Been awhile since my last post as I have been out of the country in Australia after a brief stop in Texas for the holidays.
Of course you all have noticed that the carnage has continued unabated and even those idiots who didn’t want to admit that the problems in the credit market would spread beyond “subprime mortgages” have now had to face the hard truth that we are in for a challenging environment in the credit markets and capital markets in general for some time to come.
I must admit, though, that the pessimism in the equity markets over the first couple of weeks in the year has had the bullish side of my psyche drumming its fingers and looking for cheap buying opportunities. Even financial stocks like CFC’s knight in shining armor BAC are starting to look somewhat interesting, as BAC is trading at over a 6% dividend yield right now and has just guaranteed itself the position of leading mortgage originator in the first half of the 21st century.
WAG has gotten so punished that it is trading at a reasonable ebitda multiple of just over 8x, and especially if you believe that our drug-addicted culture is going to produce fatter margins for complementary products sold in drug stores, as this dominant american franchise continues to have the prospect to enjoy the benefits one might start to take a closer look. I know I am.
Even the king of fake revenues through 0% financing and other shenanigans, GM, is so beat up that if one can get comfortable that GMAC is no worse than a zero (i.e. there is no liability there…I wish I knew more about this issue, but unfortunately, I don’t) there might be something there. We have to believe that the largest auto manufacuturer in the U.S. can somehow benefit from a weak dollar. At least to the tune of greater than a $32B enterprise value. Remember. GM’s revenues are over $180B. It should be able to convert SOME of that into profit. Assume 2% operating margins and you are less than 9x. Juice it up to 5% and you are less than 4x EV/EBITDA…Maybe I am just patriotic, but I am optimistic that in the long run, somehow, some way, american auto manufacturers will make money selling cars.
These are just a few of the nuggets that are starting to glisten in the duststorm of the markets out there. Tough to say that any of these have found a bottom yet, but at a certain price, even mud is worth buying if you think people will someday need bricks.
Enough optimism. There are sure clouds on the horizon. More on that later.