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AmeriCredit investment a smart move

Leucadia's (LUK) investment in AmeriCredit (ACF) was a wise one. Based on the company's history, we ought not be surprised. On Tuesday, ACF said delinquency and gross charge-off rates in its subprime trusts improved in February, while net charge-offs increased by 1.1 percent month-over-month. The results are showing a seasonal improvement and unlike its mortgage brethren, results are not showing deterioration.

Charge-offs are rising and one would expect that to continue, the ultimate pain to be below the mortgage industry, for the simple reason that folks can walk away from a home and move into an apartment, in most cases they need their cars to get to work.

Assuming the same general trend in the second half, expect EPS to be approx. $1 a share for 2008. Potential ACF value investors may get a beneficial calendar anomaly here. All expectations are for a second half 2008 recovery in the general economy. That coincides with Q1 and Q2 2009 for ACF. While 2008 got caught perfectly for the negative events of the year, 2009 looks to be positioned perfectly for the recovery.

This means that this year's expected disappointment may be met with out-sized improvement next year. If the company can just match 2007 performance, the stock currently trades at 4.3 times those earnings. Matching those earnings ought to be a bit easier in 2009 as a lower cost of capital vs. 2006 will give a boost to margins as borrower rates ought to remain a bit elevated. Should the economy lag into 2009,still expected to have a significant improvement of over the $1 this year.