Arrival Capital -- Market Commentary
Thursday, August 26, 2004
Mid-Quarter Update
The gloomy (market-wise) days of early August have given way to a slightly positive market tilt the past couple of weeks. Many of our accounts have moved up to highs thus far for the year, helped by a takeover of Rouse (RSE) last week, once again showing that value investments will usually find a way to pay investors in the end. We bought RSE because it was a well-run, high dividend play on an improving retail environment. Although we had to ride through a REIT sell-off in the Spring, holding on resulted in receiving a 35% takeover premium (after collecting that healthy dividend for half a year). If only they all could work out that well in the end!
We continue to like energy stocks (DVN, RD), which have taken a breather of late, because of their good value, low PEs, and the secular trends in place for energy. Media (Comcast, Viacom) looks to have bottomed and we hope the payoff comes as we reach the one year holding period for these positions, and these companies continue to generate good amounts of cash amid an improving media market. Financials have gotten a second wind, and we continue to focus on the high quality Wells Fargo, or potential takeover targets Washington Mutual or New York Community Bank, all the while collecting dividends higher than the 10-year Treasury Bond.
The year has been a choppy one for all markets. As we head into a traditionally weak period for stocks, we will focus on finding investments with good value according to measures of PE, net asset value, or price to sales and deploying cash that has built up in accounts through dividends, sales, and takeovers. Any such purchase must meet an assessment of risk vs. reward, an equation we hope to turn in our favor by looking for stocks that have been driven down by unwarranted pessimism, mistaken expectations or old-fashioned panic. It is hard to catch a bottom in any investment, but it often pays to try if the fundamentals warrant.
Once again, we thank you for your confidence and welcome your feedback.
