By most accounts, it has been rough few years for the world's shrinking stable of dictators, with the exception of one: Mark Zuckerberg. According to author and investor Vitaliy Katsenelson, the 27-year-old head of Facebook (FB) has become bigger and more powerful than ever.
"Right now this company [Facebook] is run by a dictator," Katsenelson told me on the sidelines of the Berkshire Hathaway annual meeting, which served as a warm-up for the Value Investor Congress. "He can spend a billion dollars without even consulting the board."
Needless to say, Katsenelson, chief investment officer of Denver-based Investment Management Associates, will not be rushing into the social media colossus anytime soon. In the attached video he explains that Facebook's day of reckoning will come once people start looking at cash flow and realize that they can own Google (GOOG), which has 10 times the revenues and isn't "priced to perfection."
Okay then Mr. Value, I prodded my guest: If not Facebook, then what is cheap?
"Microsoft (MSFT)," he answers, which trades "at just nine times free cash flow, if you back out cash," he says, alluding to its $60 billion pile of green. Along those lines, Katsenelson says he was pleased with Microsoft's recent stake in Barnes & Noble's (BKS) NOOK e-reader business, as it suggests to him that the company, which has been "b!*h-slapped by the competition," is thinking creatively. Interestingly, while Katsenelson has high expectations for the new Windows 8 operating system, he has low expectations for the timing of the actual release, which is something he says they have never done on time.
As another example, Katsenelson offers up Electronic Arts (EA), saying he first got interested in it after it was dubbed "the worst company in America." He points to the post-award gains of the prior three recipients (AIG, BP, and BAC) as one reason he likes the video game company and sees the possibility of continued improvement and better margins, especially once downloadable games are added back into the mix.