Gurus Think It Is a Great Time to Buy, Do You?
February-26-2008
The recent stock market decline certainly hurt a lot of investors, including some of our Gurus. But historically the best time to buy stocks is when many people are in fear. This is the review of what Gurus think about the current stock mark and opportunities.
Bruce Berkowitz: We have always been attracted to sectors showing large declining market values.
Bruce Berkowitz was largely unhurt by the credit crash and financial sector meltdown, as he did not own many financial stocks. His fund gained 12.35% vs. the S&P 500 Index performance of 5.49% (with dividends reinvested).
This is comment regarding the credit crunch: “Last year’s asset-backed securities 1 earthquake resulted from years of poor loan underwriting, residential builder overconfidence, and real estate speculation. The after-shocks continue to be felt, exaggerated by derivative securities piled on top of each other. Worldwide, financial institutions may ultimately write-off hundreds of billions and are being forced to raise equity to survive — if they can. Almost certainly, there will be high profile restructurings and continued stress.”
What does he think about the opportunities? “We have always been attracted to sectors showing large declining market values. Usually, stock prices of businesses within these industries drop faster than underlying values, tainted by the collapse of speculative securities. Such conditions create a Darwinian process of the strong getting stronger and the weak disappearing. The winners are usually run by battle-hardened owner/managers who know that the seeds of greatness are planted during the worst of times and reaped after the storms pass. To the victor belong the spoils”.
Bruce Berkowitz buys WellCare Health Plans Inc., The St. Joe Company. The Progressive Corp. The prices of these companies have hit multiyear lows and the industry is distressed.
For the complete stock picks of Bruce Berkowitz, go to http://www.gurufocus.com/StockBuy.php?GuruName=Bruce+Berkowitz
David Winters: It is a great to buy if you have cash and do the work
David Winters’s Wintergreen Fund’s fund gained +21.13% in 2007. Winters invest heavily in international stocks. These days he sees a lot of opportunities, even in US.
In an interview with Bloomgerg, Winters says fortunes are made at time like this. “6 months ago, people were extremely optimistic, now they are fearful. If you do the work, and have cash, it is great time to go shopping. You got to buy wonderful merchandise at discount… We have deemphasized the US in the past years, but today there are great companies that on sale, just look at the 52-week low list.”
Watch David Winters video: http://www.executiveinterviews.com/U12198-wint-blus/
For the complete stock picks of David Winters , go to http://www.gurufocus.com/StockBuy.php?GuruName= David+Winters
Dodge & Cox: Some of the best investment opportunities are created during periods of uncertainty.
2007 was the first year since 1999 in which the Dodge & Cox Stock Fund underperformed the S&P 500. The Fund returned 0.1% in 2007 compared to 5.5% for the S&P 500. Certainly seeing a lot of opportunities, Dodge & Cox reopened their fund to new investors.
Regarding to financial market decline, Dodge & Cox write in their shareholder letter: “Beginning in the third quarter, equity market volatility increased dramatically as investors began digesting what has seemed like a constant stream of negative news regarding the U.S. housing market, the Financials sector and the broader economy. A long-term investment horizon is particularly important in the face of volatility. In our experience, some of the best investment opportunities are created during periods of uncertainty.”
What Dodge & Cox are doing? “As valuations in the market and the Fund have dropped, our return outlook for the next three-to-five years has improved. At year end, the Fund’s forward price-toearnings ratio was 12.9 times compared to 16.3 times for the S&P 500. We are finding attractive investment opportunities and have lowered the Fund’s cash position to 1.3%. We also remain encouraged about the long-term prospects for the global economy. Despite the turmoil during the last six months of 2007 and the market’s downturn thus far in 2008, the forces of technological innovation and free market economic principles are creating unprecedented wealth in the developing world and compelling investment opportunities for the patient investor. We will continue to work hard to uncover these potential opportunities and counsel you to have patience and take a long-term view of investing in general.”
