Street Capitalist: Event Driven Value Investments

The Wall Street Journal has a story on where “smart money” investors are going as stocks continue to fall. I was happy to see Jean-Marie Eveillard of the First Eagle Global Fund on the list. Here’s what he had to say:

Mr. Eveillard has been running money for nearly 50 years, and now at age 68, he plans to retire in March from managing First Eagle Global, which has logged an annualized 11.6% over the past 10 years. Drawing on his experience, he’s asking his analysts to consider that, in a damaged economy, operating profits might fall 30% to 40%. And if so, he’s asking, “Are the stocks we like still reasonably priced?”

That’s certainly the case in Japan, Mr. Eveillard finds. His fund now has about 30% of its equity positions in Japan, because Japan has gone through what the U.S. is now dealing with, and many Japanese companies are stronger for it. In the U.S. he has been buying American Express Co. (NYSE:AXP), “though we were too soon” as the stock has been dropping.

One thing I like about Eveillard is that he distinguishes himself from other value investors by sometimes taking positions that are influenced by macro-economic condition, for example - he’s a big proponent of gold. At this price, American Express certainly looks interesting and it’s on a shortlist of companies that I’ve been researching.

The rest of the value managers listed in the article read as a Who’s Who of Vale Investing for mutual funds. There’s Robert Rodriguez, Wally Weitz, David Winters, Bill Freiss, and Tom Marisco. To be honest, I wasn’t very familiar with the last two investors, but their long term annualized performance is strong and they are worth looking into.

A unifying theme that I saw was constant with these investors was the acquisition of companies that have tons of cash.

From Robert Rodriguez:

Yet amid this month’s violent moves, he began buying again for the first time in nearly a year. He wants market leaders with pristine balance sheets. Example: oil-field services firm Ensco (NYSE:ESV)International Inc., which has more cash than debt. Stocks he likes, Mr. Rodriguez says, “will make it through to the other side of this crisis.”

And Wally Weitz:

Instead, his Weitz Value is opting for Microsoft (NYSE:MSFT), whose once-lofty stock has tumbled. Now, it sports a thrifty price-earning s multiple of less than 12. “It’s safe and has a fortress balance sheet,” Mr. Weitz says.

As we look for companies holding large cash hordes, you’re going to want to look at the management behind the company and ask “Are they good allocators of capital?” If they’re not, that cash could be wasted, try using a discount rate when you see cash.

I’m also pretty astounded by how bad performance has been YTD with all of these funds. However, most of the managers on the list would probably identify themselves as value investors, which can produce some lumpy results. With stocks at a multi-year low though, their bargain hunting prowess should be well rewarded in the years to come — meaning it might be a good time for mutual fund investors.