Monthly Archive for April, 2010

UFCS Beats Expectations

Posted on April 28, 2010, 11:53 pm. 1 Comment

United Fire & Casualty (UFCS) recently beat quarterly earnings expectations and shares have skyrocketed from $19 to $24.

I wrote about UFCS on two separate occasions back in November last year and mentioned it briefly in January:

I saw UFCS as a company with negative sentiment (mostly continuing claims and expenses from Hurricane Katrina; yes, a hurricane from 5 years ago) that grossly outweighed the fact it was just a decent life and P&C insurance company that was bound to rebound (so to speak). UFCS was selling at a P/B of 0.73 and is now at a P/B of 0.93. If you had been reading my blog and agreed with my view that UFCS was very undervalued and bought at $17.00 per share, you would now have gain of about 38% (roughly 93% annualized) and you’d be beating the S&P 500 by about 30 percentage points.

It’s best to remember that better investment opportunities often come from overlooked and unpopular stocks. I think UFCS is a good reminder of both of these points.

Small Stocks Overvalued, Big Stocks Undervalued

Posted on April 27, 2010, 12:41 am. Closed

Bloomberg reports on how investment managers see big, quality stocks as a better bargain than small and mid caps, most notably Grantham and Yacktman. This is a theme I have seen developing for the past 5-6 months.

The premium investors are paying today to own small-capitalization  stocks versus their large counterparts is the biggest in at least 27 years, said James Floyd, senior analyst at Leuthold Group LLC, a research firm based in Minneapolis. Leuthold defines large stocks as those with a market value of more than $9 billion and small stocks as those from $300 million to $1.4 billion.

At the end of the first quarter, small stocks sold for an average price-to-earnings multiple of 18.6 compared with 15.7 for large stocks. The 18 percent gap between the two is the widest since Leuthold began gathering the data in December 1982, Floyd said. In 2000, small stocks sold at about a 40 percent discount to large stocks, he said.

Uncertainty Surrounding Northwest Pipe Due to Inability to Timely File

Posted on April 18, 2010, 6:20 pm. Closed

Northwest Pipe (NWPX), in the business of water transmission and tubular products, has not been able to file its two most recent required reports due to an ongoing internal investigation of certain accounting matters, including certain revenue recognition practices. The last report it filed was on August 7, 2009. Northwest’s CEO recently resigned on April 2, 2010, and the company’s President has assumed the role.

This is all evidence that points to either serious mistakes, real fraud, or negligence and/or ineffectiveness of the former CEO, or all of the above. Given all the above, the stock is trading near 52-week lows and might represent an excellent opportunity for purchase given the potential for forced or irrational selling due to the company’s inability to timely file its last two required reports.

Because investors have not seen a balance sheet or income statement for slightly over nine months, I feel there is an extreme amount of uncertainty surrounding the price of the stock and thus the company should be valued by tangible book value or on a liquidation basis.

From its balance sheet as of June 30, 2009, I calculate a tangible book value per share of $29.43. With a stock price of $23.24 as of last Friday, the stock is trading at a 21% discount. I will let my inquisitive readers find a liquidation value for themselves, but one could simply give a haircut to tangible book value and I suspect you would find that liquidation value per share is still slightly above the current share price.

Also, a useful way to reassure oneself about Northwest is to look at how its competitors have performed in the interim. If competitors have been performing decently, it might be safe to bet that Northwest has still been able to perform equally as well despite their ongoing investigation. Northwest’s competitors in the water transmission segment is Ameron International (AMN) and Mueller Water Products (MWA). In the tubular products segment, Northwest’s competitors are Valmont Industries (VMI), Lindsay (LNN), Tenaris (TS), and U.S. Steel (X).

I will most likely take a deeper look at Northwest Pipe. Investors can pick up amazing deals when uncertainty and/or forced and irrational selling.

Fish and Boats On Sale

Posted on April 16, 2010, 10:15 am. Closed

Aker Seafoods (AKS:OSL) harvests, processes, and sells seafood from regulated fisheries that are and will remain renewable if properly managed. They are among the largest employers in Norway’s fisheries industry, and one of Norway’s leading producers and exporters of fish products.

With a book value of 12.59 NOK and the stock currently trading at about 7.50, this is a discount of about 40%. I don’t know a whole lot about the fishing industry, but I imagine it is fairly cyclical and dependent upon people being willing to open up their wallets to eat at restaurants. Glancing through the annual report, the only potential problem I saw was Aker’s balance sheet as they seem to have a lot of debt relative to equity. However, this ratio has improved year over year due to Aker’s refinancing of debt and raising of additional capital.

So as the economy perks up a bit and people start to go out to eat again, I would suspect that a company like Aker will benefit disproportionately. to non-cyclicals. And with Aker trading at such a large discount to book value, there just might be an added margin of safety.

English Portions of Report on Collapse of Iceland’s Banks Due Tomorrow

Posted on April 12, 2010, 3:44 pm. Closed

“The Special Investigation Commission (SIC), which was established by Althingi, the Icelandic Parliament, in December 2008, to investigate and analyse the processes leading to the collapse of the three main banks in Iceland, will deliver its report to Althingi on Monday 12th of April.”

A summary and excerpts in English will be available here tomorrow.

Iceland’s Regulators Face Damning Report Into Bank Meltdown

Posted on April 12, 2010, 12:11 am. Closed

The Guardian reports: “A damning account of Iceland’s failure to protect ordinary depositors – including hundreds of thousands in the UK – who entrusted their savings to online bank account Icesave will be published tomorrow by a specially convened truth commission, set up in the wake of Iceland’s banking meltdown 18 months ago.”

I am looking forward to this. I remember in 2007 reading only a few bearish blogger’s posts about the impending problems of Icelandic banks. This report I hope will serve as a learning tool for those involved and also everyone else in the financial industry. Thanks to Simoleon Sense for the great linkfests.