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Monday, August 21, 2006

Alleghany's Poor Portfolio

Stocks: (Y)(LUK)(BNI)

Morningstar, the stock and mutual fund research firm, recently made a big deal of the fact that Leucadia and Alleghany, two public companies with big stock portfolios, own a total of 18 stocks ranked "Five Stars". At Morningstar, the "Five Star" rating means that "our analysts think that investors who purchase these stocks are likely to earn attractive long-term returns".

Perhaps someone should tell Morningstar that some of these stocks are not so stellar. The eighteen companies mentioned: Alexander & Baldwin (NASDAQ:ALEX), American International Group (NYSE:AIG), Applied Materials (NASDAQ:AMAT), Autodesk (NASDAQ:ADSK), Belo Corp (NYSE:BLC), Berkshire Hathaway, Coca-Cola (NYSE:KO), Intel (NASDAQ:INTC), IBM (NYSE:IBM), Lucent (NYSE:LU) , McClatchy (NYSE:MNI), Medtronic (NYSE:MDT), Microsoft (NASDAQ:MSFT), Novartis (NYSE:NVS), 3M (NYSE:MMM), Wal-Mart (NYSE:WMT), Washington Post (NYSE:WPO), and Weyerhauser (NYSE:WY).

Perhaps the byzantine ratings structure at Morningstar ranks these companies at candidates for long-term returns, but there are some real dogs on the list.

Microsoft has not been about to get out of its current trading range for five years. Its recent share buyback and dog-and-pony show about its new strategy has barely moved the stock. If its is a candidate for a big move up, it has been the best kept secret on Wall St.

Ditto Intel. The share it is losing to AMD and the slowing growth of PC sales at big customers like Dell and Gateway hardly make its a candidate for a comeback. Investors have lost a huge amount of money in the shares in the last year. McClatchy and Belo are both part of the newspaper death spiral. Unless something miraculous happens, newspaper companies, which have lost, on average, half of their market caps in the last two years, are not headed back up.
And, finally, there is Lucent, one of the great failures of the the technology and telecom world. It is a company that has been forced into a merger with Alcatel to preserve its existence after its stock has dropped from $8 in 2001 to just above $2 recently.

Fortunately, Alleghany's largest holding is Burlington Northern. The company's stock has risen from the mid-$50s to $68.50 over the last year. That stock only rates "Four Stars" at Morningstar. Opps.

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