Hedge Funds

Talking Panic Buying With Joe Feshbach

03/13/06 - 12:21 PM EST


Management turmoil offers good opportunities. Give us an example.

In the spring of 2003, prior to the launch of my fund, I bought Pediatrix PDX after the shares plummeted over 20% in one day. The CEO of only four months suddenly left without explanation. Analyst downgrades ensued, along with panic-selling on the theory that more bad news would eventually follow. In contrast, we quickly determined that the stock was very cheap. The founder and longtime CEO had returned to the helm, the company had produced very strong financial performance historically, reaffirmed guidance for the quarter and the year, and shortly thereafter announced a significant stock buyback. A year later we were selling stock up over 100%

Talk about intellectual-litigation opportunities.

We have recently built a position in Kinetic ConceptsKCI , a medical-device company embroiled in patent litigation with an upstart competitor. The stock is down by more than 50% and sports a market-value loss of about $3 billion from its peak. We think that the odds that KCI prevails in litigation are high. They have won five similar suits in the past few years in the United States and recently successfully defended their patent estate in Europe.

The shares can be had for about 14 times what we believe the company will earn in 2006, and, looking further out, roughly 10 times 2008 earnings power. We expect that the company will prevail in court, but on the odd chance it doesn't, we like its international patent protection, its dominant industry leadership position and the large additional market opportunity ahead of it.

You don't do distressed turnaround. Why?

One of our driving principles is to buy growth stocks at deep value prices. We take advantage of a crisis to in order to take advantage of what we believe is a significant disparity between price and value. It is also our belief that growth is necessary to offset potential deterioration from the impact of the crisis.

Are you an activist?

Of our six positions, four have controlling positions held by private equity firms. Two of our stocks have undertaken significant buybacks, and a third has put itself up for sale on its own initiative after our investment was made. We expect like action in the months ahead from the remainder. In effect, these companies already have stewardship that is incented to realize value.

You quit the board of QuadraMedQD. Why?

I have done activist investing in the past, though my QuadraMed board seat was a result of an invitation from the company. It is a personal belief of mine that psychiatry is a pseudoscience, and when the company began targeting its marketing towards psychiatric hospitals for its software, it violated my moral standards, and I resigned.

1 2
» Next

Headlines & Perspectives

Hedge Funds

Go To Section Home


03/08/06
Report: U.S. Wants Gabelli Suit

The Justice Department files to intercede in a civil complaint alleging cell-phone bidding malfeasance.


03/07/06
The Hedge Fund Report: Vultures Feed at Dana

The Chapter 11 filing gives distressed players advantage.


03/03/06
How Hedge Funds Play GM

For professional investors, its rusty body is a wonderland.


04/28/08
Cramer's Take on the Top 10 Searched Stocks

Apple and AT&T were among the most searched stocks on TheStreet.com Friday. Here's what Cramer had to say about them recently.


04/26/08
Jim Cramer's Best Blogs

Catch up on his thinking on the hottest topics of the past week.


04/26/08
Coming Week: Make or Break

Investors will have to deal with a Fed meeting and another flood of earnings and economic data.


04/27/08
This Week's Barron's Roundup

Looking for deep value with Defiance Asset Management, polling big investors about where the market's headed, plus much more.


04/28/08
Monday's Analysts' Upgrades, Downgrades

See who made what calls.


02/29/08
3 Stocks I Saw On TV

3 Stocks I Saw On TVDan Fitzpatrick examines three stocks viewed on Fast Money and Mad Money Today's stocks include Deere & Co., Petrobras and MBIA


04/28/08
One Bank Pick Stumbles, the Other Soars

TheStreet.com Ratings checks in on First Community Bancorp and First Niagara Financial Group two months after recommending the stock.


04/28/08
Grand Theft Auto IV Hits the Jackpot

Take-Two's latest hit receives a perfect score from industry reviewers.


Your Recent Quotes: Quote Up0 | Quote Down0
Dow S&P 500 NASDAQ
Oil*
Gold
10 Yr
0.00%
%
%
%
Data delayed 20 min
Premium Stock Ideas
Access Action Alerts Plus to find out Cramer’s latest picks now!