Of the gurus we follow at GuruFocus six have publicly traded companies that are directly affected by their investments. So far I have discussed Warren Buffett (Trades, Portfolio)’s Berkshire Hathaway (BRK.A), Carl Icahn (Trades, Portfolio)’s Icahn Enterprises (IEP), Ian Cumming (Trades, Portfolio)’s Leucadia National (LUK), and Prem Watsa (Trades, Portfolio)’s Fairfax Financial (FFH:TSX, FRFHF). The next stock I am discussing is Jim Tisch’s Loews Corp (L).
Guru
Jim Tisch was born in 1953 and has been CEO of Loews since 1998. He is a co-chairman of the company along with his brother, Andrew, and cousin, Jonathan. Jim majored in economics at Cornell University and earned his MBA from the Wharton School of Business of the University of Pennsylvania. He worked at CNA, a Loews subsidiary, before joining Loews in 1977. He had his father, Laurence, to learn from when it comes to value investing. His father started by buying a hotel and turning it into a successful business. Jim Tisch has a reputation for being a contrarian investor that buys assets at fire sale prices at the right opportunity. In a presentation for investors he listed Loews criteria for potential acquisitions as:
- Businesses with long term staying power that thrive through cycles.
- Undervalued assets with ability to generate strong cash flow.
- Open to most industries but tends to avoid those with material obsolescence risk.
- Loews operates as a patient, value-oriented investor, that is not limited to a five-year time horizon.
Company
Loews Corp (L, Financial) has long been guided by the principles of value investing. Over the past half century, the value of Loews stock has increased at a compounded annual growth rate of 16 percent, more than double the returns of the S&P 500. Loews started out as a chain of movie theaters. Jim Tisch’s father and uncle, Laurance and Robert, bought a large stake in the theater company in 1959 and gained control of the company in 1960. The funds came from the Tisch’s profitable hotel business. They were attracted to the underlying real-estate assets that were believed to be undervalued. The brothers soon diversified the company by acquiring Lorillard in 1968, CNA Financial in 1974, and Bulova Watch Company in 1979. The template was set for Loews to find distressed or cyclical assets offered by motivated sellers, gain control and sell off unrelated businesses to earn back the original investment. The company is now made up of five subsidiaries, three public and two private. The three public subsidiaries are CNA Financial (90% owned), Diamond Offshore Drilling (50.4% owned), and Boardwalk Pipelines (53% owned). The two private companies are Highmount Exploration and Production (100% owned) and Loews Hotels and Resorts (100% owned).
Loews states they create value through effective capital allocation by:
- Repurchase Loews shares.
- Invest in our subsidiaries.
- Make opportune acquisitions.
- Build our capital position.
Top 5 Holdings (as of 12/31/2013)
| Top 5 Holdings (as of 12/31/2013) | Value ($Thousands) |
| CNA Financial (CNA) | $10,281,873 |
| Diamond Offshore Drilling (DO) | $3,488,406 |
| Boardwalk Pipeline Partners LP (BWP) | $1,766,997 |
| General Motors (GM) | $42,322 |
| Microsoft (MSFT) | $39,746 |
Conclusion
On a book value basis, Loews is greatly undervalued at a price-to-book (P/B) of 0.89. Just the public subsidiaries alone, plus cash and investments net of debt, is valued at a higher price than Loews stock. Buying Loews’ stock equates to getting their public subsidiaries, cash, and investments at a discount, along with getting Loews Hotels and Highmount for free. To value the hotel group I am using the Penn State Index of U.S. Hotel Values. The index shows that the value per room of a luxury hotel is $377,498. The Loews Hotel group has 8,292 rooms, giving it a value of $3.13B. As for Highmount Exploration and Production, exploration and production companies are trading at an average price-to-sales (P/S) of 2.42. Highmount’s revenue for 2013 was, $259 million, giving it a value of $609.84 million. Below is a table adding up to value per share attributed to Loews’ stock.
| Holdings Value Per Share of Loews Stock | |
| CNA Financial (CNA) | $26.71 |
| Diamond Offshore Drilling (DO) | $8.61 |
| Boardwalk Pipeline Partners LP (BWP) | $4.78 |
| Loews Hotels & Resorts | $8.06 |
| Highmount Exploration & Production | $1.61 |
| Cash and Investments Net of Debt | $7.86 |
| Total | $57.63 |
| Stock positions calculated close of 4/9/14 | |
| Cash and Investments Net of Debt position as of 12/31/2014 | |
The stock closed at $44.54 on 4/9/2014. Based on the company’s holdings, the stock is trading at a minimum discount of 22%. The company listed “Repurchase Loews shares” at the top of its list of ways to create value through effective capital allocation. Over the past 10 years, the share count has been reduced from 556.5 million to 388.2 million, a 30 percent decrease in shares outstanding.
