Loews Corporation (L) - Value Investors at a Discount?

Loews Corp is a diversified holding company, with significant interest in P&C insurance, natural gas, and offshore drilling through controlling ownership of its publicly traded subsidiaries:

-Diamond Offshore Drilling Inc. (NYSE: DO): 2nd largest publicly traded offshore drilling contractor after Transocean. Operates 47 offshore rigs.
-CNA Financial Corp. (NYSE: CNA): Struggling P&C insurer with underwriting history below the industry average.
-Boardwalk Pipeline Partners, LP. (NYSE: BWP): 3 natural gas pipeline systems extending from the South-West US to North-East US.

Non-Public Subsidiaries:

-Highmount: Natural gas production and exploration company with assets in Texas, Michigan, and Alabama.
-Loews’ Hotels: Luxury hotel chain operating 18 hotels in the US and 2 hotels in Canada.

The equity securities of Loews Corp are undervalued on a NAV basis. The shares are trading at a discount to their interest in their publicly traded subsidiaries. When you add in the fact that you are getting $12.16 per share of other assets for free, after subtracting parent company debt, the shares present a truly compelling value opportunity.

In addition, the value creation by this company's management over the past 50 years has been extraordinary. They have a long history of successful transactions (ex. Lorillard), which may continue into the future. They are self proclaimed value investors, and have shareholder interests in mind. Usually family managed conglomerates trade at discount to NAV because of shareholder unfriendliness, or dual share structures, but this should not be a problem in this scenario.

The company is also using cash to repurchase shares, and has a history of reducing outstanding shares by 25% in every one of the past 4 decades.

Investors could also play this trade by shorting out the market risk of the publicly traded shares.

See valuation below:



Have fun.

NOTE: No Holding. This is not an invitation or a recommendation to purchase securities. Please do your own research.

Warren Buffett - Coca Cola 1988

One of the things we like to do is reverse engineer some of Warren Buffett's historical investments. Coca-Cola is possibly the best investment he ever made. From Berkshire's 1993 Annual Report, only 5 years after the investment was made:

The Coca-Cola Company. ............... Cost: 1,023,920 Market: 4,167,975

Not many people can claim to have made investments as successful as that; especially in companies as mature as Coca-Cola was at the time of his purchase. Of course, this type of investment is very different from when Buffett was running his Partnerships and investing in net-nets.

For educational purposes only, and for those who are interested, like we are in learning from history, we present the 1987 and 1988 Annual Reports of the Coca Cola company. Since these are not available from Coca-Cola's website or generally on the internet, we managed to dig them up at the library:

KO - Annual Report 1987
KO - Annual Report 1988


Note: No holding.

GBO Inc

We feel that the shares of GBO Inc. provide a compelling value opportunity from recent trading prices.

GBO manufactured windows and doors, primarily in 3 types: exterior doors, PVC windows and wooden windows. The company operates out of Quebec, Canada where it has 3 plants and provides jobs for 500 workers. Sales are divided as follows: 43% Quebec, 30% Ontario, 5% Atlantic Canada, 22% US.

The company recently completed the sale of 2 of their divisions for cash considerations of $12.5M. The divisions sold manufactured PVC windows. The company is now trading at ~65% of current assets after subtracting all liabilities, what we feel in this case can be used as a rough indication of liquidation value. A large portion of current assets is in cash and the cash burn rate is minimal.

In addition, if that is not compelling enough, the company announced on Oct. 7, 2009, that they would be repurchasing 15M common shares for $0.20 a share, or 46% of their outstanding shares! That compares to their last trading price of $0.17. As of now, the bid has not yet commenced.

If 46% of the outstanding shares are successfully repurchased at $0.20, which assumes tendering by majority holders, our estimate of the per share liquidation value post issuer bid would be ~$0.36.

Keep in mind that, this stock is VERY thinly traded, with public float of only about 10%. 60% of the outstanding shares are held by Fonds de solidarite des travailleurs du Quebec (FTQ). We feel that the tender is likely to come from these holdings: their position is in the “turnaround” portfolio of the FTQ. The tender offers them an exit opportunity. The other 30% is held by insiders.

Unfortunately, we have been unable as of yet to acquire shares at our limit price. The shares traded at $0.13 on January 14, 2010, and in the past few days have ticked up to $0.16 and then to $0.17. Recent trading activity suggests shares are available, however an investor should tread very carefully; especially in considering post-repurchase liquidity if they should choose to hold rather than tender.

Woopdeedoo.

SG

NOTE: No holding. This is not an offer to buy or sell securities. Do your own research.