Land Review 2007: Part I

What better way to say goodbye to 2007, we thought, than to review some of the companies holding one of our favorite assets, land. It’s generally been a pretty rough year for most firms that have anything to do with real estate. Some have no doubt been punished well beyond justification, but then again, Mr. Market is in control, and does as he sees fit. We believe this has created some compelling opportunities even if the housing situation worsens.

For the purposes of this piece, we’ve identified 20 or so companies with various operating businesses, that have substantial land holdings. Some of these have land that is a peripheral part of operations, or just one of several operating businesses. These companies have typically been less affected by recent market events; especially if their other operations are firing on all cylinders. Others have suffered from a double whammy: huge declines due to the geographical location of their land, and the fact that land is their primary business.

Two data calculations we use are worthy of explanation:

EV/Acres: Enterprise Value of the company/Total owned acres
Enterprise value is the market value of the firm plus debt, minus cash, and is an approximation of all claims that equity and debt holders have on a firm. We believe EV is a better estimate of true current market value, because it represents all claims investors hold in the capital structure, not just equity.

We use this calculation not to attempt to value the land on a per acre basis, but rather for perspective. The results of this calculation will be all over the board depending on the amount of land a company holds, how prominent it is in a company’s operations, as well as the land’s quality. (Obviously, timber land and marsh land is less valuable than vacation property)

Shares Per Acre
This represents the number of shares you would need to own in order to own one acre of a particular company’s land. This measure has no particular use, other than it is interesting to your Cheap Stocks editor, and helps measure an equity stake where the underlying company owns land in different terms. (For example, instead of saying you just picked up 550 shares of Tejon Ranch, you could say you just bought 10 acres of California land).

Below is Part I, the first ten companies.

(Market Cap and EV are in $ millions)
Alexander and Baldwin
Ticker: ALEX
Recent Price: $52.95
52 High/Low: 59.42/43.62
Avg Volume: 200000
Mkt Cap: 2227(million)
Ent Value: 2674(million)
Acres Owned: 89440
EV/Acre: $29,897
Location: Hawaii
Primary Use: Agriculture/development
Shares/Acre: 574

Alico
Ticker: ALCO
Recent Price: $36.87
52 High/Low: 65/35.88
Avg Volume: 21000
Mkt Cap: 271
Ent Value: 327
Acres Owned: 135466
EV/Acre: $2414
Location: Florida
Primary Use: Agriculture/Cattle
Shares/Acre: 574

Biloxi Marsh Lands
Ticker: BLMC
Recent Price: $31.00
52 High/Low: 39/28.25
Avg Volume: 200
Mkt Cap: 76
Ent Value: 70
Acres Owned: 90000
EV/Acre: $778
Location: Louisiana
Primary Use: Oil and Gas
Shares/Acre: 25

Blue Ridge Real Estate
Ticker: BLRGZ
Recent Price: $31
52 High/Low: 39/28.25
Avg Volume: 72
Mkt Cap: 76
Ent Value: 93
Acres Owned: 17009
EV/Acre: $5468
Location: Pennsylvania
Primary Use: Ski resorts, commercial, development
Shares/Acre: 176

Consolidated Tomoka Land
Ticker: CTO
Recent Price: $62.74
52 High/Low: 80.5/60.5
Avg Volume: 11400
Mkt Cap: 359
Ent Value: 363
Acres Owned: 11500
EV/Acre: $31,565
Location: Florida
Primary Use: Commercial, golf, development
Shares/Acre: 503

JG Boswell
Ticker: BWEL
Recent Price: $1025
52 High/Low: 1075/686
Avg Volume:
Mkt Cap: 960(est)
Ent Value: 1030(est)
Acres Owned: 172000
EV/Acre: $5,988
Location: California
Primary Use: Agriculture/development
Shares/Acre: 6

