Update:
Zapata Corp
Ticker: ZAP
Price:$7.02
You may recall our May 11 report on tiny Zapata Corp, a holding company which owns significant stakes in two publicly traded companies, Omega Protein, (ticker:OME)and Safety Components Inc, (Ticker :SAFY)and has a nice amount of cash on it's balance sheet. The main reason we liked the company was because in our minds, (however small they may be) buying Zapata shares was the cheapest way to gain exposure to Omega Protein, whose fish oil business we like.
On September 26th, Zapata announced that it has sold, subject to shareholder approval, its 77 percent stake in Safety Components to a private equity investor, Wilbur Ross, for $51.2 million, or $12.30 per share( by our calculation, but we don't yet have all the details.) At the time of our May research piece, Safety was trading at $14.95 per share, and most recently traded on the OTC Bulletin Board at $14.00. While we are disappointed with the sale price, it reflects a discount because Zapata's stake is large, and Safety Components has little liquidity. Such discounts are somewhat customary, and in some cases, quite larger. We don't know all the details of the deal yet, but will update the sum of the parts valuation summary we produced in May, once they become clear.
In any event, the news has had little effect on Zapata, which is down 20 percent since our May report. We still hold Zapata shares, and will be quite interested to find out how Mr. Glazer, as in Malcolm Glazer, 51 percent owner of Zapata, will utilize the proceeds.
*The author has a position in Zapata. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Wednesday, September 28, 2005
Saturday, September 24, 2005
Where Have all the Stocks Trading Below Net Current Asset Value Gone
When we started this site, the focus was primarily on Ben Graham's concept of investigating companies trading below their NCAV. (Actually, Graham was more stringent than we are, preferring stocks trading at 2/3 or less of their NCAV.)If you hadn't noticed, it's been quite a while since we featured an NCAV company. The truth is, your editor is not finding that many of interest these days, and I'd rather focus on other areas of value (at least what we here at Cheap Stocks consider to be value), than fill space with the lastest NCAV company that is nothing more than a cigar butt with no puffs left.
When I started researching and writing about NCAV companies in the late 90's, early 2000, there were many promising examples. In 2001/2002, there were literally hundreds of examples, some that ultimately rewarded shareholders well. But during certain periods, there just aren't many worth mentioning. But that can change very quickly. We'll keep looking.....
What are we working on now?
One fascinating area (to us anyway)is trying to identify creative real estate plays. You know we have an affinity for companies with land holdings, but this is a little different. Remember the Sears/K-mart story? It was all about retail locations owned by Sears. The same with Toys R Us. McDonald's also had a nice run-up a few months back when it was suggested that the company's owned restaurant sites might be worth a great deal more than the market price reflected.
We started the research a few months back, trying to identify similars situations. Our research, which is still in the initial phase, is focusing on the retail restaurant sector. At this point, we have identified one restaurant chain, a small cap, of course, that happens to own most of its locations. You've no doubt heard of this company. We hope to publish our initial piece on this company (which we don't own) next week.
When we started this site, the focus was primarily on Ben Graham's concept of investigating companies trading below their NCAV. (Actually, Graham was more stringent than we are, preferring stocks trading at 2/3 or less of their NCAV.)If you hadn't noticed, it's been quite a while since we featured an NCAV company. The truth is, your editor is not finding that many of interest these days, and I'd rather focus on other areas of value (at least what we here at Cheap Stocks consider to be value), than fill space with the lastest NCAV company that is nothing more than a cigar butt with no puffs left.
When I started researching and writing about NCAV companies in the late 90's, early 2000, there were many promising examples. In 2001/2002, there were literally hundreds of examples, some that ultimately rewarded shareholders well. But during certain periods, there just aren't many worth mentioning. But that can change very quickly. We'll keep looking.....
What are we working on now?
One fascinating area (to us anyway)is trying to identify creative real estate plays. You know we have an affinity for companies with land holdings, but this is a little different. Remember the Sears/K-mart story? It was all about retail locations owned by Sears. The same with Toys R Us. McDonald's also had a nice run-up a few months back when it was suggested that the company's owned restaurant sites might be worth a great deal more than the market price reflected.
We started the research a few months back, trying to identify similars situations. Our research, which is still in the initial phase, is focusing on the retail restaurant sector. At this point, we have identified one restaurant chain, a small cap, of course, that happens to own most of its locations. You've no doubt heard of this company. We hope to publish our initial piece on this company (which we don't own) next week.
Saturday, September 17, 2005
Plum Creek TimberTicker: PCL
Price: $38.83
Market Cap: $7.14billion
Enterprise Value: $8.7 billion
Dividend Yield: 3.9%
P/E: 23.5
As I sit writing this week’s column, it’s a beautiful day in western Pennslvania, where we are visiting this weekend. As I gaze out over my in-laws beautifully treed property, I am reminded of something my father-in law told me a few years back. It seems that a tree cutter stopped by one day, walked the property (4 acres), and promptly offered him in the neighborhood of $3 thousand for 5 or 6 trees on his property. Funny, I thought, don’t they usually charge you to remove trees from your property? This sounded like a beautiful arrangement. But these weren’t just any trees, they were red oak and ash, more highly sought after than your run of the mill pine trees. But that certainly got me thinking.
Demand for lumber has been strong in this country, thanks to a housing and building boom. Will that trend continue into the near future? Maybe, maybe not. We are guessing that it will slow down, but then again, we are not economists. But timber happens to be Plum Creek’s business, and the company owns a whole lot of land.
You might think that Plum Creek Timber is a little too much on the beaten path for our tastes. Afterall, much of the research we do here at Cheap Stocks is on tiny companies most people have never heard of. But we felt compelled to put in our two cents about Plum Creek. You know how much we love land.
Plum Creek owns a vast amount of timberland in the US, 7.756 million acres, to be exact, according to the company's website. Here's the breakdown by state/acre:
Montana-1,301,000
Arkansas-940,000
Maine-928,000
Georgia-896,000
Missippippi-859,000
Florida-578,000
Louisianna-533,000
Wisconsin-514,000
Oregon-285,000
South Carolina-210,000
Washington-161,000
Oklahoma-132,000
West Virginia-115,000
Alabama-103,000
North Carolina-76,000
Texas-50,000
Idaho-39,000
New Hampshire-33,000
Michigan-3,000
Total:7,756,000
How Much land is 7.8 million acres?
