Written by David Neubert
People are recommending shorting Coutnrywide. It has been my experience that the shorts, much like bubble buyers, tend to pile in at the bottom. This is where fundamental value based research can help - I've been keeping track of book values of several of the large banks that seem to me will survive the whole tighter lending standards and liquidity dislocation in mortgage backed and corporate leverage buyouts.
Country Wide Financial (CFC $26.77) has a book value around $25.00. Last week I put a Good-Till-Canceled (GTC) limit order in at $25.96 (just above book value), when the stock was still trading above $30. In situations like this, where bad news is out and there's no telling how bad the selling could get, I like to put in GTC orders that I expect not to get filled but that will make me happy if they do. That way if the stock does fall, I won't be caught up in the panic and free myself out of buying. I added to my position in Countrywide at $25.96 today. The entry price for the rest of my position is $34.50.
The CEO has made public comments about the details of CFC's liquidity position. It seems the liquidity safeguards they put in place will hurt the company's earnings but they will not go into liquidation. In that case, it seems to me that book values are a very safe place to buy the stock.
Mark DeCambre of TheStreet.com summarizes CFO Eric P. Sieracki's comments about Countrywide's liquidity positions today. Here is a link to Countrywide's press release.
Disclosure: I own Countrywide Financial (CFC) and may add more to my position.