Maui Land and Pineapple
Ticker: MLP
Recent Price: $26.62
52 High/Low: 38.99/25.7
Avg Volume: 12200
Mkt Cap: 217
Ent Value: 248
Acres Owned: 25400
EV/Acre: $9,764
Location: Hawaii
Primary Use: Development/Agriculture
Shares/Acre: 367

PICO Holdings
Ticker: PICO
Recent Price: $34.16
52 High/Low: 49/33.01
Avg Volume: 164000
Mkt Cap: 543
Ent Value: 590
Acres Owned: 560000
EV/Acre: $1,054
Location: Nevada
Primary Use: Water/development
Shares/Acre: 31

Plum Creek Timber
Ticker: PCL
Recent Price: $45.16
52 High/Low: 48.45/37.13
Avg Volume: 1359000
Mkt Cap: 7780
Ent Value: 10092
Acres Owned: 8200000
EV/Acre: $1,231
Location: 18 states
Primary Use: Timber, some development
Shares/Acre: 27

Rayonier
Ticker: RYN
Recent Price: $45.59
52 High/Low: 49.55/38.17
Avg Volume: 545000
Mkt Cap: 3555
Ent Value: 4084
Acres Owned: 1931323
EV/Acre: $2,115
Location: several states
Primary Use: Timber, some development
Shares/Acre: 46

We’ll publish the balance of the list in our next posting.

We would like to thank all of our readers for a fantastic 2007. Our readership has grown by leaps and bounds over the year, and we just hit the 500 mark in subscribers. In any event, we look forward to delivering compelling, off the beaten path investment ideas in 2008.

*The author holds positions in BLMC, BWEL, MLP, PICO and PCL. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.

Potential Bargains in Profitable, Cash-Rich Double Net/Nets Part II

As a follow up to last weeks piece, here are an additional handful of companies trading at less than 2 times net current asset value that also meet the following criteria:

*Market Cap Minimum $100 million
*Price/Earnings Ratio less than 20
*Net Cash (cash less LT debt) is at least 20 percent of market cap


Silicon Image Inc
Ticker: SIMG
Price: $5.05
Mkt Cap: $425
NCAV: $222 million
Cash & ST Inv: $226 million
PE: 11

MKS Instruments
Ticker: MKSI
Price: $18.41
Mkt Cap: $1.04 billion
NCAV: $536 million
Cash & ST Inv: $360 million
PE: 11

United Capital Corp
Ticker: AFP
Price: $25.3
Mkt Cap: $210 million
NCAV: $116 million
Cash & ST Inv: $151 million
PE: 6

Heelys Inc
Ticker: HLYS
Price: $6.45
Mkt Cap: $175 million
NCAV: $121 million
Cash & ST Inv: $151 million
PE: 6

Nice to see some non-tech companies here; nothing against tech, but the truth is, your editor just isn't adept at tech (perhaps just not smart enough). As always, buyer beware. More often than not, companies are often cheap for very good reasons. What we've published here should be seen as the starting point, not a definitive list of must-have names.

*The author does not have positions in any of the companies mentioned. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.

Potential Bargains in Profitable, Cash-Rich Double Net/Nets

Occasionally, we take liberties with Ben Graham’s original formula used to identify companies trading below their net current asset value, and loosen the criteria a bit. (Truth be told, Ben would not have bought a company unless it traded for less than 2/3 NCAV, and even then, he would have had to be convinced the company had legs.) This week we’ll identify some of the companies trading at less than twice their NCAV, with the following attributes:

*Market Cap Minimum $100 million
*Price/Earnings Ratio less than 20
*Net Cash (cash less LT debt) is at least 20 percent of market cap

The objective is to identify companies that are not just potentially cheap, but also have levels of cash adequate to weather storms that may be on the horizon. As always, this is a working list that requires additional research and scrutiny prior to making investment decisions. Not surprisingly, many on the list are tech companies. Perhaps we’ll dig deeper into a couple of the more compelling names in the coming weeks.

