Can Icahn Unite Angry Shareholders?

Last Monday and Tuesday, fellow Motley Fool Inside Value advisor Philip Durell and I attended the Value Investing Congress (VIC) in New York City. I co-managed a value hedge fund in New York until mid-2003, and returning as a Fool in this market environment was interesting, to say the least. At a time when the stock market seems to drop every day, and some of Wall Street's oldest institutions have gone out of business, the city seemed very different than when I left.

Down but not out
The audience at the VIC was filled with professional money managers, glued to their BlackBerries like their lives depended on it. I couldn't help but imagine that Warren Buffett was in the audience, calm and collected, uninterested in checking stock quotes on a handheld device. Alas, Warren wasn't there -- just a group of 500 or so investors who looked a little shell-shocked and a lot concerned.

Now, in fairness, this was a group of value investors -- mostly level-headed long-term investors who were all doing their best (Philip and me included) to look at this unprecedented time as an opportunity. Still, opinions ran the gamut: Whitney Tilson talked about how we were still in for a world of pain from the second wave of the mortgage meltdown, while Leon Cooperman of Omega Advisors said that the bulk of the damage had already been done and that recessions typically sow the seeds of recovery.

Kian Ghazi of Hawkshaw Capital Management gave a great presentation about how performing a high level of due diligence and research can allow you to invest with conviction and avoid the pitfalls that so many investors find themselves falling prey to, especially when markets get crazy. Ghazi looks for financially strong companies with a high-quality, one-of-a-kind franchise. He then kicks the tires hard in an effort to determine what downside risks would cause him not to want to buy more of the stock.

Most interesting, though, was that he speaks more like a business owner than a stock investor. He talked about "our business" or "our customers" as though he actually worked for the companies whose stock he owns.

Shareholders unite
One of the most interesting presentations was from legendry investor Carl Icahn. Icahn discussed how the boards of companies are largely to blame for our current predicament, joking that he doesn't need to watch Saturday Night Live anymore -- he just goes to corporate board meetings.

Icahn said that the failures of several financial institutions have made it obvious that boards and managers took too much risk with leverage and use of derivatives. He explained that shareholders must force boards and managers to take responsibility for their actions by demanding accountability. That, he argued, is the only way to prevent crises like the one we're in now.

To help shareholders do that, Icahn is launching United Shareholders of America, a group that will advocate for changes in federal and state laws to make it easier for shareholders to influence companies they own.

Value + stewardship = a great investment
Listening to all of the renowned investors at the VIC got me thinking. Let's use this current craziness to pick up shares of undervalued companies, but let's add a layer of stewardship to the analysis that will allow us to sleep at night if the world continues on this downward spiral.

Immediately I thought of three Inside Value recommendations: Markel (NYSE: MKL  ) , Berkshire Hathaway (NYSE: BRK-B  ) , and American Express (NYSE: AXP  ) , which are all excellent companies selling at discounts to our estimate of intrinsic value. They each have management teams and boards that take their fiduciary duty to shareholders very seriously.

But they're certainly not the only companies that fit the bill. After doing a quick screen, I found some other companies with wide moats, excellent management, and attractive valuations -- along with favorable four- or five-star ratings from the investor community at Motley Fool CAPS:

Company

Industry

CAPS Rating

Market Cap

Cintas (Nasdaq: CTAS  )

Business Support

*****

$3.4 billion

Expeditors International of Washington (Nasdaq: EXPD  )

Business Services

****

$6.2 billion

Iron Mountain (NYSE: IRM  )

Business Support

****

$4.7 billion

Fastenal (Nasdaq: FAST  )

Distributors

****

$5.5 billion

Source: Yahoo! Finance, Motley Fool CAPS.

I'm sure Kian Ghazi would tell you to use this screen only as a starting point for deeper analysis, but it looks like a solid jumping-off point to me.

The future
None of us knows what the near term will bring. But history has shown that market corrections and recessions are typically great times to make investments. We'll have to remain calm and ride out the short-term volatility, but when we look back at this time I think we'll view it as a tremendous opportunity. Sometimes I miss New York, but this time I was happy to leave the city behind, feeling wiser for the experience -- and ready to get back to business for my readers.

Ron Gross is the co-advisor of Motley Fool Inside Value. Want a few value-priced stock ideas? Click here to give the service a try free for 30 days.

Ron owns shares of Berkshire Hathaway. The Motley Fool owns shares of Berkshire, Markel, and American Express. Berkshire, American Express, and Markel are Inside Value picks. Berkshire is also a Stock Advisor selection. The Fool is investors writing for investors.


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  • Report this Comment On October 14, 2008, at 9:30 AM, GrahamJervis wrote:

    I hope you guy's would be giving MF Inside Value members a run down of what occured at the VIC conference.

  • Report this Comment On November 20, 2008, at 3:17 PM, weiwentg wrote:

    It's very interesting that all four of these companies rank 5 stars on Gurufocus' new measure of business predictability. They scores companies based on how steadily their EPS have grown over the past 10 years. I would prefer growth in cash flows, as there are fewer ways for management to distort them, but good management teams are less likely to play tricks with their accounting.

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