Leucadia Reinvents Itself, Again

 | Jun 17, 2013 | 12:00 PM EDT
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Leucadia National (LUK) may never be popular with investors.

The conglomerate barely communicates with Wall Street, and when it does, it's in such minimalist fashion that it makes tight-lipped basketball coach Gregg Popovich and terse football coach Bill Belichick look like chatterboxes.

It also offends the typical investor because it doesn't try to maximize current earnings. It is forever buying troubled companies, fixing them up and selling them or spinning them off. Leucadia is an asset player, sometimes referred to as a light version of Berkshire Hathaway (BRK.B)

In November 2012, it announced that it would take over brokerage house Jefferies & Co., paying $2.8 billion for the 71.4% of the company that it didn't already own.

In December 2011, it struck an $868 million deal to acquire a controlling interest in National Beef Packing Co., the fourth-largest U.S. meat packer. Those two units now account for the bulk of revenue.

Recent sales include Keen Energy and the last of Leucadia's highly successful investment in Fortescue Metals of Australia.

Investors seem skeptical of Leucadia, perhaps because they are wary of a beast with which they are unfamiliar. Leucadia shares trailed the S& 500 by 23 percentage points in 2011 (including reinvested dividends), and by 10 percentage points in 2012.

Long term, it's a different story. For the 10 years ended in May, Leucadia shares returned 170%, beating the S&P 500 by about 63 percentage points. And the stock is doing OK this year, up 20% through Friday's closing price of $27.76 and about five points ahead of the index.

Jefferies had to fight off bankruptcy rumors before Leucadia came to its rescue, but I thought those rumors were exaggerated. As far as I can tell, Jefferies was a well-run brokerage house. As a money manager, I have always found its research to be above average.

The make-up of the company has changed lately. Richard Handler, who was the CEO at Jefferies, is now chief executive at Leucadia. Co-founder Joseph Steinberg, who was Leucadia's president from 1979 through March of this year, is chairman.

Unglamorous and unconventional as it may be, Leucadia strikes me as a good buy. It sells for barely over book value (corporate net worth per share), 11x earnings and 0.8x revenue. By contrast, the 10-year medians for Leucadia are about 1.4x book, 24x earnings and about 5x revenue.

I have owned Leucadia shares personally and for clients in the past but I currently have no positions, though I may in the future.



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