Looking For Hidden Value With Whitney Tilson

Lear(LEA) is your most contrarian play. Describe it.

Lear is one of the largest manufacturers of automotive seats and interior components in the U.S. The stock was the worst performer on the New York Stock Exchange last year, falling 52%, and is down another 38% this year. Lear's entire sector is highly distressed and many fear General Motors(GM), Lear's largest customer, will soon file for bankruptcy [GM has adamantly and repeatedly denied this].

So why do we own Lear's stock? Very simply, we think Lear is a good company -- in a terrible industry, to be sure -- and the stock's selloff is way overdone. Over the past 10 years, Lear has consistently generated returns on tangible capital of more than 25% and earned more than $5 a share in both 2003 and 2004. The stock is trading at three times that level of earnings today. Of course, earnings have been dismal over the past year and many question whether the company will revert to anything close to the prior mean. But even if earnings only rebound to half their historical levels, the stock is likely to double from here. We believe that most, if not all, of the factors that have caused Lear's profits to tumble will go away over time and that our patience will be rewarded. It may not be a smooth ride but no one said uncovering hidden value was easy.

You're still short MBIA(MBI). Why?

We've been short MBIA for years and it hasn't worked out yet, but we're more confident than ever about our investment thesis. We believe that the company is dangerously overlevered and underreserved and has been engaging in questionable accounting for many years to hide the true status of its business. Not long ago, it was forced to restate a $170 million loss that it now admits was not accounted for properly, and we believe that this is the tip of the iceberg. Many regulators, armed with subpoena power, are currently scrutinizing MBIA carefully and we think it is likely that they will find all sorts of other skeletons in MBIA's closet.

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