Crispin Odey is probably one of the UKs most vocal financial figureheads. The hedge fund manager made a name for himself in the run-up to the financial crisis when he became the first high-profile manager to short UK banks ahead of the 2008 banking sector meltdown. The profits from this financial crisis trade turned Odey into a billionaire and elevated him to superstar status in the hedge fund world.
Today, Odeys outlook for the financial markets is probably even more depressing than it was nearly a decade ago. Last year, he proclaimed that UK stocks could fall as much as 80% if the Bank of England stopped printing money to prop up the markets. While hes not been proven right just yet, Odey remains adamant that its only a matter of time before a financial crisis-style environment returns and he has positioned his portfolio accordingly.
However, even though Odey is almost entirely negative onthe market, hes bullish on two stocks in particular.
Two diamonds in the rough
Sky (LSE: SKY) and Pendragon (LSE: PDG) are the two companies Odey likes despite hating the rest of the market. Both of these businesses have their attractive qualities. Sky, for example, is the UKs largest pay-TV broadcaster and is rapidly becoming the most significant player in the European pay-TV market. Meanwhile, Pendragon is one of the UKs biggest car dealers, and despite improving profits, revenue and a stronger balance sheet than ever before, the company trades at an extremely low valuation.
A valuation worth buying
Odey has traded in out of Pendragon over the years, so he knows the business relatively well. Since Brexit, the stock has slumped from a high around 50p per share to a low of 31p even though the company has continued to report strong sales growth.
For the third quarter, the group reported underlying profit growth of 5.7% year-on-year. For the full year, analysts are expecting earnings per share growth of 5% and based on this forecast the shares are trading at a forward P/E of 8.8.
Considering Pendragons steady growth and low valuation, its clear why Odey has made use of recent declines to increase his stake in the company from 204m to 229.4m shares.
Fox buyout
Sky is another of Odeys favourites and while he may have initially acquired the company for its defensive nature and high returns on capital, the group is now in a bid situation.
Rupert Murdochs Fox is offering to buy the share of Sky it doesnt already own and is offering shareholders 10.75 for their stake. As of yet, its not clear if the deal will go ahead as there are political and regulatory hurdles to clear.
Nonetheless, while shareholders wait for the outcome, they can pocket Skys 3.4% dividend yield and a potential capital gain of 7.5% is on offer if the company gets the green light. If Foxs offer is blocked, Sky remains an attractive long-term buy. City analysts have pencilled-in earnings per share growth of 18% for next year.
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Rupert Hargreaves owns shares of Sky and Pendragon. The Motley Fool UK has recommended Pendragon. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.