I am the Global Editor at MoneyShow.com and each week I interview an investing expert. This week, I spoke with Daniel J. O'Keefe, portfolio manager of Artisan International Value Fund and portfolio co-manager of Artisan Global Value Fund, who is taking a long-term look and finding opportunities in undervalued companies.
Q. Daniel, during this period of global economic crisis have you been a steady buyer of equities in Artisan Global Value Fund (ARTGX)? If so, why and what have you been purchasing?
A. As almost all our stocks are falling further from their fair value targets, the hurdle for new investments keeps moving up. So, a good portion of our buying has been in existing holdings. For example, Bank of New York (NYSE: BK), a holding in Artisan Global Value Fund, has been extremely volatile. Not a traditional bank, BK makes most of its revenues and profits from capital markets, related fee income, and a significant money market business. BK has not been immune to the credit concerns of the markets, but its exposure to low quality commercial paper has thus far been manageable. We have taken advantage of these concerns to add to our position.
Purchases we made in the third quarter include Tyco Electronics(NYSE: TEL), a leading [Bermuda-based] manufacturer of electronic connectors used in everything from cell phones and computers to automobiles. This is an attractively valued business with high margins, attractive returns on capital, and good cash flow generation.
This is the third in a four part series which I hope gives buyers, sellers, shareholders and dare I say management a platform for discussion.
The most valuable asset eBay(NASDAQ: EBAY) has is PayPal, the dominant internet financial transaction facilitator. When I started imagining what might happen if eBay started auctioning off its parts I envisioned that PayPal would be worth the highest premium.
I think there would be dozens of interested companies that would find it highly advantageous to acquire PayPal.
The reason eBay bought PalPal in the first place was that they had first hand experience trying to compete with it when it was a separate company, and even with its huge base of customers, eBay could not build much traction. As the old saying goes, "if you can't beat them, join them", or in this case buy them.
For starters, all of the major credit card companies would be very interested with MasterCard Inc'A' (NYSE: MA) and Visa (NYSE: V) leading the bidding and beleaguered American Express (NYSE: AXP) trying to find a way too.
Then there are the few prospering banks still left standing that would have to give this potential acquisition strong consideration. Bank of America (NYSE: BAC) which has already bought out Countrywide Financial and will soon add Merrill Lynch (NYSE: MER) would find this a must have. JPMorgan Chase (NYSE: JPM) has added Bear Stearns and Washington Mutual (NYSE: WM) to its group of enterprises and might be best suited to expand the company given its growing resources. Wells Fargo (NYSE: WFC) that recently agreed to acquire Wachovia Corp (NYSE: WB) after staying on the sidelines most of the year might want PayPal, but I do not think it would pay up.
Mark Cuban has a new pet project: BailoutSleuth.com seeks to keep readers updated on how their money is being spent as part of the $700 billion bailout of financial institutions.
So far the early returns aren't looking good. Yesterday the site's editor, Chris Carey, wrote that the "Treasury Department put out an announcement about a major bailout-related contract with Bank of New York Mellon Corp. that fell short in the transparency department."
The problem? Nearly all the information on compensation was redacted, leading to less than illuminating lines like this: "The Financial Agent shall receive a monthly fee ---------------------------------------."
It's hard to know what purpose is served by keeping taxpayers in the dark about how much Bank of New York Mellon (NYSE: BK) is being paid for its services. This reeks of the same contempt for taxpayers that characterized the passage of the bailout in the first place.
Concerned citizens should consider bookmarking BailoutSleuth to follow this travesty in real time.
The stock market may continue its record-setting plunge today as the drumbeat of negative sentiment drowns out what little good news there is to be had.
Markets in Europe and Asia were sharply lower as fears of a lingering recession continued to heighten. Japan's Prime Minister Taro Aso told members of Parliament that the U.S. bank bailout was "insufficient" to quell the fears of investors, according to the Associated Press. Meanwhile, the government of Switzerland is pumping billions into ailing UBS AG (NYSE: UBS) which gorged itself on mortgage-backed securities. Oil prices also fell to a 14 month low is Asia. U.S. stock futures were mixed.
Here is a look at other stories which may interest investors.
The earnings crunch begins in earnest this coming week, with companies from Johnson & Johnson (NYSE: JNJ) and PepsiCo Inc. (NYSE: PEP) to Southwest Airlines Co. (NYSE: LUV) and Harley-Davidson Inc. (NYSE: HOG) scheduled to report results for the quarter just ended. But with the ongoing turmoil in the markets, much attention is on the tech and financial sectors. This week will provide plenty to mull over on both counts.
