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They made billions in a bear market

May 29, 2009 10:45 IST

Eight months ago, as panic gripped Wall Street, billionaire investor Ronald Burkle waited patiently. Then, on Nov 24, he pounced, buying up hefty stakes in bookseller Barnes & Noble and grocery chain Whole Foods, two brand names the market had severely punished.

The cases were compelling. Whole Foods shares were down 90 per cent from their 2006 high, yet the company had managed to grow its revenue by 40 per cent since then. Still, with consumers humbled by the ailing economy, many believed high-end grocery stores would be left for dead.

Barnes & Noble shares were trading at a mere two times 2007 EBITDA (earnings before non-cash expenses like depreciation and amortisation) despite signs that the recession was driving many of its competitors out of business. The recession, of course, was also driving book lovers to the library and to second-hand stores at the expense of Barnes & Noble's bookshops.

Nonetheless, Burkle's bet--that the companies' underlying financials outweighed common-sense notions about how cash-strapped consumers would behave in the short term--paid off. Since late last year, Whole Foods shares are up 85 per cent while Barnes & Noble stock is up 80 per cent. The value of Burkle's $165 million investment (made via his investment outfit, Yucaipa Cos) has ballooned to $305 million. Burkle declined to comment for this story.

Many billionaires have significantly salvaged their fortunes since the Forbes List of the World's Billionaires was published in March, making vast sums amid the stock market's sudden (and, many argue, temporary) turnaround.

Forbes compiled a list of the 10 billionaires who have profited the most from this upswing, looking only at entrepreneurs who own significant stakes in publicly traded companies (privately held fortunes were excluded). The plutocrats were ranked by the percentage return on their stakes between March 9, when the S&P 500 hit bottom, and May 15. The group returned an average of 117 per cent in that period, besting the S&P 500, which returned 31 per cent. They generated a combined paper profit of $12.1 billion.

Leading the charge among these bear market rally billionaires is casino mogul Sheldon Adelson, who has made more than $3 billion on paper since early March.

As shares of his Las Vegas Sands gambling company, which controls casinos in Las Vegas, Pennsylvania and Macau, cratered in 2008 and early 2009, Adelson's net worth fell by more than $25 billion, making him the largest individual casualty of the economic meltdown.

Last fall, in a bid to stave off bankruptcy, Adelson plowed $1 billion of his own cash into LVS. In exchange, he received a bevy of warrants and notes giving him the right to acquire roughly 170 million shares, on top of the nearly 200 million shares he already owned.

Eventually analysts became convinced the company could handle its massive debt burden--and its shares soared. Between March 9 and May 15, LVS stock rose 550 per cent. Adelson's gain: $3.3 billion.

Two other casino moguls are among the top five bear market rally beneficiaries. Steve Wynn has seen his shares of Wynn Resorts rise 140 per cent, while Kirk Kerkorian, who risks losing MGM Mirage to partners and bondholders as it tries to complete its $8.5 billion CityCenter resort and casino, has seen his shares surge 230 per cent.

Blackstone CEO Stephen Schwarzman made $1.4 billion in two months as shares in his publicly traded investment firm rose more than 100 per cent after declining 70 per cent in 2008.

Oklahoma wildcatter Hamm recouped $1.2 billion as renewed demand for oil lifted the stocks of the world's energy tycoons.

One former energy billionaire unable to enjoy the run-up: Chesapeake Energy chief executive Aubrey McClendon, who was forced to sell $570 million worth of shares in the natural gas outfit in early October to meet margin calls. McClendon liquidated his stake at an average price of $18 a share. Today, Chesapeake Energy is trading at $22.

Duncan Greenberg and Marie Thibault, Forbes
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