Friday, April 24, 2009

MF Global is a Nice Recovery Play

MF Global (MF) is a broker of exchange-listed futures and options. It sank 95% last year amidst a US-based trading scandal that led to questions about risk oversight. The former CEO ended up resigning. However, it was a case of shareholders over-reacting and tossing the baby out with the bath water in terms of the company's valuation.

MF installed new CEO, Bernard Dan, last October. He's changed management, bought back debt, closed far-flung offices in favor of major trading centers, and implemented a new risk management system to assure investors that MF's prior problems are a thing of the past.

The company was a spin-out of the brokerage arm from UK hedge fund, Man Group. It still does a lot of trading with them, but has diversified considerably since in separated at the height of the market in 2007.

Investors have bought in. The stock is up 161% YTD and it still only has a 10x forward P/E. Recently, analysts have set a 12 month price objective of $9 for the stock, which trades now at $5.30.

The stock is a holding of activist Jana Partners and value investor Leon Cooperman's Omega Advisors. Look for the stock to continue its upward trend into its next earnings release in early May. It's a good example of an oversold stock getting back to normalized levels.

Originally published in on 4/21/2009 3:04 PM EDT

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