Chart of the Day

If you remember a few weeks ago, we talked about a few steps in my due diligence process for researching potential short investments.

It looks like we were on the right track with a consumer discretionary company (for me, eating out is a discretionary item). Hat tip to the Market Seer Blog for this chart below. Telecom looks to be one the cheapest sectors out there - Leap Wireless, a post-reorg equity (our favorite kind of equity), could be an interesting one to take a look at...


PlanMaestro,  5/11/2009  

DDI, could you please discuss more post-reorg securities? Distressed debt has risks for small investors given the complexity of the negotiations, the lack of liquidity, and the potential for hold-outs form large holders.

However, I imagine post-reorg securities are more simpler in the analysis but they are also not easy to find (sometimes they are not even on the databases) There must be some bargains.

How would you go about finding post-reorg securities? Is there a particular SEC filling to find them?

another value investor 5/12/2009  

I believe Joel Greenblatt also mention significant opportunities exist in post-reorg securities in his book "You can be a stock market genius". Can't wait to hear from DDI your comment on how to find and evaluate these securities.

Jack,  5/13/2009  

Let me start off by saying great blog, it's nice to see live case studies of the distressed investing process.

With regards to a table like this I would recommend not reading too much into it. Unfortunately there are 3 problems with this table that I've detailed below.

First off this table appears to be an aggregation, so for example the NTM P/E is the sum of the market values for each company in the sector divided by the sum of the earnings of the companies...this means that 1 or 2 companies can massively alter the sector level valuation. In the case of consumer discretionaries think GM and Ford. Regardless of what S&P may think, this aggregation method is incorrect...a better method would show the median values for the companies in the sector, thus eliminating this outlier effect.

Secondly, this is a point in time observation that doesn't show any history. Some sectors will always appear expensive (or cheap) on a given metric. An example would be Dividend Yield (not on this chart), which would likely be very low for Tech companies but much higher for Utilities or Health Care...not just today, but for long periods of time and this table can't capture that relationship.

Finally, not so much a problem but more something that would be nice to have would be to see the metric relative to the market back in time as this would also tell you something.


hunter [at] distressed-debt-investing [dot] com

About Me

I have spent the majority of my career as a value investor. For the past 8 years, I have worked on the buy side as a distressed debt and high yield investor.