I'm glad you asked. If you recall from past postings, one square mile is 640 acres. So 7.8 million acres is 12,188 square miles, or an area 110 miles by 110 miles. Thats a lot of acres, trees, and ultimately, lumber. Don't get me wrong, I'm not suggesting Plum Creek's lumber is worth anywhere near the handful of red oak and ash trees on my father-in laws property I mentioned earlier. But, having some exposure to lumber in your portfolio is not a bad idea.
More than timber
The company estimates that out of its 7.8 million acres, 1.3 million are "higher and better use timberlands" which may have residential or recreational uses.
Enterprise Value per Acre
Based on an EV of $8.7 billion
Acreage of 7.756 million
EV/Acre= $1,121
Other Businesses
Timber accounted for $694 million of the company's 2004 revenue of 1.528 billion
Other revenue was from:
Real estate:$303 million
Manufacturing(wood products):$518 million
Other(natural resources):$13 million
The bottom line
In 2004, the company earned $339 million, up from 2003's $192 million. The company's tax burden is light (just 7.4 % of income in 2004) because part of the company has REIT status. This is a very profitable company.
Conclusion
This company is not a high flyer. Your editor purchased some shares several weeks ago in the $35 range, not expecting rapid price expansion, but the stock is up 10 percent, mainly because of Katrina, and growing demand for lumber. Don't expect that to continue. What you can expect though, is a nice, 4 percent dividend, exposure to timber, a solidly profitable business, and some nice acreage.
*The author has a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Price: $38.83
Market Cap: $7.14billion
Enterprise Value: $8.7 billion
Dividend Yield: 3.9%
P/E: 23.5
As I sit writing this week’s column, it’s a beautiful day in western Pennslvania, where we are visiting this weekend. As I gaze out over my in-laws beautifully treed property, I am reminded of something my father-in law told me a few years back. It seems that a tree cutter stopped by one day, walked the property (4 acres), and promptly offered him in the neighborhood of $3 thousand for 5 or 6 trees on his property. Funny, I thought, don’t they usually charge you to remove trees from your property? This sounded like a beautiful arrangement. But these weren’t just any trees, they were red oak and ash, more highly sought after than your run of the mill pine trees. But that certainly got me thinking.
Demand for lumber has been strong in this country, thanks to a housing and building boom. Will that trend continue into the near future? Maybe, maybe not. We are guessing that it will slow down, but then again, we are not economists. But timber happens to be Plum Creek’s business, and the company owns a whole lot of land.
You might think that Plum Creek Timber is a little too much on the beaten path for our tastes. Afterall, much of the research we do here at Cheap Stocks is on tiny companies most people have never heard of. But we felt compelled to put in our two cents about Plum Creek. You know how much we love land.
Plum Creek owns a vast amount of timberland in the US, 7.756 million acres, to be exact, according to the company's website. Here's the breakdown by state/acre:
Montana-1,301,000
Arkansas-940,000
Maine-928,000
Georgia-896,000
Missippippi-859,000
Florida-578,000
Louisianna-533,000
Wisconsin-514,000
Oregon-285,000
South Carolina-210,000
Washington-161,000
Oklahoma-132,000
West Virginia-115,000
Alabama-103,000
North Carolina-76,000
Texas-50,000
Idaho-39,000
New Hampshire-33,000
Michigan-3,000
Total:7,756,000
How Much land is 7.8 million acres?
I'm glad you asked. If you recall from past postings, one square mile is 640 acres. So 7.8 million acres is 12,188 square miles, or an area 110 miles by 110 miles. Thats a lot of acres, trees, and ultimately, lumber. Don't get me wrong, I'm not suggesting Plum Creek's lumber is worth anywhere near the handful of red oak and ash trees on my father-in laws property I mentioned earlier. But, having some exposure to lumber in your portfolio is not a bad idea.
More than timber
The company estimates that out of its 7.8 million acres, 1.3 million are "higher and better use timberlands" which may have residential or recreational uses.
Enterprise Value per Acre
Based on an EV of $8.7 billion
Acreage of 7.756 million
EV/Acre= $1,121
Other Businesses
Timber accounted for $694 million of the company's 2004 revenue of 1.528 billion
Other revenue was from:
Real estate:$303 million
Manufacturing(wood products):$518 million
Other(natural resources):$13 million
The bottom line
In 2004, the company earned $339 million, up from 2003's $192 million. The company's tax burden is light (just 7.4 % of income in 2004) because part of the company has REIT status. This is a very profitable company.
Conclusion
This company is not a high flyer. Your editor purchased some shares several weeks ago in the $35 range, not expecting rapid price expansion, but the stock is up 10 percent, mainly because of Katrina, and growing demand for lumber. Don't expect that to continue. What you can expect though, is a nice, 4 percent dividend, exposure to timber, a solidly profitable business, and some nice acreage.
*The author has a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Wednesday, September 07, 2005
A Pineapple Company? Clyde, are you crazy?
Maui Land & Pineapple Co
Ticker: MLP
Price: $33.16
Market Cap: $244 million
Enterprise Value: $255 million
Shares Out: 7.23 million
2004 Revenue: $153 million
2004 Net Loss: $.383 million
So, your editor is not crazy after all. There’s more to this company than the $80 million in pineapples they sold in 2004. Actually, pineapples don’t seem to be a very lucrative business for this Hawaii based micro cap-the segment produced an operating loss of $11.3 million in 2004-and sales were down sharply from 2003’s $100.5 million.
Maui Land operates in two other significant segments, besides the yellow fruit: Resort, and Development. Avid Cheap Stocks readers didn’t have to read past the company’s name in order to understand our interest in this company. You’ve already read past postings about Tejon Ranch (California), St. Joes (Florida), PICO Holdings (Nevada), Avoca (Louisiana), JG Boswell (California), and know our fascination with companies holding land. We’ve been building a portfolio of these over the past few years, and Maui Land is the latest addition.