ZYGO Corp
Ticker: ZIGO
Price: $11.29
Mkt Cap: $20
NCAV: $102 million
Cash & ST Inv: $41 million
PE: 19

Rudolph Technologies
Ticker: RTEC
Price: $11.95
Mkt Cap: $349 million
NCAV: $211 million
Cash & ST Inv: $121 million
PE: 17

Integrated Silicon Solution Inc
Ticker: ISSI
Price: $6.52
Mkt Cap: $246 million
NCAV: $161 million
Cash & ST Inv: $134 million
PE: 16

Eagle Test Systems
Ticker: EGLT
Price: $10.95
Mkt Cap: $251 million
NCAV: $141 million
Cash & ST Inv: $112.5 million
PE: 14

Cutera Inc.
Ticker: CUTR
Price: $15.14
Mkt Cap: $192 million
NCAV: $99 milliom
Cash & ST Inv: $100 million
PE: 13

Benchmark Electronics
Ticker: BHE
Price: $17.95
Mkt Cap: $1.28 billion
NCAV: $852 million
Cash & ST Inv: $379 million
PE: 13

Conn's Inc
Ticker: CONN
Price: $18.1
Mkt Cap: $420 million
NCAV: $244 million
Cash & ST Inv: $210 million
PE: 11

*The author does not have positions in any of the companies mentioned. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.

New Position: Avalon Holdings (AWX)


We viewed a recent pullback in the price of tiny Avalon Holdings (AWX), as an attractive entry point, and recently initiated a position.

We initally wrote about Avalon back in October, 2006, and found it an interesting and profitable combination of assets and businesses. The company currently owns 2 golf courses (Avalon Lakes Golf Course, Warren, Ohio, and Avalon Country Club, Sharon, PA) operates the Avalon Golf and Country Club at Squaw Creek in Vienna Ohio, and runs a waste management business, which accounts for more than 85% of operating revenue.

Strong Third Quarter
Revenue rose 9% to $12.1 million from the same quarter last year, and 20% to $35 million for the first nine months of 2007. Net income rose to 547K or $.14 per share vs, 501K and $.13 for the quarter, and to $1.262 million and $.33 per share vs. 984K and $.26.

The balance sheet remains strong with $6.741 million or $1.77 per share in cash, and just 232K in long term debt. Cash did decrease significantly from year end 2006, primarily due to cap ex related to improvements at the Sharon Country Club (acquired in October 2006).

Buyer beware, Avalon is a microcap, with little liquidity. Before taking a position in a company of this size, do your homework.


Avalon Holdings
Ticker: AWX
Price: $6.50
Mkt Cap: $24.7 million
Shares Out: 3.8 million (3.191 million Class A, 613K Class B)
Book Value/Share: $10.32 (no intangibles)
Avg Volume: 8800

*The author has a position in Avalon Holdings (AWX). This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.

New Life in the Land of the Forgotten: Ranks of Tiny, Profitable Net/Nets Growing

Call us strange, but we believe that a little market volatility can be a good thing. It helps wipe away market excesses, such as those that were the end result of credit that was too easy for too long, and poorly designed and misunderstood securities which have bankrupted many. (Notice, we did not use the “S” word)

We’ve whined for months about the lack of interesting companies—those worth further research—trading below their net current asset value, but recently, the situation has been looking up (or down depending on your reference point). We are beginning to see more profitable net/nets. Most are deep into the microcap space, but beggers can’t be choosers.

