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The whole is greater than the sum of its parts



April 23, 2010 – Comments (5) | RELATED TICKERS: L


I've always liked stocks that can be described by the famous Aristotle quote "The whole is greater than the sum of its parts."  One such stock, Loews Corp. (L) has been on my watchlist for years.  I recently came across an article on the company that made me revisit the investment idea.

What's amazing about Loews is that it currently owns shares of three public companies, 67% of Boardwalk Pipelines Limited Partnership (BWP), 90% of CNA Financial Corp (CNA), and 50.4% of Diamond Offshore (DO) that are worth in excess of its current stock price.  Anyone who buys Loews stock today gets $39.50 worth of these companies' for $37.88.  By purchasing a share of L one is essentially being paid $1.62 per and portion of the company's $2.2 billion in net cash (worth around $5/share) plus stakes in a whole slew of other assets for FREE.  

Lowes' other assets include HighMount (a natural gas E&P company), 18 Loews Luxury Hotels, $1.0 billion in CNA Preferred Stock, 22.9 Million Boardwalk Pipelines Class B shares, $100 million in Boardwalk Debt, and the Boardwalk Pipeline’s general partner.  By purchasing Loews' stock, you're getting all of this PLUS $5 in cash for -$1.62/share.  That's right, Mr. Market is paying you to buy these assets.

I'm sure that you're asking at this point, if Loews' stock is such a great deal, why don't you own any?  Ahhh, that's the million dollar question.  As I have mentioned in my previous several posts, companies that I purchase usually have three key attributes...they are cheap, they have a catalyst that will unlock value down the road, and they paid a solid dividend that one can collect while they wait for the company's hidden value to be unlocked.

Loews passes the "cheap" test with flying colors, but it currently only pays a 0.7% dividend.  Investors are not really being paid to wait for the Tisch Family to unlock the company's true value.  Furthermore, there's no specific catalyst in the future that I am aware of that will help Mr. Market to realize this company's true value.  Money invested in Loews could be essentially dead for years collecting less than 1% interest (which actually isn't that bad in today's punish the savers world, but let's not get into that now).

Loews did attempt to unlock some value by spinning off its stake in Lorillard tobacco (LO) back in May 2008.  LO has essentially been flat since then and it pays an attractive dividend (that now sits at over 5%).  It has handily outperformed both its former parent company and the S&P 500 over the past two years.

Still I don't know of any specific catalyst that will unlock value in Loews' stock and I'm not sure that I want to wait.  I'll keep the stock on my radar and look for news that the company is starting to take actions to enhance shareholder returns in the future.


No position in L 

5 Comments – Post Your Own

#1) On April 24, 2010 at 11:02 AM, bothisellhigher (29.23) wrote:

Appears then that the whole (L) is worth less than the sum of it's parts and should be avoided as a viable investment option at this time?  (in your opinion?)  Good research etc. I'm just wondering "what's the point?"

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#2) On April 24, 2010 at 1:20 PM, TMFDeej (97.63) wrote:

Thanks.  The point is that if the market realized the true value of L's assets the stock would trade much higher.  Whether or not that will happen is the question?  Even if it doesn't L's management could take actions to unlock the value, such as spinning or selling things off, buying back its cheap stock at a faster pace, etc...


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#3) On April 24, 2010 at 1:21 PM, TMFDeej (97.63) wrote:

You're right though, perhaps I should have twisted good old Aristotle's quote around to say the sum of the parts is greater than the whole.


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#4) On April 29, 2010 at 4:01 AM, turb0kat (90.07) wrote:

Have you looked at MFCAF?

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#5) On September 02, 2010 at 7:14 AM, metoo105 (28.01) wrote:

This has been the case for a long, long, long time. It turns out to be not all uncommon that companies trade at such discounts. A few that I have noticed, VHI or perhaps taken any closed-end fund that trades at a discount to NAV.

Unless there is some catalyst taken by management, there is no reason for it to close. 

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