Resort segment: Kapalua Land Company
Nine Miles of Hawaii Beachfront
Part of Maui Land’s 28,200 acres include 22,800 in West Maui, including Kapalua Resort a golf community, which borders the ocean, and boasts 3 beaches, 2 hotels, 3 championship golf courses, 10 restaurants, and 700+ single family homes and condominiums. Oh, did I mention the 9 miles of beachfront property? This segment had operating revenue of $49 million in 2004, and an operating loss of $1.6 million
Development segment
This segment is responsible for the company’s construction, sales and development activities. Revenue for 2004 was $24 million, operating income was $12.7 million
The Land
Of the company’s 28,200 acres, about 5000 (as best we can tell, this is an estimate) are used in the pineapple business. While it’s difficult to estimate what that land and business are worth, we’ll assume the pineapple business is worth .5 times sales. Based on $80 million in 2004 sales, that would value that segment at $40 million. (Keep in mind, this is a guesstimate, as much as we love eating pineapples, we’ve never attempted to value a pineapple operation before.)
Calculations
Backing out $40 million from the company’s current enterprise value:
Enterprise Value: $255
Pineapple Business: $40
Rest of company: $215
EV/Acre calculation
This is a calculation we’ve grown fond of here at Cheap Stocks. In this case we’ll calculate the EV/acre for the non-pineapple land first:
Rest of Company EV: $215
West Maui Acreage: 22,800 acres
EV/Acre: $9429 (actual)
Alternatively, if we use the entire amount of company acreage, not stripping out the pineapple business, we get the following:
Enterprise Value: $255
Total Acreage: 28,200
EV/acre: $9042 (actual)
Buying Hawaii Property Sight Unseen.
We’ve never even been to Hawaii, let alone seen Maui Land and Pineapple’s property or operation. Nonetheless, we were impressed by the numbers. Nine thousand and change per acre for Hawaii land seems like a no-brainer (Did we mention 9 miles of beachfront property?). But, you need to consider the source. We are crazy about land (in certain cases that is) here at Cheap Stocks. That being said, please consider the following: Maui Land’s sales have been relatively flat for years, and earnings are inconsistent at best:
Revenue/Net income (loss) in millions
2004: 153/ (.383)
2003: 151/ 6
2002: 148/ (5.7)
2001: 166/ 7.6
2000: 141/ .452
1999: 147/ 4.7
We encourage you to do your own research. There is other exposure available to Hawaii land in the form of a publicly traded company, namely Alexander and Baldwin (NASDAQ: ALEX). That’s another company we’ve been interested in over the years, they have some nice land holdings, and a profitable shipping business. But we missed the boat (no pun intended) on that one. Now trading in the $50 range, we passed on it in the teens a few years back. Certainly a more high profile name than Maui Land & Pineapple, and worthy of further research. Keep eating pineapples!
*The author has a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Maui Land & Pineapple Co
Ticker: MLP
Price: $33.16
Market Cap: $244 million
Enterprise Value: $255 million
Shares Out: 7.23 million
2004 Revenue: $153 million
2004 Net Loss: $.383 million
So, your editor is not crazy after all. There’s more to this company than the $80 million in pineapples they sold in 2004. Actually, pineapples don’t seem to be a very lucrative business for this Hawaii based micro cap-the segment produced an operating loss of $11.3 million in 2004-and sales were down sharply from 2003’s $100.5 million.
Maui Land operates in two other significant segments, besides the yellow fruit: Resort, and Development. Avid Cheap Stocks readers didn’t have to read past the company’s name in order to understand our interest in this company. You’ve already read past postings about Tejon Ranch (California), St. Joes (Florida), PICO Holdings (Nevada), Avoca (Louisiana), JG Boswell (California), and know our fascination with companies holding land. We’ve been building a portfolio of these over the past few years, and Maui Land is the latest addition.
Resort segment: Kapalua Land Company
Nine Miles of Hawaii Beachfront
Part of Maui Land’s 28,200 acres include 22,800 in West Maui, including Kapalua Resort a golf community, which borders the ocean, and boasts 3 beaches, 2 hotels, 3 championship golf courses, 10 restaurants, and 700+ single family homes and condominiums. Oh, did I mention the 9 miles of beachfront property? This segment had operating revenue of $49 million in 2004, and an operating loss of $1.6 million
Development segment
This segment is responsible for the company’s construction, sales and development activities. Revenue for 2004 was $24 million, operating income was $12.7 million
The Land
Of the company’s 28,200 acres, about 5000 (as best we can tell, this is an estimate) are used in the pineapple business. While it’s difficult to estimate what that land and business are worth, we’ll assume the pineapple business is worth .5 times sales. Based on $80 million in 2004 sales, that would value that segment at $40 million. (Keep in mind, this is a guesstimate, as much as we love eating pineapples, we’ve never attempted to value a pineapple operation before.)
Calculations
Backing out $40 million from the company’s current enterprise value:
Enterprise Value: $255
Pineapple Business: $40
Rest of company: $215
EV/Acre calculation
This is a calculation we’ve grown fond of here at Cheap Stocks. In this case we’ll calculate the EV/acre for the non-pineapple land first:
Rest of Company EV: $215
West Maui Acreage: 22,800 acres
EV/Acre: $9429 (actual)
Alternatively, if we use the entire amount of company acreage, not stripping out the pineapple business, we get the following:
Enterprise Value: $255
Total Acreage: 28,200
EV/acre: $9042 (actual)
Buying Hawaii Property Sight Unseen.
We’ve never even been to Hawaii, let alone seen Maui Land and Pineapple’s property or operation. Nonetheless, we were impressed by the numbers. Nine thousand and change per acre for Hawaii land seems like a no-brainer (Did we mention 9 miles of beachfront property?). But, you need to consider the source. We are crazy about land (in certain cases that is) here at Cheap Stocks. That being said, please consider the following: Maui Land’s sales have been relatively flat for years, and earnings are inconsistent at best:
Revenue/Net income (loss) in millions
2004: 153/ (.383)
2003: 151/ 6
2002: 148/ (5.7)
2001: 166/ 7.6
2000: 141/ .452
1999: 147/ 4.7
We encourage you to do your own research. There is other exposure available to Hawaii land in the form of a publicly traded company, namely Alexander and Baldwin (NASDAQ: ALEX). That’s another company we’ve been interested in over the years, they have some nice land holdings, and a profitable shipping business. But we missed the boat (no pun intended) on that one. Now trading in the $50 range, we passed on it in the teens a few years back. Certainly a more high profile name than Maui Land & Pineapple, and worthy of further research. Keep eating pineapples!
*The author has a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Thursday, September 01, 2005
Most Importantly
Our hearts go out to all of the hurricane victims. We pray for those who have lost loved ones, their homes, and at least temporarily, their everday lives. We've had far too many reminders in the past several years just how fragile life is.
