Posted by Davy Bui on November 8th, 2007 in Stock Research
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So I talked about American Capital Strategies (ACAS) and how I wouldn’t think about buying until it fell to $37 and one day later, I’m thinking about it. Mr. Market sure does provide good service.

I haven’t reviewed their last quarter’s results in-depth yet but I did read a few press releases. Book value did come down but it didn’t look like anything substantial — which is actually a bad thing as it seems more writedowns may come. Defaults were up to 5.5% or so.

Again, to repeat, I think ACAS is in for a rough ride for the next year or so but my main concern is their exposure to the US economy and the dollar. The dividend is great but if the dollar continues its decline, you’re going to need spectacular total returns (dividend + capital appreciation) just to keep up with alternative investments. I’m not sure if they can deliver in this economic backdrop.

If the stock got CHEAP enough — so cheap it’s like a no-brainer — then I would enter into a position. I’ll look at this quarter’s numbers in-depth but my educated guess is that $37 may (or may not) be undervalued but it’s not CHEAP.