Should You Hold First Marblehead?

If you have a weak stomach, you may not want to look at First Marblehead's (NYSE: FMD  ) stock chart -- the company's stock is down about 90% from a year ago. The private student loan company has not fared well amid the credit crisis, and its loan guarantor filed for bankruptcy a few weeks ago.

Yet not all investors are jumping ship from this company. Earlier this month on our Inside Value First Marblehead discussion board (free trial or subscription required), aitraders listed seven reasons to hold this company:  

  1. There is still value in the residuals. Changing, debatable, perhaps eventually even worthless, but until 'eventually' becomes 'is', I am committed to this investment as long as the FMD officers still have a job.
  2. FMD has 35% insider ownership.
  3. Goldman Sachs (NYSE: GS  ) has committed to investing a bunch of money centered around the theory of an $11-$15 per share value. Stupid? maybe. But a done deal just the same.
  4. Despite all of the news, we have heard practically nothing from the FMD officers about the current situation. They are playing their cards close to the vest. IMO, trying to prevent irrational overreaction to their next moves while they themselves decide what those may be.
  5. The market is thinning out. If FMD should survive, there will be fewer players. I like their solitary commitment to student lending in contrast to University Systems, other Investors, that move on to find better value elsewhere. They, like SLM (NYSE: SLM  ) , have a solitary objective, and that is to succeed in the student lending market. And one thing is very clear to me-private lending for student loans will continue to be necessary, whether FMD does it or a new structure emerges.
  6. It still doesn't appear that banks want to keep these types of loans on their balance sheets and it appears that the business, or art, of securitisations in general is not dead, it is just going through a structural reevaluation and readjustment.
  7. Lastly, but most importantly, I am well diversified thanks to other TMF Inside Value recommendations and this is not the biggest position in my portfolio. I do not need this money in the next 36 months and can afford to be patient, even take the loss as much as it may hurt. ...

Aitraders continues:

FMD is an opportunity to deepen one's understanding of the student loan market (due diligence) and come to one's own conclusion if there is still value in this play. No one else can recommend or [dissuade] from this investment now -- as mentioned above, almost all are now on the sidelines waiting for the next conference call.

Or one can simply move on to greener pastures.

But until the next FMD conference call, and without another guarantor for the securities, all values are exercises in theoretical evaluations and not practical for further investing purposes.

Welcome to the twilight zone. That's my proverbial 2 cents and is only one investor's opinion. I hope this has helped you get a better picture.


Read/Post Comments (0) | Recommend This Article (50)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 631628, ~/Articles/ArticleHandler.aspx, 10/21/2014 6:27:04 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement