PICO Holdings, Inc. (NASDAQ:PICO)

Idea taken from E72
A pure investment in water
the necessity to have a little patience given the nature of the asset - water
water assets predominantly in the states of Nevada
and Arizona in the US
Debt-free company
Water in this area is measured in acre-feet (AF) being one foot of water over one acre; this is
equivalent to 325,851 gallons or 1,233,480 litres (1.233ML). Municipal rights (as opposed to
agricultural water) have a prevailing market value around US$35,000/AF,
three sets of water assets servicing the Northern Nevada (Reno)
market:
Carson Lyon, south of Reno, with the equivalent of 1767 acre-feet
Truckee Surface water rights (299AF); and
51% equity of Fish Springs Ranch (8,000 municipal AF), with a preferred interest of
~US$185million resulting from contributions to build a pipeline and accrued interest.

Barron's wrote a bullish article on PICO holdings last month. At the time I penned (do you still call it penned when there's actually no pen or paper involved) a skeptical rebuttal to the piece here:

Is a Turnaround Really in the Works at PICO Holdings?

http://caps.fool.com/Blogs/is-a-turnaround-really-in-the/1075252

From the post...

Sounds great, but a few things bother me about PICO. One, the whole "water" investment thesis has been pretty trendy for a while, but so far it hasn't panned out. For years people have been talking about how water is such a precious resource and that companies in the sector will do tremendously well. They've even built water ETFs. Thus far the outperformance of water stocks has not materialized. Here's a chart that compares the performance of four popular water stock tracking ETFs to the S&P 500.

https://finance.yahoo.com/chart/PHO#eyJjb21wYXJpc29ucyI6I......

The underperformance is obvious. So the water is the future investment thesis thus far has been a complete bust.

Another thing that bothers me about PICO is its management. I don't trust that its management can effectively manage shareholder funds. From the Barron's article:

PICO made a poor acquisition of a canola-processing business in Minnesota that it sold last year.

Yuck, what a waste. Adding insult to injury, PICO's management is grossly overpaid relative to the performance of the company's stock. I have no problem paying up for effective management, but when a company's stock has been terrible for years management should not be rewarded (see NSAM, grrrrrr).

Terrible management was a big part of the reason why I didn't like PICO. Well, it seems as though that has changed. The activist investors who were involved with the company won and on October 12th, PICO's board of directors announced that it had fired the company's CEO John R. Hart. In a new article, Barron's believes that this is good news for shareholders and I'm inclined to agree.

This Water Rights Firm’s Stock Can Spring Higher

PICO Holdings’ long-serving CEO has left the company, which is now poised to unlock shareholder value.

http://www.barrons.com/articles/this-water-rights-firms-stock-can-spring-higher-1476961456?mod=rss_barrons_most_viewed_month

Jason
No position in PICO