Funny story. I was cleaning out my briefcase and came across three old stock reports that I wrote for an interview last year with a fund manager. I didn’t get the job due to my “inexperience, particularly with foreign stocks (which admittedly I didn’t have a lot of experience with). Anyway, the stocks were: Celanese (not foreign, CE), Kingboard (Hong Kong, 0148.HK), and Barco (Belgium, BAR.BR). Some choice quotes from my stock reports (all from September 2007):
CE: Downside risk from coming economic downturn and overcapacity. Would not have as core holding. More levered than peers. Its lower valuation is justifiable due to its higher debt load and higher risk going forward. When economic growth slows, this highly-leveraged chemical company will suffer disproportionately compared to its peers.
Hmm. How did call turn out? Well, CE is down about 66% from 14 months ago, while Dow and DuPont are down 40-45%.
Kingboard: During the previous downturn, Kingboard’s EPS dropped 20% and the P/E multiple compressed to 10X (at the time of interviewing it was trading at a P/E of 15). If a comparable downturn were to begin now, this would result in ~50% loss in share price.
How’d that turn out? Stock’s down 80%. Hmm.
Barco: This was my highest confidence short. Some choice comments: The divisions most responsible for growth have posted low book/bill ratios, while the area of the company with the healthiest book/bill ratio has seen significant profit margin erosion. Barco appears to be under pressure from a shift in sales mix to less profitable items. Net cash turned negative recently, despite favorable economic trends. I expect a maxium upside price of 74 euros, an upside risk of just 11%. However, with the important media and medical divisions reporting book/bills of less than 0.9, I expect deterioration in profitability.
How’d that turn out? Stock is down 75%, and that’s after a 7% gain today.
Now, you can hire a fund manager with gobs of experience at losing money, or you can hire someone who’s made quality recommendations and money, but is relatively inexperienced. Which one do you prefer? Or better yet, which one can you afford?
Filed under: General Investing
