Value Investment opportunity
Highest Return Scenario
Temporary bargain price
Solid Fundamental value
= Highest return
High Return Opportunities – AMEX & GEICO
1960 American Express Salad Oil crises, AMEX shares dropped $65/share to $35/share.
Warren Buffett partnership invested $13 Million (40% of his partnership fund). In 2 years,
Price tripled and partnership earned $20 Million profit.
GEICO (1976) – Stock dropped from $61/share to $2/share.
Over next 5 years until 198, Berkshire invested $45.7 Million.
1996 – Berkshire owned 51% of the company and agreed to pay $2.3 Billion for 49% of the
company, paid close to $70/share
Compound Annual return for 20 years = 19.45% for 20 years.
Recent High Return Opportunities – GS,BAC and CITI
Citigroup (08 to 09) - $30 to $0.97/share,
March 09 touched $0.97/share, bounced back to $5.23 on August 09..
530% return in 5 months
Goldman Sachs(Jan08-09)- From $195/share to $59/share
in Nov 08. Then Bounced back to $165/share in Dec 09. 270% return in
Bank of America (Jan 08-09) – From $40/share to $2.53(Mar 09),
Bounced back to $15.28(Dec 09). That is 600% return in 9 months
Warren Buffett - Pessimism
The most common cause of low prices is pessimism - some times pervasive,
some times specific to a company or industry. We want to do business in such an
environment, not because we like pessimism but because we like the prices
it produces. It's optimism that is the enemy of the rational buyer
The future is never clear, and you pay a very high price in the stock market
for a cheery consensus. Uncertainty is the friend of the buyer of long-term values
- Warren Buffett
Price is what you pay. Value is what you get
- Warren Buffett
TEREX Corporation – Present opportunity
Terex Corporation operates as a diversified global manufacturer. The company operates in four business
segments: Terex Aerial Work Platforms, Terex Construction, Terex Cranes, and Terex Materials Processing
& Mining. Terex Aerial Work Platforms segment offers material lifts, portable aerial work platforms, trailer-
mounted articulating booms, self-propelled articulating and telescopic booms, scissor lifts, telehandlers,
construction trailers, trailer-mounted light towers, power buggies, portable generators, and related
components and replacement parts
Temporary Bargain Price -Terex Corporation(2007-2009)
TEX trading around $74/share in October 2007,
2007 yearly revenue : $9.1 Billion, Net income : $613 Million
2007 Diluted shares = 104.9 million shares
Market cap in October 2007 = $7.76 Billion.
2007 EPS = $5.85/share
2007- P/E trading ranges 9 and 17, stock trading $56 to $65/share
Recession started in 2008, revenue started coming down, financial crisis happened,
Price came down, lowest point reached February 2009 $8.92/share
Kendall Law Group filed lawsuit for possible securities violations related to public
statements made Dec 31 st, 2009 price : $19.81/share
Terex lower revenue because of Industry down turn started in 2008 and
continue in 2009.
Terex started managing the business for cash conversion in 2009
2009 Long term Debt $1.9 Billion
Over $1.5 Billion Liquidity and no near term debt maturities until 2012
Improved prospects for 2010
Networking capital reduction $199 Million
Cash from inventory reduction $497 Million YTD
Current administration infrastructure spent and Emerging market demand
Solid Fundamental Value
2009 last 3 Quarters revenue : $3.82 Billion compared to $7.7 Billion in 2008
2004 to 2008 EPS growth = 16.5%
Retained earnings are great. Each dollar retained created $2.48/share from
2004 to 2008
2004 to 2008, Average ROE = 22.58%
Owner income increased 12.41% from 2004 to 2007
Solid Fundamental value- Intrinsic value
Owner income increased 12.41% from 2004 to 2007.
Company in the cost conservation strategy to survive the recession,
After the recession, probably next year revenue will start grow.
Calculating conservative owner income increases, 5% for next two
years and 4% for another three years.
Discount rate : 20%
Calculated intrinsic value = $45/share
12/24/09 trading price = $21.24/share
Which is 52.8% discount to intrinsic value.
Able Management - Divestiture of Mining Business
Divestiture of mining business to Bucyrus international for $1.3 Billion cash.
Through 2004-2008, mining has accounted for 12% and 14% of consolidated net sales
and operating profit respectively.
2008 Net sales with Mining = $9.9 Billion
2008 Net sales without mining = $8.4 Billion
Company planning to concentrate on machinery
and industrial production.
Ron DeFeo, Chairman and CEO
Company projecting to earn EPS = $8.5/share in 2013 that is double the business in 2013
Use of proceeds to pay down debt.
14% of the profit = $1.3 B cash offer
100% of the company should be valued at $9.2 Billion.
12/24/09 market cap = $2.3 B, which is 75% discount to intrinsic value.
Terex return projection – Owner earnings
2013 projected Cash flow $694 Million as per the owner earnings
projection, that is around $6/share.
This stock historically traded between 9 and 17 ratio. Dec 31
st,2009 TEX price : $19.81
Lowest P/E calculation - $54/share,
Compound annual return = 28.4%
High P/E Calculation = $102/share
Compound annual return = 50.63%
Long term Approach –Southwestern Energy
Invest in Business and behave like Private Business owner. Long term
holdings will yield great results over time.
As per the new Wall street jargon, Buy and hold strategy is dead.
Present portfolio managers, turn their portfolios 200 to 300% normally.
Last Decade example – South western Energy company(2000 to 2010)
Dec 31 st, 1999 - $0.80/share, Dec 31 st,2009- $48.20/share
Total return – 6025%, Compound Return – 50.65%
Long term Approach – Amazon, Priceline
May 1997- $1.50/share, Dec 31 st,2009- $134.52/share
Total return –8968%, Compound Return – 45.25%
Dec 29, 2000- $7.88/share, Dec 31 st,2009- $218.41/share
Total return – 2771%, Compound Return – 44.64%
Above stocks are purchased, when temporary bargain price and kept
long term. These stocks are not present day recommendations. Do your
Invest in Business, Behave like owners.
Invest in circle of competence business, needs to know analyze the
business as business owner.
Invest in simple and high return on Equity type business.
Look for temporary down turn, depressed prices in great business.
Invest in Moat based business.
Invest in great management team
Look for low debt business.
Never use leverage
Invest for long term
Entry price should have minimum 25% discount to intrinsic
value(Margin of safety)
Maintain concentrated portfolio, not more than 20 to 25 names
GJ Investment Funds I LP,
4 Walter E Foran Blvd, Suite 206
Ph: 908-782-0009 Ext 225
We have experienced loss in the past. Do your own research