Gas Price Optimism
Your Cheap Stocks editor was surprised to see regular gas selling for $3.29 this morning on his way to work,(yes, I do have a real full-time job, as much as I'd like to give Cheap Stocks my full-time attention, but so far no one has offered to pay for the content, and I have several mouths to feed!) at the same station, that just 12 hours earlier was selling it for $2.79. Unbelievable.
But unlike many other pundits I've heard waxing eloquently on the subject, I believe this is a very short-term phenomenon. The longer term outlook (next 20 years) may be a different story as far as oil is concerned, but this is not time to panic. Tell that to Ed Rendell, our esteemed governor, who apparently has mentioned gas rationing in our great state of Pennsylvania. Way to go Ed. Want to create a panic? A run on gas stations? Hoarding? Keep talking.
Our hearts go out to all of the hurricane victims. We pray for those who have lost loved ones, their homes, and at least temporarily, their everday lives. We've had far too many reminders in the past several years just how fragile life is.
Gas Price Optimism
Your Cheap Stocks editor was surprised to see regular gas selling for $3.29 this morning on his way to work,(yes, I do have a real full-time job, as much as I'd like to give Cheap Stocks my full-time attention, but so far no one has offered to pay for the content, and I have several mouths to feed!) at the same station, that just 12 hours earlier was selling it for $2.79. Unbelievable.
But unlike many other pundits I've heard waxing eloquently on the subject, I believe this is a very short-term phenomenon. The longer term outlook (next 20 years) may be a different story as far as oil is concerned, but this is not time to panic. Tell that to Ed Rendell, our esteemed governor, who apparently has mentioned gas rationing in our great state of Pennsylvania. Way to go Ed. Want to create a panic? A run on gas stations? Hoarding? Keep talking.
Sunday, August 28, 2005
A Not So Great Adventure
Six Flags Inc
Ticker: PKS
Market Cap: $670 million
Price: $7.20
Avid Cheap Stocks readers know how much your editor thrives on land related stocks, even those that are indirect plays. There is one company in particular that I’ve followed for years, but could never commit to. For good reason. As it turns out Six Flags Inc has gotten a lot of press lately. But we here at Cheap Stocks, are staying away from this one.
I really wanted to like this company. They own 30 amusement parks. That’s right, 30 cash generating machines. At least I thought they should generate lots of cash-if you’ve ever taken your kids to one of these parks, you’ll know what I mean.
Not this company, though. They’ve lost money year after year—they are usually profitable the second and third quarter each year as this is a seasonal business, but that is not enough to make up for losses the rest of the year. Much of the problem is that the company is swimming in long-term debt to the tune of more than $2.4 billion. That translated into $195 million in interest expense in 2004, down from 2003’s $215 million.
The company’s debt to equity ratio is nearly 4. Not a pretty capital structure. All this translates into an Altman’s Z score that indicates this company may be a candidate for bankruptcy if something does not change.
Enter Washington Redskins owner Daniel Snyder, who last week offered $6.50 per share in a tender offer bid aimed at tripling the stake that Snyder controlled Red Zone LLC has in the company to about 35 percent. That drove shares of Six Flags into the mid $7 range. But Thursday, the company announced that it opposed to Snyder’s plan, and will instead put itself up for auction. Good luck Six Flags. Good luck current common stockholders. We are staying on the sidelines.
If you want exposure to the amusement park arena, there’s always Walt Disney (Ticker:DIS). You may also want to take a look at Cedar Fair LP (Ticker: FUN), a seemingly well run and profitable company paying a dividend. The antithesis of Six Flags?
Real Estate Update
Your editor was at it again this week. If you’ve read about my real estate investing adventures—in publicly traded companies such as JG Boswell, St. Joes, Avoca, PICO, and Tejon Ranch—you won’t be disappointed in our coverage over the next several weeks. Two companies added to the portfolio, one giving exposure to Hawaii, the other to 8.1 million acres of timber in more than 20 states. Stay tuned.
Six Flags Inc
Ticker: PKS
Market Cap: $670 million
Price: $7.20
Avid Cheap Stocks readers know how much your editor thrives on land related stocks, even those that are indirect plays. There is one company in particular that I’ve followed for years, but could never commit to. For good reason. As it turns out Six Flags Inc has gotten a lot of press lately. But we here at Cheap Stocks, are staying away from this one.
I really wanted to like this company. They own 30 amusement parks. That’s right, 30 cash generating machines. At least I thought they should generate lots of cash-if you’ve ever taken your kids to one of these parks, you’ll know what I mean.
Not this company, though. They’ve lost money year after year—they are usually profitable the second and third quarter each year as this is a seasonal business, but that is not enough to make up for losses the rest of the year. Much of the problem is that the company is swimming in long-term debt to the tune of more than $2.4 billion. That translated into $195 million in interest expense in 2004, down from 2003’s $215 million.
The company’s debt to equity ratio is nearly 4. Not a pretty capital structure. All this translates into an Altman’s Z score that indicates this company may be a candidate for bankruptcy if something does not change.
Enter Washington Redskins owner Daniel Snyder, who last week offered $6.50 per share in a tender offer bid aimed at tripling the stake that Snyder controlled Red Zone LLC has in the company to about 35 percent. That drove shares of Six Flags into the mid $7 range. But Thursday, the company announced that it opposed to Snyder’s plan, and will instead put itself up for auction. Good luck Six Flags. Good luck current common stockholders. We are staying on the sidelines.
If you want exposure to the amusement park arena, there’s always Walt Disney (Ticker:DIS). You may also want to take a look at Cedar Fair LP (Ticker: FUN), a seemingly well run and profitable company paying a dividend. The antithesis of Six Flags?
Real Estate Update
Your editor was at it again this week. If you’ve read about my real estate investing adventures—in publicly traded companies such as JG Boswell, St. Joes, Avoca, PICO, and Tejon Ranch—you won’t be disappointed in our coverage over the next several weeks. Two companies added to the portfolio, one giving exposure to Hawaii, the other to 8.1 million acres of timber in more than 20 states. Stay tuned.
Thursday, August 18, 2005
Random Thoughts From Your Vacationing Cheap Stocks Editor
It's been the summer of the vacation for your editor. Two extra weeks due to a job change...relaxing at the Jersey Shore, and becoming surer of a mini real estate bubble...here, anyway.
