The Long Case for Vulcan, AIG

These are notes from the Day 1 sessions at the 3rd Annual Value Investing Congress West, being held May 6-7, written by Jonathan M. Heller.

The 3rd annual Value Investing Congress West kicked off Tuesday with an introduction from co-founder John L. Schwartz, MD. Each presenter discussed their investment philosophy, addressed current market issues, and then highlighted specific investment ideas.

First up were Mark Sellers and Victor Fasciani from Sellers Capital LLC, whose Sellers Capital Fund has booked an impressive 36% annualized (net of fess) since inception. Seller’s runs a highly concentrated portfolio of companies with what they believe to be “wide moats”.

Sellers and Fasciani presented the case for Vulcan Materials (VMC):
• Demand for aggregate materials (asphalt related) will grow as US infrastructure (bridges, roads, etc) are in need of repair.
• The aggregate industry suffers from the “Not in my back yard” syndrome, so new mines are not being opened quickly enough. Plus, it takes five years, an onerous amount of permits, and $100 million to open a new mine.
• With growing demand for aggregate material, and desperate needs for infrastructure improvements in the US, Vulcan is well positioned to be a beneficiary.
• Sellers and Fasciani believe the stock is worth at least $90.

Next up was Jeff Bronchick from Reed Conner & Birdwell, LLC. Bronchick seems never afraid to speak his mind, which makes him a very entertaining speaker. Among other things, Bronchick brought forth the notion that value investing is far from an exact science, and while it is successful over time, it does not work in every time period. On the subject of the credit crisis, Bronchick suggested that the situation may not be as dire as it appears, and took aim at industry execs that still have their jobs despite terrible mismanagement.

Bronchick’s main focus was AIG (AIG):
• Company is unfairly tarnished, and has been punished by headline risk
• Has never been cheaper at 8 times “depressed” earnings
• Has $13 billion in excess capital
• Potential write-offs are very small given the company’s large asset base
• Company has plenty of staying power

Bronchick also addressed General Electric (GE), suggesting that management needs to, among other things, drop quarterly guidance, stop selling businesses at book value, then paying dearly for other businesses, and buy back stock and/ or increase the dividend.

Comments

[sunrises]

I like GE and given the sound advice above. GE will have a nice bounce back in the long-run. Look forward to buying some.

[fxtrader07]

seems like Bronchick totally blew it here:
"• Company is unfairly tarnished, and has been punished by headline risk
• Has never been cheaper at 8 times “depressed” earnings
• Has $13 billion in excess capital
• Potential write-offs are very small given the company’s large asset base
• Company has plenty of staying power"

AND YESTERDAY's headline: "AIG posts 1Q loss of $7.8B, plans to raise $12.5B"

beware of value traps. I like good insurers but aig has a terrible track record , their integrity is one of worst in industry and I simply do not trust their prudence. I will alway prefer a markel or a berkshire hataway to them.