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   Strategies & Market TrendsValue Investing


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To: Paul Senior who wrote (29350)12/20/2007 11:40:49 PM
From: Spekulatius
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I sold my CIT recently as I simply lost confidence (probably at the worst possible time). Here is my reasoning:

CIT has pledged 7.2B$ in mortgages for 5.1B$ in cash. this is a non recourse deal which means that the worst case scenario is that CIT keeps the cash it has already but looses all economic will loose all mortgage assets. this of course would mean that CIT will have to write off another 2.1B$ in equity.

Besides that CIT still holds 2.5B$ in mortgage receivable. I suspect that those are lower quality than the ones mentioned in the pool above. I think we have quite a bit of additional writeoffs for those mortgage assets ahead of us. My best guess is 2B$. This would reduce CIT book value/share by roughly 10$/share. After that they would have an 78B$ balance sheet with only 4.5B$ in equity, which looks undercapitalized. So very likely they will turn around and find an rich Uncle in the far east who kicks back the lost 2B$ (a 30% dilution for current owners) just like UBS, ETFC, MS or C did to replace the lost capital and keep a decent rating.

Not a very enticing scenario and it will not be pretty for current equity holders but i think it's fairly reasonable based on what we see unfolding at UBS and MS recently.

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To: Paul Senior who wrote (29350)12/21/2007 5:39:15 AM
From: Madharry
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i wonder if you owned shares in finova way back. i just spent a few minutes reading the thread on that one and it was pretty scary. the company which was a large finance company started to spiral downward in 2000. the ceo / founder resigned at the stock price got cut in half following the bankruptcy of one of its large borrowers. at that time according to the thread there were still 17 buy recs on the stock. the stock kept tumbling as value players stepped in and bought and added as the stock dropped below book value, Insider purchases ensued, the stock kept dropping as they announced the hiring of investment bankers to pursue strategic alternatives. the stock kept dropping as buffet bought some distressed bonds. stock kept dropping as it was announced that luk was going to buy a piece of the company. Ultimately the company filed for bankruptcy. Im not saying this will happen to CIT, but it certainly makes me wonder whether anyone really knows whats going on sometimes.

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To: Paul Senior who wrote (29352)12/21/2007 9:09:13 AM
From: Keith J
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Paul, I have generally stayed away from the financials, and am not sure when the right time to enter the sector will be.

Any thoughts on SLM at this level?

KJ

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To: Madharry who wrote (29355)12/21/2007 9:22:23 AM
From: Paul Senior
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I don't recall Finova. Who knows how safe anything is? Is it possible none or only a few of the big lenders' stocks will recover? Somebody is going to survive and thrive. (CIT? Who knows?) Country still needs financing to keep economy moving.

I sold my CIT shares to Tyco when they bought it, and I bought back the shares when it was later spun out from Tyco. I'm willing to take a chance again on CIT as it gets chewed up now. For a few share bet. Yes, if somebody is keeping a concentrated portfolio, I don't see how they can have the confidence to make CIT or any of its ilk a substantial bet, unless they are intimately familiar with such a company. More familiar to it than the analysts who were following Finova.

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To: Keith J who wrote (29356)12/21/2007 9:47:06 AM
From: Paul Senior
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SLM. I'm too scared to try that one.

Guy/firm who wanted to buy it changed his mind?

It SHOULD be a straight-forward company, I would hope. Make/facilitate student loans.

Reaching for yield (??), they got tied up in the subprime/CMO mess?

Now the new guy:

"SLM's new chief executive officer, Albert Lord, said on a conference call to investors that his first goal for the company, known as Sallie Mae, is to strengthen its balance sheet.

"We will need to add capital," said Lord, who took over as CEO last Friday. "In this market, capital is king. The company needs to diversify its funding base."

Lord turned testy at times on the conference call, and toward the end said he would take more questions at a meeting in January. He recommended that participants arrive early "because I can assure, you will be going through a metal detector."

At the end of the call, according to a transcript, Lord said, "There's no questions, let's get the (expletive) out of here." That segment was removed from the rebroadcast on the company's Web site."
===================
Cripes, I don't need to be in a stock with yet another Enron-arrogant tough-guy at the top.

All jmo.

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To: Paul Senior who wrote (29358)12/21/2007 10:20:58 AM
From: Asymmetric
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Bought Jabil Circuits Right Here

Jabil one of the better run contract manufacturers.
Took a good sized gulp.

- A.

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To: Paul Senior who wrote (26973)12/21/2007 10:39:45 AM
From: E_K_S
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Switched out of half of my SVU (SUPERVALU Inc.) and into TESCO PLC SPONS ADR (TSCDY.PK). Tesco Foods has outperformed SuperValue in the last two years and began to open new stores in Southern CA, NV and AZ. Their new local retail concept is to provide quality at low prices using local producers (for both meat & produce). Their store inventory is of high quality with less duplicate items that allows them to keep prices low. This is a similar concept COSCO uses. Their transportation and distribution costs are kept low as they focus on providing local produced foods. This should help them compete if food inflation becomes a problem.

Tesco Foods as an international retailer provides diversification with stores around the world. Their move into "niche" U.S. markets, provides excellent growth opportunities for this company. Same store sales and profit margins continue to beat the large U.S. retailers.

finance.google.com

They pay a similar dividend as SVU but in Euros that is converted into U.S. dollars. Therefore they should do well in a weal U.S. dollar environment.

New innovations in the food retail group has been slow to develop in the U.S. but with Tesco, their concept is new and different. They have been very successful in Europe and I believe they should do quite well in the U.S..

EKS

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To: Asymmetric who wrote (29359)12/21/2007 11:42:50 AM
From: Paul Senior
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JBL. That should/could work.

Company has been profitable past ten years. Some competitors have not been.

D/e ratio seems to be increasing, and roe is (still) very low. That's not good.

Still not quite sure how to look at these companies, I'll go with p/sales since I consider them contract manufacturers, mostly assemblers (ecm = electronics contract manufacturers), so more sales/sh = more profits/sh, and should/could/might better off at a low stock price paid for each sales dollar. This in spite of the companies diversifying by providing lots of design expertise for their customers. And I understand analysts look at product lines of customers and the industry the ecm's specialize in, for specific buy/sell recommendations. For example if an ecm specializes in telecom equip. and that's considered a booming area in '08-'09 (vs. assembling computers), or say assembles the latest iPods - such an ecm is likely to be favorably viewed by the analysts (imo).

Anyway, for me, the key p/sales ratio is low (relative to past years), company's been profitable, stock is at lows, company is big and diverse (65000 employees), so as I say, stock could work out from here.

I occasionally check FLEX and BHE, and couple of the other small printed circuit board manufacturers and assemblers, but I'm not so enthusiastic about the sector. Oh for 1998-2001: now those were the days for many of these companies.

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To: E_K_S who wrote (29360)12/21/2007 1:52:48 PM
From: Madharry
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My own sense of it is that in a lot of places in europe they were the first mega store around. In the Usa they will have to compete with walmart and target. different story. but what do i know about retail anyway? Turns out I should have averaged down into fmd rather than ccrt, but ccrt looked so much cheaper so i was waiting for fmd to go down to book. GS made a great investment here. I added a little more SIL at these levels.

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To: Paul Senior who wrote (29358)12/21/2007 2:13:27 PM
From: rllee
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SLM under 20 is a steal. Every mutual fund hates it leading to heavy tax-loss selling. Blood is on the streets in this one. Buy some covered calls if you are scared, but it should be a profitable investment.

Look at Marty Whitman buying big the mortgage insurers, this is a hated industry but he smells blood at current levels.

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