No Safe Havens - But Plenty of Bargains

How do you describe the markets the past two weeks? Did it feel like 1987 all over again? Not really, if only because in '87, as violent as it was, the crash was primarily over in one day. It was like ripping a band-aid off of a cut. Painful, but quick. This time around, it's been more like an endless root canal. Just when you think it may be over, the dentist is back for more.

CS21 Net Net Index Hit Hard

Our index of 21 companies trading below their net curent asset value has been hit extremely hard this past month. Since inception (2/12/08) through 9/16, the index was up 15%, 2000bps above the Russell Microcap Index. As of Friday, it was down 17.5% since inception. During the same period, the Russell Nicrocap Index is down about 30%, so our little index of misfits is still holding up well in that comparison. Quite a drubbing, though.

But the smallest of the small are being hit extremely hard in this market, and there may be bargains galore. The problem is, no one knows when the panic will subside, and panic knows nothing about assets, book values or cash. Panic only knows panic.

Still, we've seen tremedous pullbacks in some intersting names. Here are a handful that we still own (see previous articles here), that look even more interesting at current levels. Please note, none of these are net/nets.

PICO Holdings (PICO)

• Price: $28.99
• Off 52 week High: 40%

Cresud ADR (CRESY)

• Price: 6.97
• Off 52 week High: 73%

JG Boswell (BWEL)

• Price: $550
• Off 52 week High: 45%

Premier Exhibitions (PRXI)

• Price: $1.26
• Off 52 week High: 91.5%

I don't know if we've hit bottom yet, it "feels" like we are close, but again there are no rational bounds during a panic. There's plenty of cash on the sidelines, though. Ultimately, some of it will find it's way back into the market. In the meantime, be careful.

Disclosure: The author has a positions in all companies mentioned.

Comments

[Chris C:]

So hedge funds had to cough up $400+ billion to pay for their Lehman's CDS positions. The market was very very nervous of more defaults before the settlement last Friday, but it looks like it's all been settled in a fairly orderly manner. Now one side is down $400+ billion and the other side is long $400+ billion. My guess is that the side that's now long $400+ billion is going to use their new cash to squeeze the heck out of the market shorts and make more money. What can be a better time to do this than now? So, perhaps, just perhaps, we can expect the rally of a lifetime soon as the shorts run for cover from a tsunami of buying. But, I might be completely wrong. Still, it is a scenario that makes sense. The world governments have done more than enough to unlock credit but I think credit was tight because of concerns over the Lehman CDS settlements. Now that is out of the way, anything can happen, which means that everything will probably happen all at once.

2008 Oct 12 08:22 AM

[Joe Smith:]

"I might be completely wrong"
Credit where credit is due...

2008 Nov 23 01:53 PM