Who Is Cheap Now?

 | May 21, 2012 | 2:30 PM EDT
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The weekend sunshine and great weather for baseball was a temporary respite from the fact that there's been an ugly mood in the markets the past couple of weeks.

Even the much-heralded Facebook (FB) IPO could not lift its spirits (although it may have demonstrated that valuation still matters). This is nothing. Six-straight negative days for the S&P 500, yet there were just three trading sessions in the past month with losses greater than 1%. How quickly we forgot the volatility of last August/September, when the index closed up or down more than 1% in nearly 2/3 of the 44 trading days. Included in that two-month stretch were 18 days of moves that were plus or minus at least 2%. I'm not relishing a return to that type of environment, just putting the current environment into perspective. 

Along with the carnage, if you can indeed call this carnage, comes potential opportunity. The pond where I typically fish includes names that typically get hammered much harder than the broad markets during a pullback. Huntsman (HUN), for instance, is down more than 17% since the beginning of May. With nearly 70% of 2011 revenue coming from overseas, including 11% from Germany and Italy, you can understand some skittishness here. But I'm happy to collect the 3% dividend while the market figures out whether Huntsman deserves more punishment. At less than 9x trailing earnings and 5x times EV/EBITDA, I'm staying put.

Another name that's been hammered, but for other reasons than just the recent pullback, has been Argentine farming and asset play Cresud (CRESY).  I warned about this one last month, due to Argentina's move to nationalize YPF, that nation's largest oil and gas company. Cresud shares are down nearly 30% since then and now I'm getting interested again. While it's unlikely that Argentina would also attempt to nationalize the food and farming industries, I simply require a greater margin of safety in Cresud shares in order to take on the risk. With the YPF nationalization, Argentina is screaming loud and clear that it is not a friendly environment for business, or capitalism. If I'm going to purchase assets there, it has to be on the cheap, the very cheap. 

I was not comfortable with Cresud at $10, but at $7 and change I'm getting there. The company's 64.2% stake in Argentine real estate play IRSA (IRS) is alone worth about $290 million. Unless Argentina decides to nationalize that industry, too. Stay tuned.  

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