The criteria for this weeks net/net list is as follows:
Company profitable on a trailing 12 month basis
P/E ratio less than 50
Market Cap greater than $20 million


Company: Bexil Corp
Ticker: BXLC
Price: $31.15
Market Cap: $27 million
NCAV: $37.8 million
P/E: 42


Company: Forward Industries
Ticker: FORD
Price: $2.71
Market Cap: $21.1 million
NCAV: $24.6 million
P/E: 46


Company: GSI Technology
Ticker: GSIT
Price: $2.30
Market Cap: $65.1 million
NCAV: $66 million
P/E: 12


Company: Eternal Technologies
Ticker: ETLT
Price: $.59
Market Cap: $27.8
NCAV:$48 million
P/E: 4


Company: Atlantic Coast Entertainment Holdings
Ticker: ACEH
Price: $18
Market Cap: $179.4
NCAV: $220 million
P/E: 5
*Currently does not have an operating business, primary assets are cash

Good to see some unfamiliar names. We are also seeing a few other interesting companies that are not curretnly profitable. Perhaps we'll feature these in a furture post.

*Of the companies mentioned, the author has a position in Eternal Technologies (ETLT). This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.

Lazare Kaplan Update

As we reported in our 10/19 post, diamond company Lazare Kaplan announced in their proxy their intention- subject to shareholder approval- to buy out shareholders owning less than 101 shares in order to save the company an estimated $25000 per year in mailing, printing and other costs. We believed there was more to the story, namely that LKI's ultimate intention was to reduce shareholder roles to below 300, de-list, and in doing so, avoid both SEC filing and the prohibitive costs associated with Sarbanes Oxley compliance, while still trading publicly. That's where the real savings are for small companies such as LKI.

We hoped the company would address this on their recent earnings call. However, LKI's interpretation of the facts did not match ours. When describing the reverse and forward split, Chairman Maurice Templesman stated that once the transaction was complete, the company would have "750 shareholders of record for SEC reporting purposes, which is well above the number of shareholders for the company to continue to qualify as a public company".

Perhaps it's a matter of interpretation, or one of us does not have his facts straight, but we believe that following the reverse/forward split, the company will be well below 300 shareholders of record. This is what the prospectus had to say:

The Company has a stockholder base of approximately 2,500 stockholders, including approximately 1,709 registered stockholders.

As of September 14, 2007, approximately 1,644 registered holders of the Company’s Common Stock owned fewer than 101 shares of stock. On such date, these stockholders represented approximately 96% of the total number of registered holders of the Company’s stock, but owned only approximately 0.045% of the total number of outstanding shares of stock.

By our interpretation, following the split and buyout of small shareholders, there will be 65 registered shareholders. We believe that Templesman's 750 figure was referring to stockholders, not registered holders. If Charles Schwab, for example had 100 clients with positions in LKI, the shares are held in street name, and this represents 1 shareholder of record.

In any event, shareholders did approve the reverse/forward split, and it is set to occur on November 12th.

*The author has a position in Lazare Kaplan (LKI). This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.

Losing Patience With Tootsie Roll (TR)

Sometimes, as value investors, we become enamored with a good story. For Tootsie Roll, the story was a strong brand, very solid profit margins, and aging owners. Unfortunately, the company continues to stagnate under the leadership and control of the Gordon family.

We knew they might be an issue, but believed that at their ages, Ellen, 76 serving as President, and CEO Melvin, 87, would seek an exit strategy. We believed they would sell out, perhaps to Hershey (HSY), or Wrigley (WWY). This might still happen, but as shareholders wait, sales stagnate, margins erode, and opportunities are wasted.

Shares are down about 25% this year, as the broader markets have rallied, despite the credit crunch and subprime mess. Sales were flat from 2005 to 2006, and net profit margins, still very healthy at 13.3% for 2006, fell from above 15% the prior two years.

Third quarter results, typically the make or break quarter for Tootsie Roll, were disappointing. Sales fell 2% from the same quarter last year ($182.9 million, $186.4 million), and net income fell 19%, from $29 million, to 23.4 million. Net margins dropped from 15.6% to 12.8%. Nine month numbers are not any better. Nine month 2007 sales fell 2% to $377.7 million from $385.2 million. Net income fell 25% to $43.5 million from $54.2 million, net margins to 11.5% from 14.1%. Ouch!

Once again, Ellen Gordon cited higher ingredient costs, as well as unfavorable foreign exhange rates (From Canadian manufacturing operations) among the reasons for the shortfall.

