After hedge fund manager
quit the business in
March, a lot of really smart people called the death of value investing. After all, they said, if a smart guy like Julian couldn't make it work, it couldn't be done.
In fact, the first quarter of this year was a
time to be a value investor -- one of the best in the past 15 years, according to a half-dozen managers I spoke with. The two-tier market was in full swing. You could buy superior small-cap and mid-cap companies at inferior prices -- double-digit growers at single-digit multiples. One value manager says it was the best time to put money to work since the early 1980s! Another says the first quarter of the year was the best since the early 1990s.
Robertson's problem was not his investing style but his stock-picking ability.
Two of his biggest positions were in
, the doggiest pair of big-cap "value" stocks you could find.
US Airways is a high-cost supplier with labor troubles in an exceptionally competitive business. This is a stock that
publicly gave up on years ago. The stock had been spiraling down for almost two years by the time Julian bailed out. (
Wing Tips columnist,
, took a look at Robertson's US Airways stake in a
March 30 column.)
What can you say about Waste Management? The name says it all. The company has been tripped up for years by lax accounting, inept management and the resulting shareholder lawsuits. It's not a coincidence that Robertson bought a good chunk of his stake in the company from value-oriented investors who wanted out, according to sources involved in the transactions. Waste Management has been "in transition" for years, and still is, according to the company's most recent quarterly earnings announcement.
Value investing did not fail Julian. He failed value investing.
Even before Robertson's departure, value stocks were heading up. (Even US Airways was launching a comeback.) And in the past six weeks, many of them have continued to rally. If you want to find an investment manager who is up big this year, chances are he or she is in value stocks.
At a time when the concept of risk is once again in the minds of investors, the value approach cannot help but make a comeback. Think about it. When the future looks especially uncertain, investors look for sure things -- solid companies with a good chance at making a buck. Investors are unlikely to abandon tech -- nor should they, as it remains a key engine of long-term economic growth. But with momentum stocks having run out of mojo for the moment, value stocks are a logical alternative. At the margin, more dollars can be expected to flow into beer, food, chemicals, natural gas, cigarettes and other previously ignored sectors.
Ready for a Comeback, Kids?
Here's an example of a beaten-up stock that some value managers like at current prices -- a theme park company,
. Premier, the largest regional theme park operator in the world, is the successor to the old
Last year, the company's management reported a 40% growth in earnings before interest, taxes, depreciation and other noncash charges. Yet the stock trades around 9 times EBITDA. This is pretty cheap for that kind of growth, especially when management has proven it can steadily boost margins at both existing parks and those it acquires and re-brands under the Six Flags name. Not only is the company growing, it is boosting profits from existing parks. That is a sign of an excellent company.
One value investor who bought into Premier at about 19 per share figures that the stock could easily trade around 12 times EBITDA. That kind of multiple translates into a 40 stock. It closed today at 26 5/8, up 1. Sell-side analysts like the one at
, which helped underwrite the company, have -- no surprise -- even higher estimates.
In a topsy-turvy market, a roller-coaster company somehow makes sense. And Premier is not by any means the only value stock out there. Julian Robertson may be gone, but value investing is not.