Whitney Tilson of hedge fund T2 Partners recently appeared on CNBC and revealed he is now long BP (BP). This company of course has dominated headlines for the drastic oil spill in the Gulf of Mexico. More than anything, this investment is the definition of being greedy when others are fearful.
Currently, it's very apparent that the majority of investors are being fearful due to BP's potential liability associated with the oil spill. Not Tilson, though. He is zigging while the crowd zags and argues that this stock is simply "too cheap." While some are speculating about potential bankruptcy surrounding BP, he notes that this company earns north of $20 billion a year in profits and will be able to pay-off spill cleanup and any other potential liabilities.
BP is currently trading around 5.5x earnings and paying a 9% dividend yield. Being a value investor, Tilson obviously is not trying to make a quick trade here given the headline risk and instead is in it for the long haul. He fully acknowledges that headlines can (and probably will) continue to be negative, but he thinks it's just starting to get ridiculous. Tilson mentions that it is around a 4% position in their portfolio (rather than say 10%) because there always is the potential for an armageddon scenario where there are just years and years of problems.
In addition to Tilson's new stake in BP, we also previously learned that he is long Anheuser-Busch InBev (BUD). T2 revealed this investment idea at the Value Investing Congress and we posted up his fund's BUD presentation for those interested. Tilson's investment in BP is an example of a stock presenting potentially extreme value through extenuating circumstances while his investment in BUD is more so-- buying an attractively priced high quality business. This showcases the dynamic in value investing and stockpicking as no two investments are really ever identical.
I wonder what the fund mgr. of LEGG MASON is doing. He thought AIG was a bargain and bought all the way down to oblivion. He, also, bought FNM that he thought was safe and went all the way from $50+ to $1. Then he bought LEH which he thought was cheap (and a value stock) and it went to 0. Then he bought a couple of other BLUE CHIPS that, also, plummeted. Because some guy says BP is cheap means nothing. I found out the hard way; I hope you don't, too! p.s. The fund mgr. of LEGG MASON was considered one of the best - he had the best track record in the entire industry for 20 years until this fiasco.