Getting Super Values on Great Companies
David Winters is as bullish as I've ever heard him. At 46, he has been managing money half his life, but he's never seen values like this. "People are selling excellent companies at whatever prices they can get because they're afraid or because they need the cash," he says. "The opportunities are unprecedented for a long-term investor."
Winters is a canny veteran. Schooled for two decades at the Mutual Series funds (now owned by Franklin Templeton), where he started as an analyst under legendary value investor Michael Price and rose to become chief investment officer, Winters left to launch Wintergreen fund (symbol WGRNX) in 2005. The global fund has beaten the MSCI World stock index by a comfortable margin since its inception in October 2005. Although the fund plunged 34% in 2008 through October 31, it was ahead of the index by nearly six percentage points.
Because Winters buys stocks only when they're cheap, his holdings usually have some warts. Not today. "Everything is for sale, so we can shop at Tiffany's instead of some budget store," he says. "There's been almost no place to hide this year; even the highest-quality stocks have gone down."
In analyzing stocks, Winters looks for good businesses selling at favorably cheap prices and run by good managers whose interests are aligned with those of shareholders. "We've been through an extraordinary period that is now handing us these companies on a platter," says Winters.
Take Chesapeake Energy (CHK), a natural-gas-production company. All of its reserves are in the America. Natural gas is increasingly being touted as part of the solution to the energy crisis. But, says Winters, Chesapeake, which closed November 3 at $20.63, trades at less than $2 per million cubic feet of its proven gas reserves. Gas on the spot market, meanwhile, trades at about $7 per million cubic feet. Plus, the company holds a lot of undeveloped gas leases.
The gloom is even thicker on foreign stock exchanges -- and that has Winters salivating. Year-to-date through October 31, the MSCI EAFE index plummeted 45%, compared with a 33% loss for Standard & Poor's 500-stock index. "The irony is that the epicenter of the problems is the U.S., but foreign stocks have been smashed even worse," he says.
So, as an investor who likes to go against the grain, Winters has boosted his fund's allocation to foreign stocks (see Where Are All the Wise Money Managers?). He has only 17% of Wintergreen's assets in U.S. stocks; about one-third is in Asian stocks. "We still believe the future of the world is going to be in the Far East, and Asia has been pummeled," Winters says. "People have liquidated everything."
Winters is currently hedging half his exposure to foreign currencies. So the sharp rise in the dollar has helped the fund's relative performance. Winters describes his 50-50 stance as a way to be agnostic on the future value of the greenback.
To analyze companies, Winters spends about one-third of his time traveling. "I have a long commute," he jokes.
But all that travel has helped him uncover such bargains as Jardine Matheson Holdings Ltd. Based in Hong Kong, the 175-year-old conglomerate owns everything from a food retailing business to the Mandarin Oriental hotels to real estate in central Hong Kong. Says Winters: "It trades at a big discount to our estimate of its value, it's conservatively financed, and we think it's a very good way to participate in the long-term growth of the Far East."
Another favorite is Wynn Resorts (WYNN), which owns casinos in Las Vegas and Macau. Winters calls Wynn "the best operator" in Las Vegas, where the company is headquartered. He believes Las Vegas will recover from its current downturn, which was triggered by economic anxieties, overexpansion and higher airfares. And he likes that Wynn "operates under U.S. rules" but has a large presence China.
He's also a big fan of Warren Buffett's Berkshire Hathaway (BRK.B), a conglomerate that has recently started putting some of its $36-billion cash stash to work in beaten-down companies, including Goldman Sachs and General Electric.
Like Berkshire Hathaway, Wintergreen has a ton of cash -- currently almost 20% of its assets, which total $1.5 billion. Winters says he's now studying a couple of opportunities, but "we're definitely keeping some powder dry" in case share prices drop even further.
I'm a little concerned about the fund's cash stake. After three years in business, Winters has only two analysts. Yes, it's gotten easier to be a global investor without having to spend an inordinate amount of time on the road. But having a bigger research staff could only help Winters uncover more attractive stocks. Given his bullish stance, it seems likely that he would have put more of his cash to work if he had had a few more analysts.
Another criticism: Winters is now managing $2.5 billion in the fund and other investment vehicles. While Wintergreen's expense ratio has come down a bit, it's still way too high at 1.85%.
Don't get me wrong. This is a good fund. But it could be even better.
Steven T. Goldberg (bio) is an investment adviser and freelance writer.