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Portfolio updates

October 14, 2011

I have been slowly adding to several positions in my portfolio on market dips (of which we’ve had far too many in the past couple of months). I’ve added to AIG, MIL and GRVY as well as finally breaking down and adding a small position in EBIX. Below I’ve given the 30 second version of my reasons for doing so.

I added another 25% to my now large position in AIG when it dipped to $20 a share. I’m keeping some cash on hand to add another 20% if the price dips below $18 on some possibly forced selling. I think the company is a steal at these levels, and it’s just the Govt. ownership overhang and the Berkowitz fund factor that is keeping it in the low 20’s. So please Mr. Market have another psychotic AIG day!

MFC Industrial is selling for just about the cash it holds; you get Michael Smith and the Wabash mine royalty stream for free. I think a lot of people are throwing in the towel on MIL because of all the corporate gyrations that have taken place over the past two years; the recent name change and the announcement about the spin-off of some unidentified assets planned for November were probably the final straw. But, hey, that makes for some attractive pricing on the MIL shares! I picked up some around the $6.67 level (which means my basis will be around $5.00 once the November asset spin is finalized) and if the share price hits those levels again I will be picking up more. There is also the possibility that some of the detritus that MIL spins off in November will be unwanted by current shareholders and could prove ‘interesting’ for venturesome investors. It seems likely that the spinoff will include the remaining MIL interest in KHD as well as the German real estate interests and some other things. It’s not clear in what form those real estate interests might be packaged (a REIT?) or where they would be listed (Germany? with a US ADR?) but it seems to me that few if any of the current MIL shareholders will be interested in holding these. Could be some bargains there!

Finally I haven’t been able to resist increasing my position in Gravity. I know, I know, its been 4 years that they have been working on the upgrade to their major game Ragnarok. But with the ADR trading at $1.25 yet the  company having $1.94 in cash per ADR, no debt and being cash flow positive how can I resist? I think the downside is protected at these levels. The upside? well there may be none, but then again…

On EBIX what can I say? Lots has been written about the company. My thesis is simply that 1) the stock is trading about 10x earnings despite 2) the company showing significant growth (yes, even though much of it through acquisitions!) and, 3) generating plenty of cash; 4)  CEO is an iconoclast and 5) has a major ownership stake yet, 6) there has not been a lot of option dilution; 7) short sellers have targeted the company – almost 30% of the shares are short. Go read the various investment theses on the web and decide for yourself, but I think the CEO is genuine and there could be a real short squeeze on this one. I’m targeting an exit share price of about $30-35 over the next year. This is not a ‘buy and hold forever’ position for me; I think the short sellers have forced Mr. Market to misprice the security. There could, however, be significant volatility; I wouldn’t be surprised to see the share price compressed to under $10 or jump quickly to $30. Thus, this is a small position for me.

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