In an
interview on WealthTrack with Consuelo Mack
, FPA Capital's
Steven Romick
put forth a complex play on the auto industry and European
crisis: buying long Renault (
RNO_FP
) shares and shorting Volvo (
VOLVY
) and Nissan (
NSANF
). The positioning, he said, is resulting in him getting paid to
own Renault.
Renault interested Romick because it was associated with two of
his favorite criteria - an out-of-favor industry and lots of bad
news. The auto industry has suffered, but Renault, an auto
manufacturer, is based in France, where new car registrations
declined 13.8% from January to September 2012 compared to the
same period of 2011. More broadly, in the EU, the new car market
contracted by 7.6%.
The bad news emanating from Europe in general drew Romick's
attention there, but he goes about seeking investments in
distressed environments through a specific lens. "Wherever
there's bad news we go and look," he said, "and we say, 'Is there
something we do?' And figure out how we can potentially take
advantage of what we feel are forced sellers. We don't want to
buy from the after sellers. We don't want to buy an IPO from the
smart private equity guy who's selling his stake out. We want to
buy from people who are forced sellers who need the money for
something else or just because they need the money to have the
cash because they're too scared to own it."
Renault is attractive because it owns 44% of Nissan, 7% of Volvo
and less than 2% of Daimler. The huge store of value in the
investments, he said, exceeds the value of Renault's common stock
price.
Currently, Renault has a market cap of $10.32 billion.
Shareholder equity, including its Nissan, Volvo and Daimler
assets, was about $32.66 billion as of June 30, 2012.
If Romick goes long Renault, which appears overvalued, and shorts
Nissan and Volvo, which appear overvalued, he can make money as
the prices reach their fair value.
Romick owns 1.95 million shares of Renault SA, equivalent to
0.94% of his portfolio. The stock has lost 66% over the last five
years and gained 32% year to date.
In a May investor letter, Romick also said that he had traded
Renault profitably in 2006, but believed it had a "healthier
balance sheet, better geographic mix and improved profitability"
since that time. At year-end 2011, Renault had 9.9 billion euros
in cash and 48.4 billion euros of total liabilities. Its net
income was 2.1 billion euros, or 7.68 euros per diluted share.
Money managers typically do not report the size of their short
positions, but Nissan's stock has declined 1.57% year to date;
Volvo gained 18.5%.
See
Steven Romick
's
portfolio here
. Also check out the undervalued stocks, top growth companies and
high yield stocks of Steven Romick.About GuruFocus: GuruFocus.com
tracks the stocks picks and portfolio holdings of the world's
best investors. This value investing site offers stock screeners
and valuation tools. And publishes daily articles tracking the
latest moves of the world's best investors. GuruFocus also
provides promising stock ideas in 3 monthly newsletters sent to
Premium Members
.