On Long Beach Island, rentals are down any where from 15 to 25 percent this year. Why? People can't afford, (or don't want to afford) to come here. Home prices are through the roof, and those who bought with the hopes of renting out their new purchase were in for a shock this year. Homes purchased within the past few years can't rent for nearly enough to cover costs. Buyers who stretched themselves in the hopes of renting out their homes for the entire summer at X, were only able to rent for half the summer at Y. We foresee this leading to some quick sales. It's not necessarily a huge bubble about to burst, but perhaps a pricing adjustment.
Oil
For the first time in several years, we did not pre-pay for our heating oil this year. Just seemed high at $2.19 a gallon. It's even higher now, with oil in the mid to high 60's per barrel. Rather than pre-pay, we'd decided to invest the $1000 or so we'd spend into an energy related investment. In this case, the Vanguard Energy Fund. Call it a hedge. Only problem is, you editor still has not gotten around to making the transaction. Maybe when oil hits $55.
St. Joes Corp
After hitting the mid 80's, St Joes has pulled back to the $75 range. Still like and own this one, but have initiated a trailing stop. May have gotten ahead of itself. See the archives for our research on this company.
Zapata, Omega Protein
Interesting WSJ piece on Omega protein (60% owned by Zapata, also a company we own, and featured a few months back)and the battle between sport fisherman, conservationists, and Omega. Looks like limits may be coming for Omega's Menhaden harvest in the Chesapeake. Seems that stripers and other large fish feed on Menhaden. While limiting Omega's Chesapeake catch is not a good thing for the company, that is not the only place they fish. Stay tuned.
It's been the summer of the vacation for your editor. Two extra weeks due to a job change...relaxing at the Jersey Shore, and becoming surer of a mini real estate bubble...here, anyway.
On Long Beach Island, rentals are down any where from 15 to 25 percent this year. Why? People can't afford, (or don't want to afford) to come here. Home prices are through the roof, and those who bought with the hopes of renting out their new purchase were in for a shock this year. Homes purchased within the past few years can't rent for nearly enough to cover costs. Buyers who stretched themselves in the hopes of renting out their homes for the entire summer at X, were only able to rent for half the summer at Y. We foresee this leading to some quick sales. It's not necessarily a huge bubble about to burst, but perhaps a pricing adjustment.
Oil
For the first time in several years, we did not pre-pay for our heating oil this year. Just seemed high at $2.19 a gallon. It's even higher now, with oil in the mid to high 60's per barrel. Rather than pre-pay, we'd decided to invest the $1000 or so we'd spend into an energy related investment. In this case, the Vanguard Energy Fund. Call it a hedge. Only problem is, you editor still has not gotten around to making the transaction. Maybe when oil hits $55.
St. Joes Corp
After hitting the mid 80's, St Joes has pulled back to the $75 range. Still like and own this one, but have initiated a trailing stop. May have gotten ahead of itself. See the archives for our research on this company.
Zapata, Omega Protein
Interesting WSJ piece on Omega protein (60% owned by Zapata, also a company we own, and featured a few months back)and the battle between sport fisherman, conservationists, and Omega. Looks like limits may be coming for Omega's Menhaden harvest in the Chesapeake. Seems that stripers and other large fish feed on Menhaden. While limiting Omega's Chesapeake catch is not a good thing for the company, that is not the only place they fish. Stay tuned.
Monday, July 18, 2005
3COM:
Value Stock?
Ticker: 3COM
Price: $3.33
Market Cap: $1.28 billion
Cash: $844 million
Can’t believe this week's report focuses on a tech company, and no, it does not trade below its net current asset value. Too much sun, Clyde? No, sometimes we find potential value plays in strange places. Plus, we like to mix it up here a bit at Cheap Stocks.
You probably all remember networking company 3COM, yet another tech darling whose bubble burst along with many others in late 2000, and early 2001. This stock traded as high as $25 (adjusted for splits) and is now $3.38. But it’s all relative, right? Just because a company once fetched $25 per share, and is now just 1/8 of that amount does not mean it’s cheap. Maybe it’s only worth a buck, and market forces, being as inefficient as they are, were mistaken to price the stock at even $10, let alone $25. So what caught your editor’s attention? To be quite honest, the company recently appeared on the recommended list of the Oxford Club,an institution whose investment intelligence has been outstanding, in my opinion anyway.
That recommendation was the catalyst to begin researching 3Com. What I’ve found is a company that has lost money for eleven straight quarters. Sales have been in a free-fall since 1998, but appear to finally be leveling out. Not quite a pretty picture.
There are two things, however, that I like about 3COM. Several insiders have been buying in the low to mid 3 range. These purchases were reported in April, and are not related to option exercises. (In July there were several option related transactions, as well). The other thing I like about this company—and this dovetails with the insider buying—is the fact that the company has $844 million in cash and marketable securities on its balance sheet, no debt, with a current market cap of $1.28 billion. Buying shares at the current price of $3.33 gets you $2.20 in cash. Theoretically, you are buying the business for $1.13
The risks are great, however. Can the company turn around toward profitability? Fourth quarter 2005 sales were down 4 percent from the same quarter last year, while full year sales were down 7 percent, from $699 million to $ 651 million. Despite a treasuree trove of $844 million in cash, how quickly will the company burn through that? Cash is king, but it evaporates quickly when you are not profitable.
It appears as though Wall Street has all but given up on this company. The majority of analysts covering 3Com rate it as a hold or sell. We like that here a Cheapstocks, in light of the cash balance and insider buying. Wall Street is often wrong. While we are not buying yet, we are interested.
*The author does not have a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Value Stock?
Ticker: 3COM
Price: $3.33
Market Cap: $1.28 billion
Cash: $844 million
Can’t believe this week's report focuses on a tech company, and no, it does not trade below its net current asset value. Too much sun, Clyde? No, sometimes we find potential value plays in strange places. Plus, we like to mix it up here a bit at Cheap Stocks.
You probably all remember networking company 3COM, yet another tech darling whose bubble burst along with many others in late 2000, and early 2001. This stock traded as high as $25 (adjusted for splits) and is now $3.38. But it’s all relative, right? Just because a company once fetched $25 per share, and is now just 1/8 of that amount does not mean it’s cheap. Maybe it’s only worth a buck, and market forces, being as inefficient as they are, were mistaken to price the stock at even $10, let alone $25. So what caught your editor’s attention? To be quite honest, the company recently appeared on the recommended list of the Oxford Club,an institution whose investment intelligence has been outstanding, in my opinion anyway.