Perhaps the Gordon's should consider taking a pay cut until they can right this ship. Their compensation for 2006 was $10,401,400 according to the company's DEF14A filing. This included salary, bonus, and "other compensation". The following is taken directly from the 14A:

(

2) The All Other Compensation column reflects the following benefits:

· For each of Mr. Gordon and Mrs. Gordon $1,536,767 and for each of Messrs. Ember, Newlin and Corr between approximately $1,000 and $4,000, reflecting premiums paid by the Company under the split-dollar life insurance agreements in 2006. The Company is entitled to fully recover these and all prior premium payments upon the death of the insured(s) or otherwise under the terms of the agreements. See “Compensation Discussion and Analysis—Split Dollar Life Insurance Agreements” for a more detailed discussion of the split-dollar life insurance agreements.

· The shared use of Company aircraft by Mr. and Mrs. Gordon, to travel between corporate headquarters and other locations where they maintain both executive offices and personal housing, in the amount of $503,900 for each of Mr. Gordon and Mrs. Gordon. See “Compensation Discussion and Analysis—Perquisites” above for a discussion of the reasons why the Company provides these benefits. Although the Board of Directors has approved these expenditures for Company aircraft as reasonable business expenses because of the actual and potential benefits to the Company, such expenditures are considered compensatory perquisites to Mr. and Mrs. Gordon under an SEC interpretation. The amounts included above reflect the aggregate incremental cost to the Company of travel between these locations by the Gordons, based on the proportion of hours flown for this travel relative to all hours flown. This calculation of aggregate incremental cost includes the proportionate amount of all operating costs and fixed charges (other than depreciation) such as monthly management fees, pilot charges, fuel, maintenance, insurance and other fees. In 2006 the Chief Executive Officer and the Chief Operating Officer also used Company aircraft for a minimal amount of personal travel, the incremental cost of which was $11,562 for each of Mr. and Mrs. Gordon, which usage has also been approved by the Board of Directors for security and other reasons.

· The shared use of a Company owned apartment when they are working at the Company’s headquarters in the amount of $60,993 for each of Mr. Gordon and Mrs. Gordon. The amounts in the table with regard to this item include one year of depreciation expense plus the out of pocket costs related to the apartment including real estate taxes, maintenance expenses, utilities and association fees. The Company believes that the cost of owning the apartment over time has been substantially offset by appreciation in the real estate.

· The following amounts contributed by the Company for the benefit of the named executive officers in 2006 under the Company’s pension plan, profit-sharing plan and EBP: $24,991 for each of the named executive officers with respect to the pension and profit sharing plan; $220,993, $209,235, $102,127, $154,434 and $147,522 for Mr. Gordon, Mrs. Gordon, Mr. Ember, Mr. Newlin and Mr. Corr, respectively, with respect to the EBP; and $147,000, $204,000, $197,000 for Mr. Ember, Mr. Newlin and Mr. Corr, respectively, with respect to the CAP.

· Amounts with respect to the costs of personal use of automobiles provided to each of the named executive officers other than Mr. and Mrs. Gordon and, for them, amounts with respect to their shared use of an automobile and driver based on all direct costs of maintaining and operating the automobile and the proportionate cost of the portion of an employee’s time used for driving.

By the way, the Gordon's total compensation for 2006 represented 15.78% of company net income.

What's a Shareholder to do?
Shareholders are evidently voting with their feet, given Tootsie Roll's stock price decline. They see little recourse, as the Gordon's control about 80% of the companies Class B shares, (this class has superior voting rights), and 40% of the common shares. Perhaps a continued slide in company operating performance and stock price will force the Gordon's to act as they see their fortune decline. We hope it does not take that. This could be a great company.

*The author has a position in Tootsie Roll Industries (TR). This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. The author will not trade any of the securities mentioned (buy, sell, short) for at least two weeks following the date of this post.