The Value Genius – Buy Ideas – 07/06/12

BUY:

Alcoa (AA) – We’ve bought Alcoa in its slide down, and we’re continuing to buy as opportunities present themselves. It hit its 52 week low and at 8.39 we find it very attractive. Aerospace use is picking up, and the aluminum giant has either temporarily or permanently shuttered locations to bring production into line. With even modest improvement in usage by the auto industry, already up, which is gearing up for lighter hybrids. China and ultimately Africa represent growth opportunities, along with the retool of North America, as that slowly unfolds. Alcoa’s fortunes will advance. Analysts are being particularly hard on Alcoa and we think it a bit unwarranted.

France Telecom (FTE) – Sure it hasn’t grown much in the last few years, but with a dividend yield of 13.1% and pretty decent cash flow, we’re not crying in our beer while we wait for them to work through the sluggish European economy. Huge cash flow. We pick up a bit here and there on the dips.

American Capital (ACAS) – I originally bought into ACAS to ride the tide of the capital companies buying and developing mid-path start-ups into profit generators. It paid a tidy cash dividend. Along came 2008 and 2009 and ACAS squeaked through. Dividend suspended.  I bought it down into the floor of  3.21 when it had been in the high 40’s.  They’ve weathered the storm. Their debt is 20% of equity, fairly low, and they’ve turned out a 53% annualized return for the quarter alone.  I hope to see them restore the dividend one day soon. At its current price, with the numbers that it generates we think its $9.60 price point is a pretty good bargain for the portfolio of companies which they hold.  I cautiously acquire a bit more, and advise caution, because this business, even with a much stronger balance sheet than it had in 2009, is still at greater risk of loss or delay in returning to profitability in any major correction.  Between 5 and $9, though, a good chunk of that risk is factored in.

Berkshire Hathaway (BRK.B) – Right now it is out of buy territory just slightly. If it drops into the low to mid seventies, BUY.  A highly diversified company which follows a lot of strict value rules and has returned stellarly for all involved. The concerns that its leadership, Warren Buffet and Charlie Munger, are old is unwarranted. They’ve been grooming the team that runs the place for decades.

 

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