That recommendation was the catalyst to begin researching 3Com. What I’ve found is a company that has lost money for eleven straight quarters. Sales have been in a free-fall since 1998, but appear to finally be leveling out. Not quite a pretty picture.
There are two things, however, that I like about 3COM. Several insiders have been buying in the low to mid 3 range. These purchases were reported in April, and are not related to option exercises. (In July there were several option related transactions, as well). The other thing I like about this company—and this dovetails with the insider buying—is the fact that the company has $844 million in cash and marketable securities on its balance sheet, no debt, with a current market cap of $1.28 billion. Buying shares at the current price of $3.33 gets you $2.20 in cash. Theoretically, you are buying the business for $1.13
The risks are great, however. Can the company turn around toward profitability? Fourth quarter 2005 sales were down 4 percent from the same quarter last year, while full year sales were down 7 percent, from $699 million to $ 651 million. Despite a treasuree trove of $844 million in cash, how quickly will the company burn through that? Cash is king, but it evaporates quickly when you are not profitable.
It appears as though Wall Street has all but given up on this company. The majority of analysts covering 3Com rate it as a hold or sell. We like that here a Cheapstocks, in light of the cash balance and insider buying. Wall Street is often wrong. While we are not buying yet, we are interested.
*The author does not have a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Thursday, June 30, 2005
Pension and Post Retirement Obligations:
Do your homework
Before you purchase that large cap stock you are interested in, do yourself a favor: delve into the readily available information regarding that companies defined benefit pension, and post retirement healthcare obligations (if applicable). For some companies, this will not change your mind, or reveal any red flags. But for others, this may(should) be the factor that scares you away from becoming an owner.
Three weeks ago, my brother in-law and I were talking about General Motors, a company near and dear to our hearts if only because three of our combined four grandfathers worked there. He remarked that his grandmother, who had never been a GM employee, received post-retirement benefits from the automaker for many years longer than her husband had actually worked for the company; not an uncommon situation these days, the result of which is bringing with it costly consequences.
Companies which have defined benefit pension and post-retirement healthcare plans made commitments to their retirees. Whether based on years of service, or other factors, these employees were promised benefits (in some cases) for life. Now, through a combination of factors which include increased life expectancy, more costly healthcare, lackluster investment returns, and challenging business conditions (among others), some companies are feeling the squeeze. Ultimately, as a shareholder, you will suffer too if companies you own need to cough up additional funds to support these plans.
Doing your homework
There is a great deal of information available to investors these days in order to assess these situations. In fact, disclosure of pension/post retirement assets, liabilities, funded status (whether the company has enough pension assets to meet liabilities, (the buzzwords are ”overfunded” or “underfunded”), assumptions about what the company believes the return on plan assets will be, as well as a current breakdown of how the money is allocated, is required by the SEC. You can find all this information, and much more, in company’s 10K(annual) filings. ( There is some data also available in the 10Q (quarterly) filings, but it is typically not as detailed.)
General Motors
Suffice it to say, that GM’s pension and postretirement liabilities are of mammoth proportions. The company lists three separate categories of obligations (all listed in the 10K): US Pensions Benefits, Non-US Pension Benefits, and Other Benefits(post-retirement healthcare).
Benefit Obligations
As of 12/31/04, GM calculated the following as the current obligation for each plan. This is often referred to as the Projected Benefit Obligation, or PBO, and represents the present value (PV) of benefits owed, for service performed in the past.
US Plan: $89.384 billion
Non US Plan: $18.056 billion
Other Benefits: $77.474 billion
While these amounts may seem staggering, they need to be taken in context. GM does have invested assets in each plan to meet liabilities, but it’s the comparison of the plan assets and benefit obligation which is meaningful.
Fair Value of Plan Assets
This represents the amount of invested assets in each plan, which is used to meet plan liabilities.
US Plan: $90.866 billion
Non US Plan: $9.023 billion
Other Benefits: $16.016 billion
Funded Status
Here is where the rubber meets (or doesn’t) the road. This is calculated by subtracting the Fair Value of Plan Assets from the Benefit Obligation. A negative number means the plan is under-funded, while positive means that its over-funded.
US Plan: $1.502 billion (over-funded)
Non US Plan: ($9.033) billion (under-funded)
Other Benefits: ($61.458) billion (way under-funded)
While the US Plan looks healthy due to the fact that it’s over-funded, it’s downhill from there. The Non US plan is significantly under-funded relative to the size of plan assets, and the Other Benefits category—in this case post-retirement healthcare—is simply in deep trouble.
General Motors must make up the difference over time—remember, the company made a promise to its retirees. The question is not whether the company can meet these obligations, but rather at whose expense. This should raise significant concerns to current and prospective shareholders, who will be footing the bill.
Health care for retirees and current employees are substantial to the point that they allegedly add more than $1500 to the cost of each vehicle produced! This at a time when GM’s market share has been dropping.
Optimistic Expectations
Perhaps the most alarming aspect of GM’s situation is the company’s own expectations for the three plans investment returns. (Expected Return On Plan Assets, 2004)
US Plan: 9.0%
Non US Plan: 8.4%
Other Benefits: 8.0%
While these projected returns seem achievable on the surface, in the context of GM’s asset allocation strategies, they are overly optimistic, at best. Typical disclosure of defined benefit asset allocations includes the past three years return assumptions, along with a breakdown of investments by Equity, Debt, Real Estate, and Other. Some companies provide more detail.
GM’s Asset Allocations/b>
US Plan:
Equity: 47%
Debt: 35%
Real Estate: 8%
Other: 10%
Non US Plan:
Equity: 61%
Debt: 31%
Real Estate: 8%
Other: 0%
Other Benefits:
Equity: 41%
Debt: 48%
Real Estate: 2%
Other: 9%
Keep in mind, I have no argument with the companies asset allocations, per se. I believe they have made efforts to build better risk adjusted portfolios, and in some cases have reduced plan return expectations over the years. For instance the US Plan’s expected return is down from 2002's 10 percent, while the same for the Non US plan is down from 8.8 percent in 2002, and 8.5 percent in 2003. However, GM raised the expected return for Other Benefits from 7 percent in 2003 to 8 percent in 2004, and that’s where the trouble is.
