New York Times Is A Solid Turnaround Story
The Dynamic Wealth Report
October 22, 2008
What This Billionaire's Doing With His Money
I’ve got to admit to a little obsession. Every year Forbes Magazine
publishes the Forbes 400. It’s a listing of the richest people in
America. I love this issue and I’ll read it cover to cover several times
over the next few months.
The most recent issue was published earlier
this month. I suggest you pick up a copy and give it a good read.
Why?
Because you never know where a great investment idea’s going to come
from. Let me give you an example. I recently read about a Billionaire
investor who made a very interesting investment.
Before I tell you who he is let me tell you a little bit about him.
First off you won’t find him listed in the Forbes 400 – he’s not a US
citizen. But his business prowess and investment savvy is known the
world over.
In the 1980s he looked to buy troubled companies on the cheap. He’d go
in, turn them around, and make buckets of money in the process. He
eventually moved into the communications industry. That’s when he
started building and running a Mexican telephone company. Eventually he
founded a cellular telephone company which became Latin America's
largest.
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So he’s good at business. How’s his investing track record?
He says he follows in the footsteps of Warren Buffett. That makes him a
value investor. But his investments are a bit different from Buffett's.
This Billionaire bought a huge stake in Apple Computer in
1997. Apple’s shares rocketed higher with the launch of the iMac a few
months later. I guess timing is everything!
Other past investments include a big stake (more than 11%) in high-end retailer,
Saks. A major piece of telecom firm, Global Crossing. And a
chunk of
deeply discounted WorldCom bonds. Those bonds made him a $500 million
profit a mere three years later.
Not bad if you ask me.
So who is this investing and business genius?
If you guessed Carlos Slim, you’re absolutely right. His net worth makes
him one of the three wealthiest men alive. Recent estimates place
his personal fortune somewhere around $58 billion.
So what investment idea do we get from Mr. Slim today?
Earlier this year, Carlos invested big in a very well known company. He
bought a more than 6.4% stake in the New York Times (NYT). That’s right
he bought a newspaper company. The New York Times publishes a number of
well known daily newspapers across the US. They also own a radio station,
a number of websites (including about.com) and a regional cable network.
The most interesting part of this investment . . . his timing. Right now
the New York Times is struggling. Ad revenue’s down 14%. The
company’s staggering from increased competition by the online
world. And, the softening economy is further eroding demand. On top of that,
the stock’s hitting new lows. As a matter of fact, it’s been sliding
downward for 5 years now (the chart doesn’t look good!).
So why make a major investment in this struggling company?
Remember, Carlos got his start as a turnaround expert. I’m thinking he
sees some exceptional value in the New York Times. Clearly he sees
something many others are missing. I'm just not sure what.
But I do know this, Carlos isn’t acting alone.
Before taking his position over the summer, two big hedge funds started
buying stakes as well. The two funds are Harbinger Capital and Firebrand. Now here’s what you need to know about these two characters. They’re
widely known as activist investors.
They like to invest in a company and then “work” with
management to improve operations. I use the word “work” lightly. Sometimes the management teams don’t want any help. Anyway, less than
six months ago these firms captured two board seats. It gives them
incredible insight and influence over how the business is run.
Now you have a big value investor, Carlos Slim, putting a big chunk of money
into the company. Along with that you have two influential activist
hedge funds taking board seats. Might this be a good catalyst to improve
company operations and drive the company value higher?
I’m sure Carlos thinks so, and I’m inclined to agree.
Take a look at the recent stock price action. The New York Times stock
has been on a 5 year slide. At one point it traded for nearly $50 a
share. Carlos got in around the $15 level. Now the stock trades at new
lows of $11 a share.
If you have a long-term horizon this investment might turn
out to be a big winner. If management can turn around the operations of
the business (I’m sure the new board members are pushing hard) then we
might see the stock climb substantially.
Now the investment is far from a sure thing. But the risk to reward
potential seems good to me. If you like value investing and following
smart investors, look at The New York Times. To me it looks like a great
opportunity!
• Rice ($15 per CWT)
Rice futures continue falling, with more than 90% of the US harvest
complete. We haven’t seen these price levels since earlier in the year. I think they’ll keep falling as growth rates around the globe continue
to fall.
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