A Bargain Hunter Roars Back
Bets on stocks of small, obscure companies fueled Aegis Value’s revival.
Scott Barbee, manager of Aegis Value (symbol AVALX), likens his fund’s glorious performance over the past year to buying a “lottery ticket that paid off.” In truth, investing is anything but a game of chance for Barbee, a disciplined investor who likes to buy stocks of small, misunderstood companies at dirt-cheap prices. Still, Barbee, whose fund lost 51% in 2008, marvels at just how well some of his holdings have performed since stocks began their astonishing recovery nearly a year ago.
Chief among Barbee’s savvy moves was his decision in early 2009 to place a bet on the auto industry. Aegis’s biggest position, Dana Holding, a supplier of auto chassis and parts, soared 1,365% in 2009, contributing at least 15 percentage points to Aegis’s return for the year, Barbee estimates. Despite the auto industry’s woes, he says, Dana continued to generate positive cash flow throughout the recession. Plus, he says, Dana “was restructuring, which looked likely to improve its long-term profitability.”
Barbee found another big winner in the zinc business. Horsehead Holding is paid to haul away zinc dust, an industrial byproduct of metal mills. The company then refines the dust into something usable and resells the product to the rubber and steel-galvanizing markets. In early 2009, Barbee noticed that the amount of cash per share on Horsehead’s balance sheet equaled its share price, “so you were getting the whole business -- its entire infrastructure -- free.” The stock gained 171% last year.