Showing posts with label turning the ship around. Show all posts
Showing posts with label turning the ship around. Show all posts

Tuesday 25 January 2011

Betting on a Turnaround: John Paulson makes $1bn betting on Citigroup recovery


John Paulson, the hedge fund manager who became a billionaire after predicting the US housing crash, has seen his fund generate $1bn betting on the recovery of US bank Citigroup.


John Paulson, president of Paulson & Co., a New York-based hedge fund, watches the match between Venus Williams, of the United States, and Francesca Schiavone, of Italy, at the 2010 US Open Tennis Championship at the USTA National Tennis Center in Flushing Meadows, New York, USA
John Paulson sold almost 83m shares in Citigroup in the third quarter of last year, but still had 424m shares in the bank Photo: EPA
Paulson & Co, the fund he runs in New York, made the disclosure in a letter to its investors, according to Bloomberg News. Bloomberg quotes the letter from Mr Paulson as saying that its investment in Citigroup "demonstrates the upside potential of many of the restructuring investments we have added to our porfolio and our ability to generate above-average returns in large positions".
Mr Paulson sold almost 83m shares in Citi in the third quarter of last year, according to the latest filings with the Securities and Exchange Commission, but still had 424m shares in the bank.
Though Citi's fourth-quarter results fell short of Wall Street's expectations last week, the bank returned to profit last year for the first time since being rescued with $45bn of US taxpayers in 2008. Vikram Pandit, the bank's chief executive, last week had his annual salary lifted from $1 - an amount he had pledged to take until the bank was back in the black - to $1.75m.
Mr Paulson also expects the US economic recovery to accelerate this year thanks to the extension of the tax cuts agreed on by Congress and The White House late last year, Bloomberg reported.

Saturday 1 January 2011

Are Cyclical stocks also Value stocks? Value stocks usually earn money, turnaround stocks may not.

What are the characteristics of value stocks?

  1. True value investors only buy if a stock is trading substantially below its tangible book value.  It’s hard finding these types of situations in all your investments.  Use this as a guide and not as a “must have.” Over the years, you will have noticed these types of values in the banking, energy and chemical industries, among others.
  2. Another factor you need to find in a value stock is a low price to earnings (“P/E”) ratio.  You are looking for a beaten down stock in an out-of-favor industry. A nice P/E discount is 20% to 50% of the industry average over a few years. You then have the potential to make a nice return on both the natural rotation of the industry to a higher timeliness, as well as the stock regaining market favor. 

When is a cyclical stock also a value stock?


Many investors view cyclical stocks as value stocks. Cyclical stocks are value stocks only if they sell at an earnings (P/E) discount to their peers and meet the book value criteria as mentioned above. 




When is a cyclical stock not value stocks but a turnaround stock?


If the company is selling at a discount to its tangible bookvalue, but its earnings have disappeared, it becomes a possible turnaround situation and not a value stock.


Saturday 2 May 2009

Recognizing Value Situations - Turning the Ship Around

Recognizing Value Situations - Turning the Ship Around

Many companies go through restructuring, downsizing, and spinning off businesses deemed not vital to the core business. There is usually a "back-to-basics" and "focus" theme to these events, and they usually occur after extended periods of poor business results.

U.S. automakers (particularly Chrysler) went through this years ago and are obviously doing it again, exemplified by Ford's "Way Forward" campaign. Airlines have done it, albeit with mixed results, and it's likely that the banking and lending industrywill have to do the same.

Do turnarounds works? According to Buffett and many other professionals, generally not.

A few do succeed, and when they do, there's usually a big impact on shareholder value. It happened with Chrysler, and again with Hewlett-Packard (whose problems, notably, were not as severe).

Determining worthy value investments in these situations is difficult. Probably the best approach is to try to place a value on the core remaining business, as many did with HP's core printing business; then try to imagine how other units would fare either in a sale or with a successful turnaround. Again here, the work of professionals shouldn't be ignored.


Also read:
Recognizing Value Situations
Recognizing Value Situations - Growth at a Reasonable Price
Recognizing Value Situations - The Fire Sale
Recognizing Value Situations - The Asset Play
Recognizing Value Situations - Growth Kickers
Recognizing Value Situations - Turning the Ship Around
Recognizing Value Situations - Cyclical Plays
Recognizing Value Situations - Smoke and Mirrors