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The sum of its parts is greater than the whole



February 24, 2009 – Comments (4) | RELATED TICKERS: L , BWP , DO


I've had my eye on Lowes Corp. (L) for a while now, as one might be able to tell from my miserable -14 CAPS score on the stock.  Not to be confused with the Home Depot-like home improvement retailer, Lowes Corp is large conglomerate that has operations in a number of sectors.  I've always believed that the company is like a mini-Berkshire Hathaway (BRK-B).  While the Tisch family is certainly not Warren Buffett, Lowes trades at a substantial enough discount to Berkshireto make up for a lot of the difference.

Given the company's miserable performance lately, I am happy to report that I never pulled the trigger on it in real life.  Its substantial investment in an troubled insurance company called CNA Financial (CNA) has always bothered me.  However, Lowes' stock is so cheap now that it is becoming very interesting.  Certainly interesting enough for me to give it the old thumbs up in CAPS if I wasn't already sitting on a negative score for it.

How cheap is Lowes?  Check out the following sum-of-the-parts analysis that was published in this week's Barron's:

242 million shares in CNA Financial (CNA) is worth approximately $5.00 per Lowes share

$1,250 million in CNA preferred stock: $3.22/share

70 million shares of Diamond Offshore (DO):  $9.97/share

130 million shares of Boardwalk Pipeline (BWP): $5.97/share

$500 million in the Boardwalk GP: $1.15/share

$700 million in Loews Hotels: $1.61/share

$1,750 million in Highmount Exploration: $4.02/share (natural gas producer)


$1,400 million in net cash: $2.87/share

TOTAL SUM-OF-PARTS:  $33.81/share

Current stock price:  $20.21/share

Discount:  $13.60/share

As you can see L is trading at a significant discount to the current value of its holdings, even if you hate CNA, which traditionally has been the worst of breed in terms of insurance companies, and mark Lowes' investment in it down to zero, L is still trading at over five dollars less than the current value of its parts.  That's a heck of a deal.

Add to this the fact that the company actually pays a dividend, its yield of slightly over 1% isn't great...but it's something, and a compelling case can be made for the stock at this level.  As I have mentioned numerous times in recent months, I personally am staying away from common stock right now and am putting any money that I invest in preferred stock or bonds that have decent yields.  I am sticking with this philosophy with my real portfolio, but I am definitely staying long L in CAPS.


4 Comments – Post Your Own

#1) On February 24, 2009 at 1:47 PM, briyan (< 20) wrote:

We wouldn't confuse Loews with Lowe's if you didn't misspell the company name throughout this post.  Can you TMF guys edit after-the-fact?

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#2) On February 24, 2009 at 2:19 PM, saunafool (< 20) wrote:

I thought you were talking about GE. If only they could break up the company, load the financial division down with all the debt, and blast it off into oblivion, the rest of it would be great and really cheap.

Anyway, great analysis. I'll put the green thumb on L right now.

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#3) On February 24, 2009 at 2:25 PM, TMFDeej (97.65) wrote:

Hmmmmmm, it's awfully hypocritical of someone who can't even spell their name correctly to comment on someone else's spelling don't you think Briyan ;).  I kid, I kid. 

Good catch on the spelling.  Thanks for catching it.  I will re-post the article with the proper spelling, but alas there is no edit function.


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#4) On February 24, 2009 at 2:44 PM, YooCanFly (29.17) wrote:

Just had a quick look at their SEC filing.

 From there, it says their aggregate total holding is 10B on 12/31. Since current market cap is around 9B, it seems reasonable (since CNA lost 50% value since 12/31). Am I missing something?

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