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Hedge fund manager makes case for 'the one remaining large pocket of deep value'

bank vault
bank vault

Hedge fund manager Anthony Bozza, founder of the $3 billion Lakewood Capital, is bullish on the financials, noting the valuations in the sector are “unusually attractive.”

In a letter to investors, dated October 24, Bozza described it as “the one remaining large pocket of deep value in the market.”

“While we acknowledge there have been many well-publicized challenges that the financial sector has confronted in recent years (from increased regulation to remarkably low interest rates), these concerns have driven the S&P Bank Index to an unusually attractive level in our view, as represented by its lowest relative price / book value versus the S&P 500 Index in over a quarter century (as far back as measured),” Bozza wrote in the letter seen by Yahoo Finance.

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He continued: “The current 68% discount is significantly above the historical median of 41%, requiring an 84% increase in these stocks to restore historical valuations. In the only other instances where the relative discount was even close to current levels (the financial crisis in 2008/2009, the tech boom in late 1999/early 2000 and the savings and loan crisis in the early 1990s), these stocks dramatically outperformed the broader market in the subsequent two-year period. While there is no guarantee that history will repeat this time, we believe this area represents the one remaining large pocket of deep value in the market.”

Broadly speaking, earnings for financial services firms have been depressed due to the low interest rate environment. Bozza noted that higher rates would “likely drive significant outperformance” as it would result in higher earnings for those companies.

Lakewood recorded a net gain of 4.3% at the end of the third quarter. The fund’s biggest winners were long positions in Citizens Financial Group (CFG), WestRock (WRK), MasterCard (MA), FedEX (FDX), and Citigroup (C), the letter noted.


Julia La Roche is a finance reporter at Yahoo Finance.

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