths of despair? The recovery will occur as boomers retire to the sunny climes of the desert and the beach. The question is when will the turnaround occur? Remember that the market anticipates the future.
Herman Miller Sees Difficult Fiscal 2008 - Everyone at my previous venture-backed startup, mediaFORGE, loved the Herman Miller (MLHR) Aeron chair. It has become an iconic fixture at wasteful software startups in Silicon Valley and beyond. Its home furniture unit has suffered along with the rest of the residential real estate market. There doesn’t appear to be a slowdown in technology startups and venture capital funding remains strong. The high capital expenditures necessary in the furniture manufacturers space puts many of these companies in precarious positions. Debt payments do not slow down along with slowing revenues in a faltering economy.
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