Distressed-debt specialist Steve Kuhn of Pine River Capital looks to equity for one his picks - American Capital (ACAS). Left for dead during the financial crisis (the stock's more than a 20-bagger since the March 2009 low), the BDC has revived itself using massive tax-loss-carry-forwards to shelter income and buy back gobs of shares at a big discount to book value, rather than paying a dividend.
This lack of dividend puts the name in many investors' penalty boxes even though it makes good sense, says Kuhn. The stock's a double over the next three years, he says, when the tax shield runs out and the company resumes a payout on a vastly reduced number of shares.
ACAS repurchased about 13.4M shares (4.6% of the float) in Q3 at an average price of $13.11 vs. June 30 book value per share of $19.28.
Nelson Peltz again declares Mondelez International (MDLZ) poorly run, with a bloated cost structure compared to peers holding the stock back despite wonderful brands, little private-label competition, and a big footprint in fast-growing emerging markets. Operational changes could boost the profit margin 600 basis points to 18%, he claims, allowing a doubling of EPS by 2015. Also: Dump the company name - it sounds too much like a medicine.
Marc Lasry doesn't think J.C. Penney (JCP) is headed for bankruptcy and likes the company's unsecured debt trading at 65 cents on the dollar. September's $800M equity offering gives Penney the necessary cash to get it through 2015 when, says Lasry, new management - by returning to JCP basics - should have the company profitable again.
Full article from Barron's.