Whitney Tilson Buys BP & Explains Why ~ market folly

Wednesday, June 9, 2010

Whitney Tilson Buys BP & Explains Why

Whitney Tilson of hedge fund T2 Partners recently appeared on CNBC and revealed he is now long BP (BP). This company of course has dominated headlines for the drastic oil spill in the Gulf of Mexico. More than anything, this investment is the definition of being greedy when others are fearful.

Currently, it's very apparent that the majority of investors are being fearful due to BP's potential liability associated with the oil spill. Not Tilson, though. He is zigging while the crowd zags and argues that this stock is simply "too cheap." While some are speculating about potential bankruptcy surrounding BP, he notes that this company earns north of $20 billion a year in profits and will be able to pay-off spill cleanup and any other potential liabilities.

BP is currently trading around 5.5x earnings and paying a 9% dividend yield. Being a value investor, Tilson obviously is not trying to make a quick trade here given the headline risk and instead is in it for the long haul. He fully acknowledges that headlines can (and probably will) continue to be negative, but he thinks it's just starting to get ridiculous. Tilson mentions that it is around a 4% position in their portfolio (rather than say 10%) because there always is the potential for an armageddon scenario where there are just years and years of problems.

In addition to Tilson's new stake in BP, we also previously learned that he is long Anheuser-Busch InBev (BUD). T2 revealed this investment idea at the Value Investing Congress and we posted up their BUD presentation for those interested. Tilson's investment in BP is an example of a stock presenting potentially extreme value through extenuating circumstances while his investment in BUD is more-so buying an attractively priced high quality business. This showcases the dynamic in value investing and stockpicking as no two investments are really ever identical.

Embedded below is Tilson's video interview where he outlines why he bought BP (Email readers will need to come to the site to view it):

For other activity from hedge fund T2 Partners, we also recently saw that Whitney Tilson and Glenn Tongue are still cautious on the markets and we received a portfolio update with their May letter to investors. Additionally, we note that they are still bearish on the housing market as well.

It definitely seems as if hedge fund managers are willing to share their new investment ideas as of late. Maybe it has something to do with the fact that hedge funds had a horrible May performance wise, but some would argue hedgies are always talking their book. Either way, no complaints as it's always refreshing to see new positions and hear a thesis. For more on hedge fund T2 Partners, be sure to check out some of their short positions as well.

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