Cliff Note #113 - Legendary Investor Motivates Company To Unlock Shareholder Value
A company selling below book, while it grows sales and earnings, but not for long
[This will be one of two Cliff Notes we will be sending you today]
Yesterday, we published Cliff Note #112 and added the stock to our MS Microcap Quality Index (MSMqi). We labeled the stock as one Warren Buffett would probably like if he was still investing in microcaps. You can read that here.
Given that Buffett just announced his retirement, we decided to keep that theme going with Cliff Note #113.
Elevator Pitch
It’s a relatively simple story, where management is selling assets and optimizing operations, while it steadily grows sales and earnings.
These moves are likely being spearhead by a legendary investor (and activist), who owns a large amount of the stock, to nudge the market to close the gap between the share price and higher book value per share.
The recent asset sales will likely be followed by many more, as the company owns a bunch of subsidiaries. This could result in large special dividends and share buybacks.
Finally, it looks like the company may have the best line-up of products in its market, giving it a nice competitive advantage and potentially making it a nice acquisition target.
By the way, like Cliff Note #112, this stock is a very illiquid OTC stock, so it may not be your cup of tea. However, that’s why these types of stocks often trade at deep discounts to fair value.
There are no free lunches in life. It's especially true with investing in super illiquid OTC stocks. This lack of liquidity - and the related discomfort - is the price you pay to avoid the crowd, giving you the chance to capture 5 or 10x returns.
The good news is that management of these types of companies that meet quality factors will eventually be forced to take measures to unlock value to appease shareholders and activist investors. That’s what appears to be happening with Cliff Note #112.
Read on for more…