The question is, whether its conceivable that GM’s plans can achieve the expected returns given the respective asset allocation? Can the “Other Benefits” plan realistically expect to return 8 percent with 48% of the portfolio in fixed income securities? (We are assuming that the expected return for 2005 is the same as 2004, the 2005 expected return has not yet been disclosed) An 8 percent return on a portfolio which has half it's assets in fixed income securities, given a rising interest rate environment?
Here at Cheap Stocks, we believe it will be difficult for GM to meet the expected return figure, making an already bad situation--a severely under-funded post retirement healthcare plan--even worse. GM needs to change the asset allocation, lower the expected return, or both.
We are not picking on General Motors, its simply an example. There are many other companies with pension issues. However, we are concerned about the company's future. Besides a looming pension-postretirement crisis, the companies market share is falling. They are slashing prices by offering everyone the employee discount. Surely, they will move inventory with this plan, but will lose money in the process. Several years of 0 percent financing also come with a cost, especially as rates rise. The company is also struggling to come to terms with the unions on health insurance cuts for current employees. Stay tuned
We hope you will perform similar analysis on other companies of interest that have defined benefit plans. We'll consider doing more analysis on the subject.
Postscript
Despite the negative tone of this piece, your author has a soft spot for the company. My grandfather Clyde worked for General Motors for 38 years, until 1975. During World War II, his plant in Ewing, New Jersey was transformed into an airplane manufacturing plant--they built the Avenger there, the same plane George H. W. Bush was shot down in. They, like many others, were part of the Greatest Generation, contributing to a common cause, one which helped win our freedom. Here's to you, Clyde, happy 98th birthday. We miss you dearly.
Do your homework
Before you purchase that large cap stock you are interested in, do yourself a favor: delve into the readily available information regarding that companies defined benefit pension, and post retirement healthcare obligations (if applicable). For some companies, this will not change your mind, or reveal any red flags. But for others, this may(should) be the factor that scares you away from becoming an owner.
Three weeks ago, my brother in-law and I were talking about General Motors, a company near and dear to our hearts if only because three of our combined four grandfathers worked there. He remarked that his grandmother, who had never been a GM employee, received post-retirement benefits from the automaker for many years longer than her husband had actually worked for the company; not an uncommon situation these days, the result of which is bringing with it costly consequences.
Companies which have defined benefit pension and post-retirement healthcare plans made commitments to their retirees. Whether based on years of service, or other factors, these employees were promised benefits (in some cases) for life. Now, through a combination of factors which include increased life expectancy, more costly healthcare, lackluster investment returns, and challenging business conditions (among others), some companies are feeling the squeeze. Ultimately, as a shareholder, you will suffer too if companies you own need to cough up additional funds to support these plans.
Doing your homework
There is a great deal of information available to investors these days in order to assess these situations. In fact, disclosure of pension/post retirement assets, liabilities, funded status (whether the company has enough pension assets to meet liabilities, (the buzzwords are ”overfunded” or “underfunded”), assumptions about what the company believes the return on plan assets will be, as well as a current breakdown of how the money is allocated, is required by the SEC. You can find all this information, and much more, in company’s 10K(annual) filings. ( There is some data also available in the 10Q (quarterly) filings, but it is typically not as detailed.)
General Motors
Suffice it to say, that GM’s pension and postretirement liabilities are of mammoth proportions. The company lists three separate categories of obligations (all listed in the 10K): US Pensions Benefits, Non-US Pension Benefits, and Other Benefits(post-retirement healthcare).
Benefit Obligations
As of 12/31/04, GM calculated the following as the current obligation for each plan. This is often referred to as the Projected Benefit Obligation, or PBO, and represents the present value (PV) of benefits owed, for service performed in the past.
US Plan: $89.384 billion
Non US Plan: $18.056 billion
Other Benefits: $77.474 billion
While these amounts may seem staggering, they need to be taken in context. GM does have invested assets in each plan to meet liabilities, but it’s the comparison of the plan assets and benefit obligation which is meaningful.
Fair Value of Plan Assets
This represents the amount of invested assets in each plan, which is used to meet plan liabilities.
US Plan: $90.866 billion
Non US Plan: $9.023 billion
Other Benefits: $16.016 billion
Funded Status
Here is where the rubber meets (or doesn’t) the road. This is calculated by subtracting the Fair Value of Plan Assets from the Benefit Obligation. A negative number means the plan is under-funded, while positive means that its over-funded.
US Plan: $1.502 billion (over-funded)
Non US Plan: ($9.033) billion (under-funded)
Other Benefits: ($61.458) billion (way under-funded)
While the US Plan looks healthy due to the fact that it’s over-funded, it’s downhill from there. The Non US plan is significantly under-funded relative to the size of plan assets, and the Other Benefits category—in this case post-retirement healthcare—is simply in deep trouble.
General Motors must make up the difference over time—remember, the company made a promise to its retirees. The question is not whether the company can meet these obligations, but rather at whose expense. This should raise significant concerns to current and prospective shareholders, who will be footing the bill.
Health care for retirees and current employees are substantial to the point that they allegedly add more than $1500 to the cost of each vehicle produced! This at a time when GM’s market share has been dropping.
Optimistic Expectations
Perhaps the most alarming aspect of GM’s situation is the company’s own expectations for the three plans investment returns. (Expected Return On Plan Assets, 2004)
US Plan: 9.0%
Non US Plan: 8.4%
Other Benefits: 8.0%
While these projected returns seem achievable on the surface, in the context of GM’s asset allocation strategies, they are overly optimistic, at best. Typical disclosure of defined benefit asset allocations includes the past three years return assumptions, along with a breakdown of investments by Equity, Debt, Real Estate, and Other. Some companies provide more detail.
GM’s Asset Allocations/b>
US Plan:
Equity: 47%
Debt: 35%
Real Estate: 8%
Other: 10%
Non US Plan:
Equity: 61%
Debt: 31%
Real Estate: 8%
Other: 0%
Other Benefits:
Equity: 41%
Debt: 48%
Real Estate: 2%
Other: 9%
Keep in mind, I have no argument with the companies asset allocations, per se. I believe they have made efforts to build better risk adjusted portfolios, and in some cases have reduced plan return expectations over the years. For instance the US Plan’s expected return is down from 2002's 10 percent, while the same for the Non US plan is down from 8.8 percent in 2002, and 8.5 percent in 2003. However, GM raised the expected return for Other Benefits from 7 percent in 2003 to 8 percent in 2004, and that’s where the trouble is.
