Loews Corporation

[giofranchi]

L has published a new Company Overview. For anyone who might be interested: http://ir.loews.com/phoenix.zhtml?c=102789&p=irol-index

 

giofranchi

[matjone]

Thanks for posting this.

 

They say their stock has returned 14% vs. 6% vs the s&p 500, but for the 14% figure on their stock they assume that you reinvested all dividends, while for the s&p they assume no reinvestment of dividends.

 

From this presentation it looks like in 2011 their interest in the earnings of their companies was 1.17B, and they also have 3.7B cash.  Back out the cash and their mkt cap is 13.1B.  So it doesn't seem all that cheap if 2011 numbers are indicative of their earning power, does it?

 

What do you think, Giofranchi?  Do you own Loew's? Thanks

[FCharlie]

 

From this presentation it looks like in 2011 their interest in the earnings of their companies was 1.17B, and they also have 3.7B cash.  Back out the cash and their mkt cap is 13.1B.  So it doesn't seem all that cheap if 2011 numbers are indicative of their earning power, does it?

 

 

This brings up a never ending discussion. Should a business be valued based on it's assets or liquidation value, or should it be based on some multiple of it's income stream.

 

I always seem to get stuck in the lonely camp of thinking liquidation value should be a minimum value, even if earnings are not great. These examples come to mind:

 

Bank of America.. At one point, very recently, BAC was $5 with a $20 book value.

 

Aig..  At one point, AIG was a $20 stock with a $60 book value

 

Weyerhaeuser.. This was a $15 stock during the housing bust even though their timberland holdings were worth closer to $20 per share and they owned over fifty factories, they had a very profitable pulp business, and they are a top 20 home builder.

 

Sears Holdings..  This has been a $30 stock more than once, even though they have inventory, net of accounts payable, of over $50 per share. What is the value of their real estate? Not sure exactly but when they sell fourteen stores for $440 million cash I think it's safe to say their real estate is worth more than it's book value. Book value of real estate for SHLD is $75 per share. Berkowitz thought $90 was conservative and that was with 125 million shares. And while they do have debt that I'm not counting, I'm also not counting any value for Land's End, Craftsman, Kenmore, or Die Hard.

 

These companies obviously have had earnings problems.  Bank of America because of Countrywide. Weyerhaeuser because of a depression in housing. Sears because it's a mess... but all of these still manage to produce cash.

 

So, should Loews be valued on it's earnings or it's liquidation value?

 

Is Bank of America worth 7 times earnings or it is worth liquidation value? What if their liquidation value is double or triple the current stock price?

 

Why does it cost less to buy Sears than it would cost to buy everything they have for sale?

 

 

[matjone]

well I guess that depends on the management and the assets.  whether you think the management can use those assets to generate cash flows that, when discounted back to the present, are more than liquidation value.

 

I also think you have to be careful using liquidation value when a lot of the asset value is stock holdings. For example, take  a hypothetical technology holding company back in the height of the tech bubble that is selling for half the market value of its holdings - but of course those holdings have no established earning power and are selling at 100 times book.

 

I haven't looked at loews' holdings to see if they look expensive but I would like to hear other opinions about that.

 

Another thing that would scare me about  loews is that a big part of their earnings come from diamond offshore, and those earnings could be reduced quite a bit if the price of oil goes way down.

 

[Palantir]

I think it can be valued at both liquidation and operational value. Keep in mind that a firm can trade for less than liquidation if the firm is destroying capital or if the assets or liabilities are undervalued/overvalued. That can be the case in some financials.

 

What I mean is, you have to separate "Operational businesses" from "nonoperating assets". So if Loews has operational businesses you can value in terms of CF, you should do so, but the nonoperational components like cash/bonds should be valued at liquidation.

 

IMO, even if a nonoperating asset is valuable, it should not be valued if the firm doesn't have the ability or intention to release the asset. Say Microsoft has a goldmine under its HQ...

 

Loews, being an odd collection of assets should be valued on the basis of its businesses individually, and then summed up...Not easy, but I don't see ambiguity there.

[giofranchi]

Thanks for posting this.

 

They say their stock has returned 14% vs. 6% vs the s&p 500, but for the 14% figure on their stock they assume that you reinvested all dividends, while for the s&p they assume no reinvestment of dividends.

 

From this presentation it looks like in 2011 their interest in the earnings of their companies was 1.17B, and they also have 3.7B cash.  Back out the cash and their mkt cap is 13.1B.  So it doesn't seem all that cheap if 2011 numbers are indicative of their earning power, does it?

 

What do you think, Giofranchi?  Do you own Loew's? Thanks

 

Well, as always I think that “culture” and “history” are very important. I have quoted Mr. Munger many times before, and I will do it again:

 

"I don’t think General Motor should have wiped out the shareholders. That was a huge failure of management. If you think about it, Berkshire is a collection of failed businesses, that are gone. And here it is, this wonderful thriving place! As our businesses failed, our shareholders did not fail. We adapted. We took the money out of the failing businesses and bought other businesses. General Motors did not pass that test. They destroyed their shareholders…"

 

Imho, that “culture” is what makes the safest of businesses, and L has showed to possess it, and to apply it on a value basis, for 50 years. Moreover, it has always been an owner-operated company, and that reinforces its very low risk profile.

As far as “history” is concerned, if you include the dividends, the S&P500 has returned circa 9% annualised for the past 50 years. Far less than L has achieved. Not only L is ahead of the market on a 50 years basis, but it is ahead also on a 25, 10, and 5 years basis.

