Barrons Roundtable: John Neff
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Date updated:01-21-2007
John Neff is known as the manager of the Vanguard Windsor Fund from which he recently retired. He is a hard-core value investor, looking to buy good companies with moderate growth and high dividends while out of favour, and selling once they rise to fair value. Neff is regarded as 'the professional's professional', because many fund managers entrusted their money to him in the belief that it would be in safe hands. That view was justified by his remarkably consistent performance. For more than 30 years, the Windsor Fund routinely featured in the top 5 percent of all US mutual funds.
From Barrons Roundtable 1-22-07:
"John Neff, like Archie a consummate value investor, rounds out this week's stock- picking session. Both, as it turns out, are recommending Lyondell Chemical, which affords an opportunity to study how two savvy investors approach the same company. John retired some years back from the helm of the Vanguard Windsor Fund, but his eye is on the ball more than ever these days -- and on land-driller Nabors and his old friend Citigroup."
-
LYO
Lyo - $0.00
- N/A
- $N/A
"Picking up on Lyondell, I'm estimating $4.75 a share in '07 earnings, so the stock sells at an astronomical price-earnings multiple of 5.2. ....Lyondell yields 3.6%, and pays a 90-cent dividend. ..target is 40, which would be up 60% from the current price."
-
NBR
Nabors Inds Inc N - $21.99
- -1.08%
- $21.80
"Nabors Industries [NBR], the largest land driller in the world. It operates in North America, including Canada, but also offshore. It is not nearly as concentrated as some others. Natural-gas prices have gone the wrong way recently, so the stock has fallen from 41 to 28.55. I've got them earning $4.60 a share this year, which makes for another astronomical P/E."
-
YRCW
Yrc Worldwide - $1.22
- -5.43%
- $1.35
"I've got them earning an aggressive $5.75 in 2007. It's 6.8 times earnings."
-
C
Citigroup Inc - $4.06
- 0.00%
- $3.99
" I've got them earning $4.75 a share for 2007. The stock is trading for 11 times earnings, twice the multiple of my other picks. But Citi is a solid 10%-12% grower. It has 3.6% yield. They meet in a couple of weeks, and I think they'll raise the dividend from 49 cents to 54 cents a share, which would lift the yield to 4%...Long-term it should trade at a market multiple, but I would settle for 13 times earnings in the next year. Thirteen times $4.75 would be around 62."
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02/01/2007 14:42 PM CST Asked by BamBam
I disagree with Neff's analysis of Citigroup.
Neff says, "There are all kinds of economies of scale at this company. They don't have a big branch system in the U.S., but a big hunk of the credit-card business, which is somewhat the same. Within the last few years they bought the credit-card businesses of Sears, Home Depot and Federated Department Stores. You crank all that into the existing infrastructure and you make out on the bottom line. Some people say the company should split itself up or spin off components, but then it would lose these economies of scale, including in investment banking. Their investment-banking operations are all over the world."
But, the structural cost savings from those scale economies has now been quantified at about $1 Billion annually.
That's a NPV of about $10 Billion in perpetuity. (assuming 10% discount rate)
But, the shareholder value of a breakup would likely be $100 Billion in the first few years.
The value of a breakup overwhelms the value of economies of scale.