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By Douglas Ehrman

Ian Cumming is the Chairman of Leucadia National. Leucadia National (LUK) is a publicly traded investment company that is controlled Mr. Cumming, and is known for its exceptional returns, outpacing even Warren Buffett’s Berkshire Hathaway (BRK.A).
It is a common tool of both institutional and retail investors to track the trading activity of the world’s largest investors in hopes of gaining some edge; these investors are often a great barometer of general trends in the market. What follows is a discussion of some recent acquisitions by Mr. Cumming and a comparison of the stocks he selected to their peers.

Jeffries Group, Inc. (JEF) – As of the end of the second quarter of 2011, Mr. Cumming added to his position in JEF, bringing his holding size to 54.5 million shares at an estimated average purchase price of $22.61 per share; this resulted in a portfolio impact for JEF of 8.6%. As a regional investment broker, JEF is a nice combination of a reasonable market capitalization – around $3.2 billion – and a solid value play. At a 2% dividend yield, the stock will give an investor at least the return of a treasury bond, with significantly more upside potential. The stock currently trades at a trailing price-to-earnings ratio of 10.3, below the industry average of 11.8, and has an operating margin of 18.6%; the industry average is 7.5%. While stocks like Arlington Asset Investment Corp. (AI) may appear more appealing with a trailing price-to-earnings ratio of 6 and an operating margin of 69.2%, with a market capitalization of only $194 million, there is limited liquidity. The appeal of JEF is that it is a solid balance between reasonable stability and non-passive growth potential.

Cowan Group, Inc. (COWN) – As of the end of the first quarter of 2011, Mr. Cumming initiated a position in COWN, bringing his holding size to 0.9 million shares at an estimated average purchase price of $4.37 per share; this resulted in a portfolio impact for COWN of 0.3%. Stocks of this nature tend to be of greatest interest as growth plays or takeover candidates. The stock is down over 15% over the last month, which may provide a solid buying opportunity for those who would like to follow Mr. Cumming in the name at a far more attractive price. One metric where the company does excel is in its price to cash flow from operations. Some analysts favor this measurement because it ignores non-cash items and gives a clear picture of how much an investor is paying for cash flow from the actual business of the company. COWN has a reading of 1.42; any measurement under 10 is considered acceptable.

Mueller Industries, Inc. (MLI) – As of the end of the first quarter of 2011, Mr. Cumming initiated a position in MLI, bringing his holding size to 1.7 million shares at an estimated average purchase price of $33.33 per share; this resulted in a portfolio impact for MLI of 4.7%; Mr. Cumming added an additional 0.54% to his holding at the end of the second quarter. This was a pure takeover play for Mr. Cumming, as became apparent in the deal disclosed by the company on September 2, 2011. The details of the disclosure revealed that Leucadia National agreed to limit its holdings in MLI to 27.5% of the outstanding shares for at least two years. In exchange, Leucadia National will receive two board seats. The deal also limits any sales made by Leucadia National to investors who already hold, or would hold as a result of the sale, over 4.9% if the outstanding shares. This is a shining example of how monitoring the actions of large institutional investors can provide a benefit. While it is not always the case that an institutional investor intends to take over the company, it is a possibility to be considered.

INTL FCStone, Inc. (INTL) – As of late July 2011, Mr. Cumming added to his holding of INTL, increasing his position size by 0.43% at an estimated average purchase price of $25.31 per share. Representing another long-functional financial company, INTL was another acquisition of Mr. Cumming in the space. It seems clear from the pattern that he sees the value in the sector being tied up in well-run, small and midsized shops that have both a solid operating history but reasonable numbers. INTL operates largely in the commodities space, an area that is nearly guaranteed to remain in the spotlight for the foreseeable future. As global economies struggle over the price of goods, inflation, austerity, and sovereign debt issues, the cost of tangible and usable goods is critical. Adding the roller coaster currently playing out in the gold market, and INTL looks well positioned to take advantage of the significant global trends. Mr. Cumming's endorsement adds to this belief. Additionally, the company recently announced a share buyback program, which could serve as an upside catalyst moving forward.

AmeriCredit, Corp. (ACF) – As of the end of the first quarter of 2010, Mr. Cumming added to his holding of ACF, increasing his position size by 0.89% at an estimated average purchase price between $18.83 and $24.20 per share; this resulted in a portfolio weight for ACF of 0.36%. ACF has since been acquired by General Motors (GM); the acquisition date was 10/1/2010. This is another great example of the care with which investors of this caliber are able to select stocks and be well positioned going into major events. Receiving the acquisition price of $24.50 per share for his position was likely a beneficial trade for Mr. Cumming, since the premium the acquisition price represented as of the announcement date was 25.13% - meaning that holders as on the announcement date who held stock through the transaction, saw an appreciation of over 25% in the value they received.

Source: 5 Stock Picks By Super Investor Ian Cumming