Cash-Rich Companies May Sop Up Oversold Value - Barron's

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COVER STORY: The Bill Lands on Wall Street's Desk by Andrew Bary

Summary: Hedge funds have been pummeled by recent market action due to their tendency to utilize extreme leverage and because their 'black-box' strategies have the funds invested in remarkably similar instruments, which magnifies selling pressure when their systems say to unwind. Presently, according to one hedge-fund manager, the funds are in a quandary: Their valuation models are saying 'buy' due to the current attractiveness of many deflated stocks, but their risk models are saying 'sell' due to the market's high volatility. Some may not survive the trauma of 25%-plus losses as nervous investors pull funds, which may tell of hidden promise for cash-rich, tightly-controlled companies that are willing to make opportunistic investments. It's likely due to this that shares in Berkshire Hathaway (BRK.A) gained 1.55% to $111,600 last week. The company has about $40 billion to spend, and CEO Warren Buffett to seek out attractive investments. Shares trade for a modest 1.5x book value and under 20x earnings. Loews Corp. (LTR), controlled by the Tisch family, is a bargain at $44 -- a 23% discount to its estimated NAV of $57/share. The company made a $4 billion oil-and-gas investment in July, and still has $2.6B to spend. Unlike hedge funds, investors pay no 'incentive fees' to get the savvy Buffett or Tisch family to find ways to put their money to work. Other cash-rich investment companies include Leucadia National (LUK), Alleghany (Y) and Carl Icahn's American Real Estate Partners (ACP).

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