Wall Street expectations for tech stocks are fairly optimistic. Analysts surveyed by Thomson Financial are looking for chip maker Altera Corp. (NASDAQ: ALTR) and software/service company iGate Corp. (NASDAQ: IGTE) to be the sector's biggest earnings gainers of the week. Altera is expected to report earnings of 30 cents per share (up 33.3% from a year ago) on revenue of $355.1 million. Altera had previously forecast flat sales for the quarter, and shares fell to a 52-week low last week. iGate is expected to report earnings of 14 cents per share (up 42.9%) on revenue of $55.6 million. India-based iGate recently spun off its Mastech consulting services. Shares are down 45.0% in the past three months, and also reached a new 52-week low last week.
San Jose-based Novellus Systems Inc. (NASDAQ: NVLS), on the other hand, is expected to report that net income tumbled 90.4% from a year ago to 4 cents per share, on revenue of $245.6 million. Novellus fell to a 52-week low early last week, and shares are down 44.5% year to date.
There were two big trades on Wall Street today: One was the bailout trade, which included financial stocks obviously, but other than the big banks, investors also went after the second-tier firm -- the smaller, regional banks. The other big trade was the economy. As the U.S. and global economy slows down, retailers, techs and a variety of materials and industrials will suffer. Investors showed their concerns over the economy today, hammering down many of these stocks down.
Here are a few big losers from today:
Financials - obviously, financials depended on the bailout plan more than others, at least in the immediate future:
Bank of America Corp. (NYSE: BAC) declined 17.6%, while JPMorgan Chase & Co. (NYSE: JPM) slumped 15%. Citigroup (NYSE: C) declined nearly 12%, Goldman Sachs (NYSE: GS) sank 12.5% and Morgan Stanley (NYSE: MS) plunged over 15%.
American Express Co. (NYSE: AXP) was the Dow's biggest loser today with a 17.5% drop thanks to Citigroup cutting profit estimates of the credit card company.
Second-tier banks declined much more:
Bank of New York Mellon Corp. (NYSE: BK) slipped over 27%, CIT Group Inc. (NYSE: CIT) lost 25.5%, Fifth Third Bancorp (NASDAQ: FITB) fell 43.6%, FirstFed Financial Corp. (NYSE: FED) tumbled over 25%, First Horizon National Corp. (NYSE: FHN) slipped 35.7% and National City Corp. (NYSE: NCC) tumbled 63.3%.
Since Lehman Brothers Holdings Inc. (NYSE: LEH) filed for bankruptcy this morning, it means that its assets will be sold and the proceeds will go first to lenders and bondholders. If there's anything left after paying them off, it goes to the preferred shareholders. Finally, the common shareholders get the leftovers of the preferred shareholders.
This bankruptcy is the biggest in history as measured by its $639 billion in assets -- over six times bigger than the former champ, WorldCom. The bankruptcy does not include all Lehman's assets. "The Chapter 11 filing did not include Lehman's broker-dealer operations and other units, such as asset management firm Neuberger Berman. Those businesses will continue to operate, although Lehman is expected to liquidate them. It said it is in advanced talks on selling its investment management division," according to Reuters.
Many big institutions will be first in line for the proceeds of these asset sales. "Its biggest unsecured creditors are Citigroup Inc. (NYSE: C), Bank of New York Mellon Corp (NYSE: BK), Aozora Bank, and Mizuho Financial Group Inc.. Citi and Bank of New York Mellon are trustees for Lehman bonds. As of May 31, it owed about $110.5 billion on account of senior unsecured notes, about $12.6 billion on account of subordinated unsecured notes and about $5 billion on account of junior subordinated notes."
Back in the early 1990s, the U.S. was mired in a recession and the money center banks were in dire straits. But, of course, it was a great opportunity for investors.
So, are we seeing a repeat? Perhaps so, although, you still need to tread carefully. This is according to a front-page piece in Barron's [a paid publication].
And yes, this week has been particularly encouraging, as seen with a widespread rally in the financials. It certainly helped that there was strength from Wells Fargo (NYSE: WFC) and JPMorgan (NYSE: JPM). At the same time, the results from Citigroup (NYSE: C) weren't as bad as expected.
By any measure -- such as price-to-book values and P/Es -- the financials look extremely cheap. Besides, these companies are taking quick medicine in terms of write offs. In other words, once financials report next year, the comparisons should look strong.
Something else: the Securities and Exchange Commission has implemented new rules on short selling (regarding 19 financial companies). Ultimately, this may relieve some of the volatility.
After the implosion of IndyMac Bancorp (NYSE: IMB) and news of the deterioration of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) last week, there's bound to be a certain level of trepidation as the earnings crunch begins this coming week and many big financial companies report. Here's a look at what Wall Street was expecting (see The week in preview: Expectations as the earnings crunch begins for expectations of other reporting companies.)
Analysts surveyed by Thomson Financial are expecting the following of companies to report lower earnings when compared to the same period of the previous year.
