Note: With this column I launch what I hope will be a ripoff of Jim Cramer's weekend rewrite of one of his weekday columns. I pride myself on not copying someone else's ideas. However, Jim has way too many good ideas to ignore. The rewrite, I believe, will help you understand why I wrote certain columns, the reaction to those columns, my reaction to the reaction and any subsequent events that may have occurred. This column was first published on March 15. The new material is in boldface.
(Maybe we should call this the Saturday sop):
Safe stock: On our
Fox News Channel
show last weekend,
asked me if there was any safe place to put your money and I blurted something like, "Have I got a money market fund for you." (Like you would expect me to say anything else?!)
(That's because there is no such thing as a safe stock. If you want safety, put your money in a money market, Treasury bill or CD.)
But some stocks really are safer than others. And in the midst of this whole value vs. growth debate, people forget that a certain group of value stocks has done exceptionally well -- especially stocks that I put in the category of backdoor investments. (Backdoor because they trade at big discounts to their net asset values, including stakes in other highflying stocks.)
Just go back and look at those mentioned
here three months ago by money manager John Woodberry of
Minute Man Capital
in New York.
all have jumped more than 50%.
Wooed by a record like that, readers now want to know what Woodberry, who also
alerted this column to
, is fond of these days.
Interestingly (and ironically, at a time when it appears investing is more like gambling), one of his current faves is
, which is in the process of buying
for $4.4 billion in cash.
(I'd been hearing MGM Grands' name from a number of pros I know, so I was primed for it when John mentioned it to me.)
The "cash" part of the story is an important one to Woodberry because, he says, MGM Grand's controlling shareholder, Kirk Kerkorian, "is a guy who only uses his own pocketbook when there's a big opportunity." The other times when his cash purchases were "buy" signals, Woodberry says, were a few years ago, when he bought back
stock and, earlier, when he bought into
. "Every time he has used his checkbook, if you followed him, you have made money," Woodberry says, "And this is one of the few times
in recent years that I have seen somebody pay cash for a company."
What's more, the gaming industry, as a whole, is in the doldrums and, when the Mirage purchase is complete, MGM Grand will control high-end (and profitable) gaming properties that are adjacent to one another.
There's plenty of speculation that MGM Grand will selloff several of its hotel properties after the deal is complete, and perhaps use the cash to buy something else -- possibly the
in Atlantic City. But one good source (that's about as far as I'll go) says it's unclear if MGM Grand will sell much of anything among its hotels.
Also, I hear that MGM Grand could hold a conference call with analysts as soon as next week. The topics of the call open for discussion, among other things, are the timing of the deal's closing (it'll be sooner than the year-end date many observers currently think), deal-related synergies and cost savings that are more than even MGM Grand had expected. MGM Grand officials couldn't be reached for comment.
(No sooner did I write this than I heard from another one of my smart sources who says Woodberry is wrong and that MGM Grand represents his largest short position. His rationale: "MGM Grand overpaid for Mirage -- 10.5 x 2000 estimated EBITDA, or earnings before interest, taxes, depreciation and amortization. MGM Grand's core business is starting to decelerate, which prompted this aggressive bid for Mirage. As smart of a buyer as Kerkorian is, Steve Wynn is every bit as good as a seller. The benefits of controlling the high end in Vegas are mitigated by MGM Grand's now excessive concentration of assets in one jurisdiction. In terms of buying something in Atlantic City: They already have enough land in Atlantic City to build two properties. I don't think I have ever heard an acquirer say, 'Wow, the synergies are much less than we expected' -- especially coming from acquirers who are trying to justify overpaying for something. All cash? Not really. Within a month, they are going on the road to do a $1 billion equity deal to raise money for the cash bid. Note this is $1 billion of equity compared with less than $800 million of MGM Grand stock that currently floats. Absorption of this will be difficult. Given this, they had better do a conference call and hype the merger. They need to attract a lot of buyers. Nothing I like more than two smart money mangers disagreeing. That, as they say, is why they call them markets.")
Meanwhile, back to safe stocks: Another Woodberry fave is
, the cruise-line company. "It has software-like operating margins," Woodberry marvels. "You show me a business that makes 30% before tax -- that's an incredible business. Even if their current estimates
$1.90 per share are wrong, even if oil prices rise and bookings are down, you probably have only 10 cents to 20 cents of earnings-per-share risk.
(How prescient: On Friday, the company warned that its second quarter may be light because of lower bookings and higher fuel prices.)
And then you're buying something at 14 times earnings rather than 12 times right now."
(Looks like he's getting his chance!)
Fund manager Julian Robertson is believed to have been a big seller of Carnival recently for reasons more related to his own fund than to the stock. His sales have caused the stock to fall by almost half. But with such fat margins and virtually no debt, Woodberry would rather sail with Carnival than fly with high-tech.
(I checked with Woodberry on Friday and he hasn't changed his tune! The stock actually fell, on the bad news, back to where it was before it was mentioned here last week.)
About this column:
The typical reaction to yesterday's
Lernout & Hauspie
-- one of a continuing series -- was like the following email, which said:
It is important for a money manager not to fight the tape. When does a reporter admit he may not be right, but wrong??? The only way you will ever know is "if" Lernout heads south. However, if your readers followed your pontifications . . . need I say more regarding the price movement from 11/1/99 - 3/14/00. P.S.: I'm not even an owner, just tired of "holier than thou" reporters.
To which I respond: A stock's price does not make a story correct. Short-sellers have clearly been wrong on Lernout the stock, but they still believe they'll be proved right on Lernout the story. Maybe you've noticed: I don't recommend you buy, sell or short stocks. I just report the market's oddities. Yesterday's column pointed out how Lernout referred to its most recent press release as a "momentum announcement." In other words, its press releases are designed to keep the momentum of interest in its company, and its stock, on a roll. To me, that's newsworthy -- and I'm in the news biz.
(Couldn't have said it better myself.)
Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at
firstname.lastname@example.org. Greenberg also writes a monthly column for Fortune.
Mark Martinez assisted with the reporting of this column.