Time to Leave

 | Feb 06, 2012 | 12:30 PM EST  | Comments
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cvs

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cresy

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EBAY CTO

Even value investors, sometimes known for having too much patience, need to part ways with some names in their portfolios. It could be that the original reasons for taking a position are no longer valid, or a target price or outcome has been realized. Sometimes your analysis was flawed, and it's better to cut and run than to hope for what will never come to pass, lest you be caught in a dreaded "value trap". Perhaps you just need to make room in the portfolio for some potentially better opportunities.

Late Friday, I parted ways with a couple of names that I've owned since 2009. Neither was a value trap, and I would consider owning both again. However, the truth is, I got bored with these names, and others out there have caught my eye. These potential adds require some dry powder.

One position I closed was eBay (EBAY), a name I never thought I'd own in the first place. At one time, this was a tremendous growth story and traded at very high multiples, not exactly my cup of tea. But sometimes growth turns into value, which is what happened to eBay (and many other companies, too) in late 2008 and early 2009. I bought this stock at 9x trailing/8x forward earnings and less than 8x free cash flow in Jan. 2009. (See my article, "A Deep Value Investor Defends eBay".) That was an extraordinary time and opportunity. The stock is up about 150% since then, but it has been dead money for the past year. While it certainly does not appear expensive at 13x trailing, and 14x 2012 consensus estimates and still very solid net profit margins, it was time to move on.

I also parted ways with a much smaller and lesser-known name, Consolidated-Tomoka Land (CTO), which owns a portfolio of 28 commercial real estate properties, primarily leased to retailers such as CVS Caremark (CVS) and  Walgreen's, and 11,600 acres around Daytona Beach, Fla.. Frankly, I was too early with CTO, which was a $90 stock in 2005, and sold at the same price I paid. While this asset-rich company still looks decent on paper, it has not been in the black for a full year since 2009. Florida real estate should eventually recover, but I just ran out of patience.

I'm not in a hurry to re-deploy the proceeds from these sales, but I'm looking for opportunities. I'm still watching Argentine farming giant Cresud (CRESY), a name I've been out of since late 2010. Shares pulled back more than 50% since I closed that position, but have been showing signs of life year to date. I still like farmland as an asset class, and Cresud is an interesting way to gain exposure, although the fact that most of the company's land is in Argentina gives me cause for concern.

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