Ken Heebner, who is the long-time manager of the CGM Funds, isn't afraid of risk. He often concentrates his portfolio on a few industries and is willing do dump stocks if conditions change.
Over the long run, the strategy has been a winner. But, of course, there can be some scary moments, such as this year (but who hasn't had troubles?)
So, now what is Heebner focusing on? It's the financials. Interestingly enough, up until summer, he was aggressively shorting the sector (this is according to the Wall Street Journal, which is a paid publication).
Let's face it, the banks and insurance companies are getting a flood of government money, with fairly easy terms. And, as seen with recent trouble-shooting with Citigroup (NYSE: C), it looks like the U.S. government won't let the big banks go down. In fact, Heebner has a $1 billion dollar position in Citigroup. What's more, about 40% of the CGM Focus fund is in financials.
Heebner is encouraged by the historically low levels of key metrics. For example, the top 20 U.S. banks have a price-to-tangible book value of 1.1X. This compares to the typical multiple of 2.7X.
OK, what are other financials that Heebner likes? Some include Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC) and even Banco Bradesco (NYSE: BBD).
Tom Taulli is the author of various books, including The Complete M&A Handbook
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Reader Comments (Page 1 of 1)
12-06-2008 @ 11:02PM
alan said...
Mr. Heebner has an impressive track record, but one question
As I understand it, about 50% of Citi's tier I capital is actually deferred tax credits for all of the losses incurred, about $28 B !!!!!
Citi has buried this in their reports and it is just a footnote in the "other" category with an explaination some 40 pages later in supplimental schedules.
Please show me the tangible assests these tax loss credits represent. They are not a well capitalized bank as they represent and fall way below the Fed's 7.0% minimum requirement. The government is so determined to have Citi survive, this MAJOR ABUSE is quietly being overlooked.
12-06-2008 @ 11:34PM
Sheldon L said...
Ken Heebner is among the top investors in a very small group that are the next tier below 'my pal Warren'...who stands alone, maybe since Templeton.
If Heebner is in and Buffett is already in financial's then you would be going out on a very long shaky limb betting against them.