Add another, very obvious, sector to the list of sectors I’m interested in: financials. More to the point, I’m looking out for financials that have no business being beaten down but are beaten down excessively by virtue of their SIC classifier tag.
I must say, MVC Capital (NYSE:MVC, Current: $10.38) looks really really really interesting. Reasons include:
- Replacement of entire board of directors in 2003, and incredible growth in earnings since then. Their turnaround of their own company is, to me, the strongest indicator of their capabilities in turning around other companies.
- Experienced head investor with deep industry links ensures constant pipeline of opportunities
- Strict internal controls to ensure regulatory compliance
- Status as business development company ensures transparency in dealings
- Current market conditions provide excellent investing opportunities for them
- Provides access to micro-cap growth companies otherwise unaccessible by me (us)
- And, most importantly, trading almost at its 52-week low and at price-to-book-value ratio of a measly 0.6
Possible downside of investment
- There may be a ceiling to growth given the small investment team they currently have. I’m just not personally sure about the scalability of PE businesses, especially since they participate actively in the management of their invested companies.
- Their current debt level may prohibit them from obtaining credit should the downturn stretch out. This may be balanced out by the cash they have on hand although I wasn’t able to find out how much.
- I also may face reinvestment risk because MVC has policy of paying out dividends
That said, I’m looking forward to monitoring this counter and hopefully adding it to my little portfolio really soon. I’m loving this recession.
Update: On 6th Nov, management actually bought approx $240,000 worth of their own stock at around $12. Great vote of confidence. Lovin’ it.
