I’ll try as much as possible to keep this tradition up every quarter. Today is the day that the 13F’s are released for funds managing over $100m. Below is a list of 4 picks that I find interesting:

1. WellCare Health Plans (WCG) — Pabrai Investments, Fairholme Fund — I don’t know much about healthcare companies, but Wellcare seems like it might be a very low risk, high uncertainty situation. Recently, a summary of Pabrai’s thesis on Wellcare was posted on the Value Investing Congress Blog. Using the last quarter with information available, WCG is trading at an EV/EBIT of about 1.8x (!).

2. EchoStar Corp. (SATS) — Greenlight Capital, Fairholme Fund (spin-out) — Spun off from Dish Network (formerly EchoStar) back in January. Has multiple holdings, including a set-top box business, SlingMedia, and 7 satellites. SATS could be extremely undervalued if you add up the valuations of its separate companies. See the VIC Writeup for more details. Charlie Ergan, Chairman and major shareholder, is extremely smart and should never be underestimated.

3. WellPoint Inc. (WLP) — Springhouse Capital, Greenlight Capital, Fairholme Fund, Berkshire Hathaway, Baupost Group — Quite the lineup. Another beat-down healthcare company, but with less uncertainty. If you net out cash and unrelated investments, enterprise value is about $16B. Pre-tax income in the past year was $5.3B. So, even if WLP has lower earnings going forward, it’s trading for only 3x EBIT. It may pay to find out. (By the looks of it, healthcare companies must have a thing for logos with little swively waves in them.)

4. American Woodmark (AMWD) — Stadium Capital, Akre Capital, Fine Capital — A manufacturer and distributer of wood cabinets. Trading at about 8x TTM pre-tax free cash flow. It looks like they haven’t done well in the last few years, but if they can get back on track this is a very cheap stock. I don’t know a lot about wood prices, but it looks like gross margins have fluctuated widely in the past.

13F buys archive: Third Quarter 2007; Fourth Quarter 2007
Related link: Search for filings on the SEC website

Disclosure: We own a small position in SATS. This is not a recommendation to buy or sell any security.

The cover story of the May edition of the Bloomberg Markets magazine discusses Nassim Nicholas Taleb’s affect on Wall Street:

On a freezing day in March 2007, Nassim Taleb walked into a conference room at Morgan Stanley’s Manhattan offices on 47th Street and Broadway to address a group of the firm’s risk managers. His message: Your models don’t work.

Using a whiteboard to scribble out his calculations, Taleb, now 48, began one of his rants, this time against stress tests–Wall Street lingo for examining how a market rout will play out. Stress tests are inherently risky because they ignore rare but potentially devastating events, Taleb said.

See the Full Article here

It’s always interesting to see what other investors or thinkers have on their bookshelf. In the introduction to the article, there’s a picture of Nassim Taleb in his library. Using the hard copy, I picked out a few books that Taleb has read (or hasn’t read, by Umberto Eco standards). These should be useful for expanding one’s network of mental models:

• Darwin’s Dangerous Idea, by Daniel Dennett
• Collapse, by Jared Diamond
• Guns, Germs and Steel, by Jared Diamond
• The Selfish Gene, by Richard Dawkins
• Rational Herds, by Christophe Chamley
• The Perception of Risk, by Paul Slovic
• Knowledge and Decisions, by Thomas Sowell
• Serendipity, by Royston Roberts
• The Construction of Preference, by Sarah Lichtenstein and Paul Slovic
• Evolutionary Dynamics, by Martin Nowak
• The Quark and the Jaguar, by Murray Gell-Mann
• Why Beauty is Truth, by Ian Stewart
• The Eastern Origins of Western Civilization, by John Hobson
• For and Against Method, by Imre Lakatos and Paul Feyerabend
• Probability via Expectation, by Peter Whittle
• Probability Theory, by E. T. Jaynes
• Plight of the Fortune Tellers, by Riccardo Rebonato
• Imperfect Knowledge Economics, by Roman Frydman and Michael Goldberg
• The Business of Options, by Martin O’Connell
• The Logic of Scientific Discovery, by Karl Popper
• Unmaking the West, by Philip Tetlock

On another note, I have joined the team of authors at Reflections on Value Investing. If you haven’t already, head over and subscribe to the RSS feed. It’s a must for any value investor. Although this was posted at both sites, for the most part, my occasional posts at Reflections will have different content than FutureBlind.

On Wednesday the 7th, Dr Pepper Snapple Group (DPS) officially began to trade. Its $25 price tag is lower than many expected after the soft-drink maker was spun-off of its parent company, Cadbury Schweppes.

Because spin-offs in general beat the market (and can make for excellent hunting grounds), I’m always looking for potential purchases. DPS stands out because of its well recognized brand names, competitive advantage, and unique spin-off situation.

Cadbury, its prior owner, trades on the London Stock Exchange. But when DPS was spun-off, it traded on the NYSE. This is a problem for mutual funds and institutions in the UK that owned Cadbury. They can’t or don’t want to hold a foreign-traded security. So more than likely (this may have already started), these institutions will sell their newly received DPS shares without regard to price.

Some of the brands of DPS include: Dr Pepper, Snapple, 7 UP, Motts, Sunkist, A&W, Hawaiian Punch. This post isn’t meant to be a complete analysis of the investment, just my initial thoughts on a potential opportunity.

Comparisons

The table below compares DPS with other soft-drink and consumer goods companies.

Continue reading… »