That “culture” and that “history” tell me there is a very low probability L shall not continue to be profitable in the future. And, as long as a company doesn’t lose money, and as long as a company is selling below book value, I don’t really care about future earnings or future growth.

At June 30, 2012, L’s book value per share was $49,31, while yesterday the share price closed at $42,69: that’s a 13,4% discount to book value per share. For a company with a wonderful “culture”, that returned 14% annualised for 50 years… it really looks like a no-brainer to me!

 

I think L looks cheap also on an p/e basis:

L: p/e = 13,1b / 1,17b = 11,2; 14% annualised return for 50 years,

S&P500: p/e = 16,55; 9% annualised return for 50 years.

That’s not to say that L is the best bargain out there! Far from me! AIG and BAC are even better. But, if you like L’s “culture”, and if you like L’s “history”, and if they speak loud to you about L’s future, well, then I guess L today is really good value!

 

Two more things:

1) CNA is clearly not a very well run insurance company. Anyway, it is showing some improvements. Even though slowly, it is getting better. And, if it gets on track with its peers, the potential for higher earnings is very substantial.

2) Jonathan, Andrew, and James Tisch are in their late 60s, and they could go on compounding L’s capital at least for the next 10 years. They also have a family culture that I like, because it raises the probabilities that someone worthy will succeed them. They have already accomplished it in the past with great success: L is a second generation family company.

 

Finally, Yes, my firm owns L.

 

giofranchi

[mranski]

 

There is a Loews thread under Investment Ideas if you missed it.

 

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/l-loews/

[stahleyp]

Loews has underperformed the s&p 500 over the past 5 years from the data I'm seeing. It's also only beaten it by a little less than 1.5% annualized over the past 15 years. Yeah, that adds up but that only works out to about 6.44% annualized. Not terrible, given the environment, but not good either. 10 year is good though - about 3% over s&p annualized.

[BargainValueHunter]

http://www.loews.com/our-story/value-investing/

 

Presenting the Loews value story in graphic form may surprise some of you. We chose this method of communication because it has become increasingly difficult in today’s “pure-play” business environment for conglomerates like Loews to be heard.

 

We know we have a good story to tell, and we want to find a new way to tell it — this time in a fun and engaging way.

 

Since we never do anything half-way at Loews, we asked Lotta Value to be our guide.

 

http://www.loews.com/wp-content/uploads/2013/01/Lotta-Value1.jpg

 

Check out the first episode:

 

http://www.youtube.com/watch?feature=player_embedded&v=1yU92EspNhk

[Palantir]

If there's so much value, why is it undervalued? Maybe they should you know....buy back with some of that cash?

[Phaceliacapital]

If there's so much value, why is it undervalued? Maybe they should you know....buy back with some of that cash?

 

With that kind of mindset you should buy an index :D

[Liberty]

http://brooklyninvestor.blogspot.ca/2013/04/loews-2012-annual-report.html

[Palantir]

If there's so much value, why is it undervalued? Maybe they should you know....buy back with some of that cash?

 

With that kind of mindset you should buy an index :D

 

Over the past five years I would have done just as well buying an Index.

[Evolveus]

Loews self-produced animated video about the company. 

 

http://moneyinstereo.blogspot.com/2013/04/frustrated-with-your-conglomerate.html

[CorpRaider]

Gotta' admit the graphic novel stuff makes me less likely to buy. 

[fareastwarriors]

http://www.bloomberg.com/video/loews-ceo-says-energy-industry-capital-demand-big-_kHqBZpjRM~zYkY9gpZTRw.html

 

Loews CEO interview on Bloomberg

[nwoodman]

Thanks for posting the interview.  Loews comprises a material amount of my portfolio but every time I hear JT interviewed,  inevitably there are those cringe moments. I think I know where he is coming from but his arguments for capital allocation by the private sector and exporting gas were particularly weak today.  I don't disagree with him but we are spoilt after listening to the unforced force of more eloquent business luminaries such as Munger.  Has anyone ever heard Munger state his position on whether the USA should start exporting LNG?  I certainly recall that he believes we are squandering longer chain hydrocarbons by combusting them rather than using them to generate more elaborate products.

 

 

cheers

 

nwoodman

[frith2012]

Munger said at last year's annual meeting that the idea of exporting our nation's natural resources at all time low prices is one of the dumbest ideas he's ever heard.  Furthermore, he said that he thought we should consume the rest of the world's energy reserves first before we start consuming our domestic ones. 

[nwoodman]

Munger said at last year's annual meeting that the idea of exporting our nation's natural resources at all time low prices is one of the dumbest ideas he's ever heard.  Furthermore, he said that he thought we should consume the rest of the world's energy reserves first before we start consuming our domestic ones.

 

Thanks Frith2012. I wish Munger's views carried some influence here in Australia. We are taking the opposite stance, instant gratification :(

[Palantir]

Munger is clueless. There is no economic argument to stop exporting cheap natural gas. Unless of course your company somehow benefits from cheap gas....

 

 

"let's use up forren gas first!" -  only raises costs unnecessarily on businesses, drives down investment in this resource, cuts out significant economic opportunity, in the vain hope that you'll be able to make more profit in the future, which of course is not guaranteed. For all you know, we may not be even using gas 30 years from now.

[Shane]

Upon first reading this post I was inclined to want to disagree with you.  On second thought good point.

[CorpRaider]

I watched the comic strip.  Am I the only one who interpreted the summary/value pitch for CNA as, "it sucks but we're working to slowly make it suck less over time"?  I was also slightly underwhelmed with the several bullet points touting "happy customers".