Liquidation Value Investing

[melveyr]

MG,

What I am learning as I dig through these companies is that the biggest thing to watch out for is attitude towards shareholders. Many of these companies see shareholders as adversaries. I  regular dividends or special dividends is a really important part of screening.

[melveyr]

Here is a super interesting one: Internet Patents Corporation (PTNT).

They have 32 million in cash, and basically no debt. The whole firm is selling for 29 million. So you are getting some free cash. However, you also get a small patent portfolio.

This is basically a pure play on litigation. The insiders own a lot of the stock and they just announced some fresh new lawsuits:
http://ir.internetpatentscorporation.ne ... eID=718735

They are projecting to burn through 1.6 million in cash per year, so at today's prices you have a couple years before you would lose money on a fundamental basis, but with the potential for some big upside.

I have a limit order set to buy it at $3.40.

[MediumTex]

EMAN is another dog that's been in the dumps for 15+ years.  They have alot of patents for OLED display technology, but can never seem to perform.  Similarly for DRIV.

Then we have the former momentum high flyers: CREE is unlikely to ever recover to its Internet bubble days.  Same for CROCS which was a temporary shoe fad.  SMSI was when PC faxing was all the rage.  MRVL. JOSB. SKX.

IMHO, there is nothing wrong with JOSB.  They are basically one of two players in the men's "dress nicely" space and the company is well managed.

[MediumTex]

TPL is a very interesting company.

The story is too involved to tell here, but it's worth your time to read up on it.

It's kind of expensive right now, but it will probably get cheap again at some point in the next 12 months.

It's the kind of long-term holding that people dream about.

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In the royalty trust space, I like MARPS, though be aware of the potential risks associated with possible changes in the tax treatment of these entities.  MARPS is attractively priced at current levels, with an 8-9% yield that could easily go up a lot if natural gas prices recover and/or we see another oil price spike.

***

If you like energy services, check out DRQ.  It provides equipment for deepwater drilling in harsh environments.  There is a lot of insider ownership, but the founders are getting old and they might be interested in selling the company at some point (just my speculation), but in any case it's a company I have followed for a long time and like.

***

With the acquisition of MMR and PXP, FCX could be a great long term play in the mining and energy sectors.  You get a 4% yield and exposure to copper, gold, oil and natural gas production.  The street is trying to figure out what the acquisition really means and it could be a good buy right now.

(These are NOT investment recommendations, but just ideas for further research.)

[melveyr]

MediumTex,

TPL does seem like a very interesting company to get to know better. It looks their book value has no indication about the worth of the underlying land so it would take some serious digging to do the actual valuation. But once you had conservative estimates of the actual worth of the land it could be a great security to buy if the market punishes it more than your analysis would seem fair. Great idea for a potential value stock.

[MachineGhost]

HTH is another interesting stock.  It is essentially all cash and it is basically Gerald Ford's holding fund.  He is the guy that singularly cleaned up after the S&L crisis.  At some point, he will find a killer deal to invest all that cash into.

TPL shot up on the publicity and should be above its fair value.  No margin of safety.  Land is only worth something when it can be sold and purchased.  Reminds me of ALEX which finally divested its shipping business from the land ownership.

[jimbojones]

Thanks for the kind words everyone, but let's get down to business!

Anyone want to help me research IOT? I think they are sitting on a bunch of land. It looks cheap as hell. If these guys ever sold some land and paid a dividend this stock could triple. I think this is a situation where as long as management isn't a total fraud and you are patient enough you have a good margin of safety on a fundamental basis.

Edit: I am seeing a lot of related party transactions... this one will probably forever just be a piece of paper.

I think the screener is a great way to identify possible targets.  Regarding IOT, have you downloaded and read the latest 10-K?

http://www.sec.gov/Archives/edgar/data/ ... 123111.htm

IOT's business model is to earn interest on loans made to affiliated companies.  The Long-Term Investments you see for this company are junior mortgage loans to 9 different LLCs.  Most of the loans are secured by all the equity in the LLCs, but if the LLC can't repay their debt, it's unlikely that the equity of the LLC are worth that much.

Unfortunately, the real financial position of the company is that of the 9 LLCs.  Since we can't examine their books and records, we have no way of understanding whether they are financially stable.

I certainly wouldn't assign 100% of value to these Long-Term Investments.

[melveyr]

Jimbo,

Yeah I already ruled out IOT for myself after diving deeper. I agree that this is just for identifying possible targets. Nothing is worth exactly what it says on the balance sheets, but it is a start.

[melveyr]

I thought I would give a little update...

So my enthusiasm for MSN has entirely evaporated and I sold the shares for a slight loss a couple of weeks ago. After further research, the shareholders in this company suffer tremendously from the principal agent problem. The problem is that a Hong Kong holding company owns over 50% of the shares and they serially abuse minority shareholders. So while there is tons of value there, there is little recourse for minority shareholders to recognize that value. If management ever changed, the shares would be worth a lot more, but that is a game I am not comfortable playing. Doing research on this company took me in some crazily entertaining directions, but it was slightly uncomfortable.

ASYS (unfortunately I didn't buy it) was one of the cheapest companies on my list when I started the project and has popped 40% from its bottom. I didn't pull the trigger on it because they were not profitable. I was worried that the underlying value would erode before the market gave it a more realistic price. They are involved in solar and the whole industry is suffering from a glut.

I don't have any positions in the strategy currently... The one I am closest to buying would be GENC but I would need safer pricing before stepping in.

Again, here is the list:
http://liquidationvalue.blogspot.com/