67 WALL STREET, New York - September 28, 2012 - The Wall Street Transcript has just published its Investing in Energy and Other Strategies Report offering a timely review to serious investors and industry executives. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Investing in Energy - North American Shale Development - Investing in Technology - Oil and Gas - E&P - Value Investing
Companies include: Activision Blizzard, Inc. (ATVI), American International Group, (AIG) and many others.
In the following excerpt from the Investing in Energy and Other Strategies Report, an experienced portfolio manager discusses his best large cap value bets for investors:
TWST: Would you share some information about some of your top holdings or current favorite investment ideas?
Mr. Marcus: One of our larger holdings today is a French media conglomerate called Vivendi (VIV.PA). Vivendi is a €20 billion market cap; it is a big company. They own 62% of Activision (ATVI), which trades here on the New York Stock Exchange. They have the largest pay-TV company in France called Canal Plus. They own Universal Music, the largest music company in the world. They also have telecom assets and the largest mobile telecom operator in France. They own a Brazilian phone company and a phone company in Morocco.
This has been a stock that, up until just a few months ago, was what I would call a value trap. This was a stock that literally for 10 years destroyed value for shareholders. A couple of months ago, it was trading at an almost 520-week low. The reason that we became interested in it - and we believe that it's no longer a value trap - is that it is cheap with a whole host of different assets, but we believe Vivendi is on the cusp of breaking the entire company up. They've announced that they're reviewing all strategic alternatives. So far, they've put Activision up for sale. You have a new shareholder coming in. His name is Vincent Bollore. He is a very aggressive value investor in Europe, and his group owns about 5% of Vivendi. They're taking a board seat and they're pushing for change.
I think a lot of people have been burned in the stock over the last 10 years, and now they are not focusing on it, yet now it's going through these changes. It's trading today at about €15, and we think that it's worth somewhere in the low 20s. It won't work overnight, but it'll work over time. It takes time, but it's cheap and there are catalysts at hand. The CEO has resigned. He was there for 10 years. There's a whole bunch of things going on that we think are very positive to get value to the shareholders at the end of the day.
Another stock that we own, also in Europe, is a company called Bollore (BOL.PA). And Bollore is run by Vincent Bollore. This is the group that just took a 5% stake in Vivendi. I've been investing in Bollore for almost 20 years on and off. Vincent Bollore is the sixth generation of his family to run the company. It's a 190-year-old business. It's truly a conglomerate. They have businesses as varied as home heating oil distribution in France, TV channels, radio stations, newspapers. They make batteries for electric cars. They have a huge stock portfolio through which they own 30% of Havas (HAV.PA), which is the fifth-largest ad agency in the world. But then they have the high-growth businesses in Africa, which include ports, container terminals, plantations for palm oil and rubber, as well as logistics and transportation businesses.
Up until the last year or so, the market and investors just didn't focus on this company. It's very underfollowed out there because, I think, investors really didn't understand the nature of the African assets. But we are at an inflection point where, probably this year, the earnings from Africa will be greater than 50% of the company's earnings. They've been operating in that market for over 100 years. For us, if we can get high-growth emerging markets at low-valued, distressed European prices, we are going to take advantage of that.
This is a $6.5 billion market cap. It's a good-sized company. Mr. Bollore owns about 70% of the company. We are big believers in owning companies where the management is focused on creating value every day of the week - that's what they are doing.
So those are two of our larger holdings in Europe. Our largest holding in the United States is AIG (AIG), the insurance company. AIG is a company, as many know, that was bailed out by the U.S. government back in 2008, and most believe that this is the company that almost destroyed the entire economy of Earth singlehandedly. And perhaps, it would have if it went bust, but the bottom line is I believe most investors are looking backward and not forward. What does that mean? It means that looking backward, investors think this is a bailed-out company. It's a dying business, and there is no reason to own it. Why waste your time? Looking forward, you have a company that is growing again and prospering. They've paid back the bulk of the bailout money. They are on the cusp of paying it all back and then some. The government will have a huge profit. The company has been buying back stock aggressively whenever the government has sold down its stake.
A year ago, the Fed owned 92% of AIG. Today it only owns 15.9%. And yet, the company is still trading at about 50% of book value, and this is a good book value. Because of the crisis and the bailout, they had to scrub their balance sheet. They really had to get rid of a lot of junk, take charges and write-offs, and so you have a high-quality book value. You have a huge discount. You have a very aggressive, strong management. As a value investor, this is exactly what we look for. It's cheap, tons of catalysts, and I think investors are missing one of the great trading and investing opportunities in a huge value name. This is a $52 billion market cap - it's a big company.
TWST: How would you describe your approach to risk management?
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