Today I want to continue our vulture fest. In the past few days I have spent some time examining the portfolios of some of the more experienced, successful investors in distressed securities, to gather ideas on where opportunities might lie for long-term investors.
Our economy and markets have undergone a prolonged period of weakness and uncertainty, and that's often when investors can profit from buying unloved and unwanted securities. I hope the time spent doing this will be more productive than the three hours I wasted watching the Ravens game last night. Thankfully, the Texas Rangers' win and the drop in Netflix (NFLX) took the edge off the pain of one of the worst football games I have ever watched.
I saved my two favorite vultures for last. Today I want to look at the recent moves by renowned investor Wilbur Ross. I have invested in more Wilbur Ross deals over the years than I can easily recall. I can recall that I have never lost any money buying stocks or debt securities when Ross was also a major investor. I have had some wild rides, and patience was required in most of them, but they all made me money. Ross has been active in the distressed markets since the 1970s and has had extraordinary success in finding diamonds where others saw only garbage. He has had success in a wide range of industries, buying them when they were hopelessly out of favor and then selling when things inevitably turned around.
Given his tendency to buy the worst of the worst sectors and industries, his current activities are not that surprising. He is part of the ownership group of Diamond S shipping. The company is buying vessels that transport oil and refined products, to take advantage of weakness in the global shipping markets. Ross says that the shipping market is close to a bottom and that the industry is too fragmented. He anticipates that transactions in the sector will pick up soon. I will leave it to readers to pick their own shipping stocks if they agree with Ross, as my record in shipping is suspect at best.
He is also buying banks. He bought BankUnited (BKU) as the crisis began and has already done a recapitalization and IPO of the Florida-based bank. BankUnited has seen its stock fall by roughly a third since its IPO and currently trades at 1.4x tangible book value. I expect BankUnited to be an acquirer of other institutions, and I would buy the stock if it moves lower in the weeks ahead. Ross also owns a large stake in Sun Bancorp (SNBC). This stock still has some credit quality issues, but I believe it is worth owning as a long-term investment.
Ross' most intriguing bank investment is his 9% stake in Bank of Ireland (IRE). The stock has gotten hammered since the reverse split earlier this month. If Ross is correct about Ireland being the first troubled European nation to recover, this stock has enormous long-term upside. He has said that he believes that unlike other bailed-out nations, Ireland does not need fundamental changes in its economy. The difficulties in Ireland have been the result of out-of-control lending by the banks and not by the underlying performance of the economy, according to Ross. I believe that he is right and that the stock is a buy. There is going to be some dilution of the shares in all likelihood, as the bank will eventually need new capital, and owning Bank of Ireland will not be a smooth ride. However, I believe it is time to start slowly accumulating the stock.
Much of the rest of Ross' large positions will also do very well in an economic recovery. He owns Air Leasing (AL), an aircraft leasing company. Greenbriar (GBX) is a railcar manufacturer that could see a strong surge in revenue and profits when the economy strengthens. He recently bought more shares of Assured Guaranty (AGO), an insurance company that has a large exposure to the mortgage securities industry. All of these companies are facing challenges form the weak economy and confused financial markets but could move much higher as the world improves over the next few years.
Tomorrow we will complete Vulture Fest 2011 with a look at the recent moves by another experienced long-term investor in distressed assets and industries.