Avon Products, Inc. (NYSE:AVP) is a beauty products company that Lampert dumped his entire stake of. Avon is down over 15% year to date after missing quarterly estimates each of the last four quarters. Sales are expected be down 1% for 2012, driven by a 2% sales decline in North America. Avon recently announced that its executive chairman would step down at the end of 2012, leaving new management to orchestrate a turnaround. The turnaround is expected to take some time, and coupled with pressures from a weak global economy, the expected earnings growth rate is a poor -13% annually. Avon is also still well above top competitor Estee Lauder at 54x earnings, compared to Estee’s 27x. Billionaire Steven Cohen, founder of SAC Capital, also sold off his entire stake of Avon last quarter (check out Steven Cohen’s top bets).
Seagate Technology PLC (NASDAQ:STX) is a data storage company focused on disk and hard drives. Although the tech company has missed two straight quarters of earnings it is still up 80% year to date. We do not see the future as so robust, with revenues expected to fall 10% in FY2013 (June) after a 36% increase in FY2012. The decline will be a result of a high adoption of tablet computers. Seagate appears cheap from a valuation standpoint at only 4x earnings, but we believe this could be a value trap as the company’s technology and fundamental product appears to be in decline, amid an ever-changing tech environment. Lampert’s sale of Seagate goes against billionaire David Einhorn, who had 8.5% of his firm’s 13F invested in the tech company (see David Einhorn’s newest picks).
CIT Group Inc. (NYSE:CIT) is the commercial lending and leasing company, with over 70% of its lending to commercial airlines, manufacturing and retail industries as of the third quarter. Due to weakness in these sectors, CIT is expected to see full year 2012 EPS down 23% year over year. We do believe that despite the near term pressure, CIT is a solid value play that investors might be overlooking. Looking at the valuation, we can see just why this is the case.
CIT trades at only 11x forward earnings, and on a P/B basis, CIT trades at only 0.9x, compared to the industry average of 3.3x. When you throw in the lending and leasing company’s long-term expected growth rate of 15%, it is hard not to see CIT as a ‘growth at a reasonable price’ opportunity. Billionaire Ken Griffin – founder of Citadel Investment Group – was also selling off CIT Group, dumping 70% of his stake last quarter (see Ken Griffin’s latest moves).
iStar Financial Inc. (NYSE:SFI) saw Lampert sell off over 15% of his shares last quarter. iStar is a REIT with a focus on commercial real estate. The REIT has not paid a dividend since 2008 and only has around $280 million of cash on hand. iStar does trade at a P/B of only 0.5x, but is up 50% year to date. We remain cautious on the REIT as it tries to regain its footing after being down 70% over the last five years. Billionaire Jim Simons was also selling off iStar, dumping his entire stake last quarter (see Jim Simons’ top picks).
Capital One Financial Corp. (NYSE:COF) was an almost 50% selloff for ESL last quarter. The financial services company is up over 40% year to date and may have seen a near term high. Integration efforts of recently acquired ING Direct and HSBC’s U.S. card portfolio may well lead to interim weakness and earnings pressure. Even so, the long-term cross selling benefits should more than make it up to investors. We do not necessarily agree with Lampert’s move and might consider taking a closer look at the credit card company. Capital One trades on the low end of the industry at 10x, with a long-term expected growth rate of 11%. Further encouraging our thesis is the fact that Capital One trades at a P/B of only 0.9. Billionaire John Paulson also dumped almost 50% of his shares last quarter (see John Paulson’s newest stock picks).
We see many of ESL’s selloffs as good moves, but also believe that investors might find value in CIT. The Avon selloff is likely ahead of continued weakness in the global market for beauty products, and the Seagate selloff comes just as the company is likely to see further deterioration due to product demand decline. We believe iStar’s commercial portfolio will continue to lag behind the broader market, including residential real estate, but believe that Capital One is a solid investment as it broadens its portfolio to focus on consumer borrowing.