Dodge & Cox Buys Comcast Corp., Amgen Inc., Vulcan Materials Company, For the complete stock picks of Dodge & Cox , go to http://www.gurufocus.com/StockBuy.php?GuruName=Dodge+%26+Cox
Mason Hawkins: The fourth quarter volatility gave long-term investors terrific opportunities to pursue
Mason Hawkins’s Longleaf Partners’ Fund lost 0.4% during 2007. He must be seeing a lot of opportunities as he reopened his fund to new investors.
About the recent economic issues and financial crisis, he wrote: “How long will these issues remain, and more importantly, are they properly reflected in stock prices? Stability will return at some point, although we have no ideas of the timing. The uncertainly of what the next six months will look like has Wall Street in knots. While we may appear stupid in the short run, our long-term time horizon and that of our partners gives us the luxury to act based on how business will look several years from now, not based on whether fear will grip markets next quarter.”
Regarding to opportunities, he wrote: “In the business we are buying, we believe short-term fears are more than reflected in the stock prices… This environment is not dissimilar to that of the fall of 2002, and as most of you remember, the aftermatch in 2003 was particularly rewarding.”
What is Mason Hawkins buying? Beaten down retailers and banks including Walgreen Company, Ltd. Brands Inc., The First American Corp etc. For the complete list, go to http://www.gurufocus.com/StockBuy.php?GuruName=Mason+Hawkins
Wallace Weitz: We think this is a very good time for investing.
Wally Weitz had a bad year in 2007, his Value Fund lost 10.3%, as CountryWide was one of his largest holdings. He wrote: “We are glad that 2007 is history. The U.S. stock market showed a modest aggregate gain (S&P 500 +5.5%), but the market had a distinctly split personality. The housing, mortgage finance and consumer sector stocks were very weak, while others, seen as beneficiaries of booming Asian economies, were very strong. We were positioned squarely on the wrong side of the 2007 market and as a result, both our relative and absolute performance were poor.” Over past 20 years, Wally Weitz’s Value Fund outperformed the market by 1.4% a year.
Regarding the current environment, Weitz wrote: “In this environment, the stocks of companies with real problems have been punished severely. Unfortunately, the stocks of many other companies that have been impacted in minor or temporary ways have also been subject to heavy selling pressure. The potential rewards for successfully navigating this kind of market are great. However, to earn these rewards, investors must have the courage of their convictions so they can stick with their investments during extended periods of uncertainty. This can be painful... For those with the courage and patience to buy good assets when nobody else wants them or can afford to buy them, we think this is a very good time for investing. Terrific assets and companies with strong franchises are available at very attractive prices. We believe that it takes very little imagination to envision the possibility of 50% appreciation in most of our stocks over the next 2-3 years.”
Wally Weitz likes Berkshire Hathaway, AIG, American Express, Fannie Mae and Freddie Mac, etc. For the complete list, go to http://www.gurufocus.com/StockBuy.php?GuruName= Wallace+Weitz
Bill Miller: I believe equity valuations in general are attractive now
After beating the S&P500 consecutively for 15 years, Bill Miller wrote “We had a bad 2007, which followed a bad 2006. Over this two-year span, we underperformed the S&P 500 by around 2000 basis points 2 , our worst showing since the two-year period 1989 and 1990, where we underperformed by 2500 basis points.”
However, he continues to wrote: ‘It is not an accident that our last period of poor performance was 1989 and
1990. The past two years are a lot like 1989 and 1990, and I think there is a reasonable probability the next few years will look like what followed those years.” In which he outperformed the market average by 15 consecutive years.
What does he think about the market: “Investors seem to be obsessed just now over the question of whether we will go into recession or not, a particularly pointless inquiry. The stocks that perform poorly entering a recession are already trading at recession levels. If we go into recession, we will come out of it. In any case, we have had only two recessions in the past 25 years, and they totaled 17 months. As long-term investors, we position portfolios for the 95% of the time the economy is growing, not the unforecastable 5% when it is not… I believe equity valuations in general are attractive now, and I believe they are compelling in those areas of the market that have performed poorly over the past few years. Traders and those with short attention spans may still be fearful, but longterm investors should be well rewarded by taking advantage of the opportunities in today’s stock market.”
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