The question is, whether its conceivable that GM’s plans can achieve the expected returns given the respective asset allocation? Can the “Other Benefits” plan realistically expect to return 8 percent with 48% of the portfolio in fixed income securities? (We are assuming that the expected return for 2005 is the same as 2004, the 2005 expected return has not yet been disclosed) An 8 percent return on a portfolio which has half it's assets in fixed income securities, given a rising interest rate environment?
Here at Cheap Stocks, we believe it will be difficult for GM to meet the expected return figure, making an already bad situation--a severely under-funded post retirement healthcare plan--even worse. GM needs to change the asset allocation, lower the expected return, or both.
We are not picking on General Motors, its simply an example. There are many other companies with pension issues. However, we are concerned about the company's future. Besides a looming pension-postretirement crisis, the companies market share is falling. They are slashing prices by offering everyone the employee discount. Surely, they will move inventory with this plan, but will lose money in the process. Several years of 0 percent financing also come with a cost, especially as rates rise. The company is also struggling to come to terms with the unions on health insurance cuts for current employees. Stay tuned
We hope you will perform similar analysis on other companies of interest that have defined benefit plans. We'll consider doing more analysis on the subject.
Postscript
Despite the negative tone of this piece, your author has a soft spot for the company. My grandfather Clyde worked for General Motors for 38 years, until 1975. During World War II, his plant in Ewing, New Jersey was transformed into an airplane manufacturing plant--they built the Avenger there, the same plane George H. W. Bush was shot down in. They, like many others, were part of the Greatest Generation, contributing to a common cause, one which helped win our freedom. Here's to you, Clyde, happy 98th birthday. We miss you dearly.
Wednesday, June 22, 2005
CHEAP STOCKS
Semi-Annual Review
We thought it would be interesting to take a look back at all the companies we’ve issued reports on since this site was re-launched in late fall 2004, to see how they have performed....warts and all. (See archives for company reports)
Company Ticker Report Date Report Price Current Inc(Dec)
Duckwall Alico (DUCK) 12/5/04 17.00 20.97 19%
GIII Apparel (GIII) 12/10/04 6.30 8.37 30%
Avoca Inc (AVOA) 12/22/04 2760.00 4125.00 62%
St. Joe’s (JOE) 12/29/04 63.85 82.04 29%
JG Boswell (BWEL) 01/08/05 600.00 640.00 8%
PICO Holdings (PICO) 01/25/05 20.95 27.75 33%
Hanover Foods (HNFSA) 02/22/05 90.50 118.00 31%
Tootsie Roll (TR) 01/28/05 30.99 31.03 2%
Tejon Ranch (TRC) 02/15/05 46.81 53.07 13%
Discovery Partners (DPII) 03/17/05 3.36 3.02 -11%
Nu Horizons Electric (NUHC) 03/30/05 7.03 6.40 -9%
Inforte (INFT) 04/23/05 3.33 3.53 6%
Zapata (ZAP) 05/11/05 8.42 6.20 -26%
Silverleaf Resorts (SVLF) 06/03/05 1.30 1.46 12%
Average Holding Period Return: 14.21%
The return figures presented are not scientific, they are merely the holding period returns per company; they are not annualized. One thing you will notice is that all of the companies with negative returns are from research issued within the past three months. This brings to mind one of the most important points when it comes to investing in the type of securities we follow here at Cheap Stocks: Your time horizon cannot be short. Patience is the name of the game. That does not mean that you should hold onto a losing position forever in the face of deteriorating financials or conditions. Patience should not give way to irresponsibility.
Furthermore, if you believe in the NCAV philosophy, or the other deep value concepts we’ve written about, it’s very important that you not invest too much in any given name. Consider building a portfolio of companies over time. Diversification is still a prudent concept, even in our Cheap Stocks realm.
Companies are often “cheap” for good reason. Our mission here is to identify those that we believe are undervalued, and overlooked. We won’t always be right. Thanks for reading.
**The author has positions in the following stocks mentioned in this report: TR, TRC, JOE, BWEL, AVOA, PICO, ZAP. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Semi-Annual Review
We thought it would be interesting to take a look back at all the companies we’ve issued reports on since this site was re-launched in late fall 2004, to see how they have performed....warts and all. (See archives for company reports)
Company Ticker Report Date Report Price Current Inc(Dec)
Duckwall Alico (DUCK) 12/5/04 17.00 20.97 19%
GIII Apparel (GIII) 12/10/04 6.30 8.37 30%
Avoca Inc (AVOA) 12/22/04 2760.00 4125.00 62%
St. Joe’s (JOE) 12/29/04 63.85 82.04 29%
JG Boswell (BWEL) 01/08/05 600.00 640.00 8%
PICO Holdings (PICO) 01/25/05 20.95 27.75 33%
Hanover Foods (HNFSA) 02/22/05 90.50 118.00 31%
Tootsie Roll (TR) 01/28/05 30.99 31.03 2%
Tejon Ranch (TRC) 02/15/05 46.81 53.07 13%
Discovery Partners (DPII) 03/17/05 3.36 3.02 -11%
Nu Horizons Electric (NUHC) 03/30/05 7.03 6.40 -9%
Inforte (INFT) 04/23/05 3.33 3.53 6%
Zapata (ZAP) 05/11/05 8.42 6.20 -26%
Silverleaf Resorts (SVLF) 06/03/05 1.30 1.46 12%
Average Holding Period Return: 14.21%
The return figures presented are not scientific, they are merely the holding period returns per company; they are not annualized. One thing you will notice is that all of the companies with negative returns are from research issued within the past three months. This brings to mind one of the most important points when it comes to investing in the type of securities we follow here at Cheap Stocks: Your time horizon cannot be short. Patience is the name of the game. That does not mean that you should hold onto a losing position forever in the face of deteriorating financials or conditions. Patience should not give way to irresponsibility.
Furthermore, if you believe in the NCAV philosophy, or the other deep value concepts we’ve written about, it’s very important that you not invest too much in any given name. Consider building a portfolio of companies over time. Diversification is still a prudent concept, even in our Cheap Stocks realm.
Companies are often “cheap” for good reason. Our mission here is to identify those that we believe are undervalued, and overlooked. We won’t always be right. Thanks for reading.
**The author has positions in the following stocks mentioned in this report: TR, TRC, JOE, BWEL, AVOA, PICO, ZAP. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
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