Monday, June 18, 2007
In April, we commented on a terrific irony: value legends buying big telecom stocks.
Seeing companies like Soros, Dreman, and Hawkins holding Verizon, AT&T, and Sprint Nextel gives me the chuckles. Only seven years ago, those guys wouldn't have bought such stocks unless you put a gun to their heads. Yet today, they're putting hundreds of millions of dollars into big telecom.
And as further proof that you can make money simply by following these guys into their investments, consider that AT&T, Sprint Nextel, and Verizon have risen 3%, 7%, and 14% respectively since our essay.
None of the investors involved in these companies are traders – perhaps with the exception of Soros. To see them investing this much money into the sector augurs a long-term bullish trend in telecom stocks. Verizon and Sprint are still trading for five times cash flow. Aside from being phenomenally cheap from a universal standpoint, this is half the industry average for the multiple.
Simply put, both companies have a long way to rise before they're overvalued. And while we've already seen some quick gains in the last month and a half, it might be years before we see a double.
Which is why I suggest you have a look at cell-phone maker Motorola (MOT).
MOT is the second-largest manufacturer of cell phones in the world. It's also the hottest stock on the market for investing legends. The ownership at this company is a veritable who's who of investing gurus:
The particular names to focus on here are Icahn and Lampert, two of the most famous and successful activist investors on the planet. Both are self-made billionaires: Icahn boasts a $13 billion fortune and Lampert $4.5 billion. Both are brilliant investors: Lampert has averaged 25% a year for nearly 20 years; Icahn's profits from his deals are legendary ($880 million in Time Warner, and $1.5 billion in National Energy, for example).
And both are activist investors who push for greater returns to shareholders.
Icahn is asking MOT to buy back as much as $15 billion worth of stock. The company has already bought back more than $2 billion and allotted another $3 billion for additional share repurchases. When complete, the company will have repurchased 11% of its shares outstanding.
Though he hasn't contacted MOT's board yet, seeing Lampert's name among MOT's holders is particularly exciting. Lampert makes huge bets on very few companies. Altogether, his hedge fund, ESL Investments, has $16 billion in just six stocks: AutoZone, AutoNation, Sears Holdings, Citigroup, Clear Channel, and Motorola.
One thing is for sure, if Icahn and Lampert are involved, you're going to see some fireworks in MOT's share price in the near future.
And because MOT shares have yet to move, you can buy its stock today at the same price Lampert and Icahn did.
Intel up 9% on high volume last week.
Big Oil keeps climbing... ExxonMobil, ConocoPhillips, Petrobras, Royal Dutch Shell, Total, and Eni all hit 52-week highs.
Oil drillers follow... Norsk Hydro, Helmerich & Payne, Diamond Offshore, Hercules Offshore, GlobalSantaFe, Grey Wolf, and Transocean at new highs.