The decline in Valeant Pharmaceuticals International (NYSE:VRX) is starting to attract value investors to the stock. Turkish hedge fund manager and value investor Ahmet Okumus is said to acquire shares of the beleaguered company after last week’s declines. Okumus, who likes to invest in deep value situations, believes that VRX or any other company can’t manufacture free cash flow and VRX CEO Michael Pearson is “not just a roll up artist”, he is a “shrewd” businessman. Okumus believes that VRX has about 35% upside potential.
Ahmet Okumus had a very concentrated portfolio of 6 stocks at the end of the second quarter and we don’t think his new VRX position is more than a million shares (potentially much smaller). Okumus’ biggest positions at the end of Q2 were Web.com (WWWW) and Lifelock (LOCK). Okumus’ third quarter investor letter doesn’t give any indications that he made significant changes to these positions. Here is what he said about WWWW and LOCK:
“Web.com (NASDAQ:WWWW) helps individuals and small businesses build and manage an online presence, including registering and building a website. The stock fell when the company disclosed a data breach in which customer information was compromised. The breach involved less than 3% of the customer base, and more significant breaches at other firms had little impact on their business. Web.com believes potential revenue loss is less than 1%. The company posted its third straight quarter of improved business execution in the 2nd quarter, and management continues to execute on several strategic initiatives that should result in meaningful growth. The company trades at 9 times current year expected earnings and does not have any exposure to the stronger dollar or slowing global growth, as almost all of its revenues are domestic.
Lifelock (NYSE:LOCK), which provides identity theft protection services to US consumers, fell almost 50% in July because the Federal Trade Commission (FTC) accused the company of violating a prior settlement agreement it had entered into with the FTC. At the heart of the matter is a disagreement over whether or not the company had properly implemented a reasonable comprehensive information security program. After deep research into the FTC case, we believe there is a high likelihood that the outcome is significantly better than what the stock is pricing in. Trading at less than 5 times EV/FCF, LifeLock’s business is still performing very well despite the negative publicity. Lifelock has navigated challenges to their business before and we have confidence they will do it again.”