Posted by Davy Bui on November 7th, 2007 in Stock Research
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Readers know I’ve been keeping an eye on American Capital Strategies (ACAS) and have been waiting for it to drop down to at least $37 before I think about buying.

Well, it turns out the whole lot of them (BDCs — business development companies) are getting marked down today. Apparently, a few of them, Apollo Investment (AINV) and Allied Capital (ALD), have reported bad quarters amid writedowns on assets. Expect more of this as most of these companies toil in the middle-market, i.e. smaller domestic companies that are heavily exposed to the American economy.

Of the group, my preference would be for ACAS, as they have a private-equity and asset management component to operations and provide retail investors with an attractive proxy for an alternative asset class but even then, they are still vulnerable to US slowdown and I wouldn’t be surprised to see more writedowns on the ACAS balance sheet as well. The ultimate question is, can they raise income and the dividend faster than the Fed can devalue the dollar? I don’t know the answer to that so I’m still waiting for an attractive entry point where the question becomes moot. It would have to get cheap, not just undervalued, to put capital at risk.

Caveat Emptor — these are interesting times indeed.