Getting Cheaper

 | Aug 22, 2011 | 2:00 PM EDT
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It's hard to believe that the latest roller coaster ride that Mr. Market is taking us on is happening during the time of year that much of the country (and other parts of the world for that matter) are in slow mode.  In the U.S., August is traditionally a very popular vacation period, a time to get away from the hustle and bustle in order to recharge.  Unfortunately, for many this year, the only recharging that's being done is to make sure that the BlackBerry or laptop don't die, because we must follow what's happening in the markets at all times during such a tumultuous period, whether we are on vacation or not.  Sometimes I wish that the markets were open just three days a week, at least during the summer.  (On second thought, what fun would that be?)

As each new trading day brings with it more carnage, I'm beginning to see some names that are being pounded mercilessly -- perhaps harder than they deserve.  While I'm not rushing out to buy these or any other names at this point, the time comes when enough is enough, and companies are screaming, "Buy me!"

PICO Holdings (PICO), a mini conglomerate with a nice assortment of water, real estate and other assets and a longtime holding, is one such name.  Shares are down 28% year-to-date and currently trading at a 30-month low.  Even during the worst of the late-2008/early-2009 market debacle, shares briefly touched the $18 range in November 2008 -- that's the worst it got for PICO -- before rebounding to $31 by the following March.

PICO, which currently trades at just 0.93 x tangible book value per share, had $107 million in available for sale investments and $102 million in cash on the books as of the latest quarter-end.  That's $209 million in cash and investments, or $9.20 per share, for a company with a current market cap of $520 million.

The company has been viewed with skepticism by some that see it as a value trap and others that have questioned whether management compensation is excessive.  Adding fuel to the fire has been the company's most recent venture, an 88% stake in a canola processing plant in Minnesota, in which PICO has invested $60 million in December2010.  While it's too early to tell how that venture will play out, it has probably added a degree of uncertainty among investors that are already confused about the company.

Earlier this month, PICO reported that second-quarter revenue more than doubled to $16 million, and the company earned $2.1 million, or $0.09 per share vs. a $2.5 million loss (-0.11 per share) for the same quarter last year.  That's the first quarterly profit the company has booked since fourth quarter 2009.  Unconventionally, the company measures success not by earnings but by growth in book value, a concept foreign to many investors.  Not helping the company's case, however, is the fact that book value has been falling a bit since 2007 and is currently stalled at 2009 levels, and the shares have been punished.

Still, trading at less than tangible book value, with compelling water and land assets, two insurance companies in run-off, a 32% stake in Spigit, and a relatively large portfolio of cash and securities, I continue to believe there are better days ahead for PICO.

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