UBS has upgraded Hovnanian (NYSE:HOV) to "neutral" from "sell," according toBriefing.com. The news service also reports that Oppenheimer raised its price target for Verisign (NASDAQ:VRSN) to $42.
Lehman Brothers affirmed it "overweight" rating on Bank of New York (NYSE:BK) ahead of the company's annual meeting with brokers, according to the AP.
The quarter has hardly begun and, with analysts and investors watching nervously, the earnings crunch is about to begin anew. The following 11 big banks are among companies reporting results the week of April 14 to April 18.
These three are expected by analysts surveyed by Thomson Financial to be the the top performers in the first quarter, based on earnings growth from the same period of last year:
MOST NOTEWORTHY: The Brokers and Asset Managers sector, Pacific Sunwear and Metabasis Therapeutics were today's noteworthy upgrades:
Goldman upgraded the Brokers and Asset Management sector to Attractive from Neutral as they believe an inflection point has been reached for stocks with minimal credit exposure, or where exposure is marked to market. Goldman expects the problem to shift to regional banks and specialty finance from brokers. As such, Goldman upgraded American Express (NYSE: AXP), Metlife (NYSE: MET), Bank of New York Mellon (NYSE: BK), Franklin Resources (NYSE: BEN), Janus Capital (NYSE: JNS) and NYSE Euronext (NYSE: NYX) to Buy from Neutral.
Wachovia upgraded Pacific Sunwear (NASDAQ: PSUN) to Outperform from Market Perform based on valuation, merchandising improvements, operating efficiencies, favorable product mix, and reductions in underperforming categories.
Rodman & Renshaw raised Metabasis (NASDAQ: MBRX) to Outperform from Market Perform on valuation given the potential for MB07803.
OTHER UPGRADES:
HSBC raised Novartis (NYSE: NVS) to Neutral from Underweight.
UBS (NYSE: UBS) was upgraded at Morgan Stanley to Equal Weight from Underweight.
Nike (NYSE: NKE) unveiled its Olympics 2008 line Monday, its largest effort for the games ever. Nike actually created products in every sport at the games despite not being an official sponsor of the games like its rival Adidas. As for the U.S. team, it will be attired in Polo Ralph Lauren (NYSE: RL) garb.
If Apple Inc. (NASDAQ: AAPL) was upgraded Monday, today it finds itself on the flip side with a downgrade from Morgan Keegan from Market Perform to Underperform. Ummmm, contrarian is one thing, but I'm not so sure about that one. AAPL shares are down nearly 1.5% in premarket trading.
Meanwhile, according to MarketWatch, Goldman Sachs has upgraded some brokers and asset managers, but is remaining cautious on regional banks, mortgage and specialty finance and REITs. American Express (NYSE: AXP), Metlife (NYSE: MET), Bank of New York Mellon (NYSE: BK), NYSE Euronext (NYSE: NYX) and several others all were upgraded to Buy. Wells Fargo (NYSE: WFC) and several others were cut to neutral.
Bank of New York (NYSE: BK) is scheduled to report Q1 EPS on April 17.
BK has more than $23 trillion in assets under custody and administration and more than $1.1 trillion in assets under management.
BK call option volume of 5,199 contracts compares to put volume of 10,438 contracts. BK April option implied volatility of 56 is above its 26-week average of 38 according to Track Data, suggesting larger risk.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Thomson Financial expects Bank of New York Mellon (NYSE: BK) to earn $0.69 when it announces its fourth-quarter results on January 17th. That's up 19% from the same period in 2006 when it earned $0.58.
Bank of New York Mellon is a New York-based bank that operates through three segments: Institutional Services, Private Bank & BNY Asset Management, and Corporate & Other. In the last year, its revenues were $5 billion and its net income totaled $2 billion. Its stock has gained 13% in the last year, and it now trades at a P/E of 19.9.
Bank of New York Mellon consistently beats estimates. In the second quarter of 2007, it beat the estimate by 1.6%, and in the third quarter it beat by 9.8%. My hunch is that it will beat expectations.
I am the Global Editor at MoneyShow.com and each week I interview an investing expert. This week, I spoke with Daniel J. O'Keefe, portfolio manager of Artisan International Value Fund and portfolio co-manager of Artisan Global Value Fund, who is taking a long-term look and finding opportunities in undervalued companies.
This is the third in a four part series which I hope gives buyers, sellers, shareholders and dare I say management a platform for discussion.
Mark Cuban has a new pet project: BailoutSleuth.com seeks to keep readers updated on how their money is being spent as part of the $700 billion bailout of financial institutions.
The stock market may continue its record-setting plunge today as the drumbeat of negative sentiment drowns out what little good news there is to be had.
The earnings crunch begins in earnest this coming week, with companies from 
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Bank of New York
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