I've long referred to PICO Holdings (PICO) as the "Poor Man's Berkshire Hathaway" (BRK.A, BRK.B), but the only truth remaining in the statement is that long-term PICO stockholders have probably become poor. That's because problems continue to swirl at the company and the stock is trading near an all-time low.
PICO, which owns homebuilding and water-resources assets, is a name that I've been uncharacteristically in and out for years -- but with good reason. The stock has been a major disappointment, with any flashes of brilliance eventually giving way to skepticism.
There is value there, as PICO currently trades at just 0.62x book value per share. However, my hopes that the company would unlock this value have long since faded.
Pico has usually looked good on paper, with a compelling array of assets. But it's failed to deliver on growth in book value per share, which management has said is the company's primary measure of performance. Book value per share has actually fallen every year since 2009, when it stood at $27.84. Since then, it's dropped all the way down to $15.08.
What first attracted me to the name more than a decade ago was Pico's combination of land and water assets. But the company has since sold off most of its land, although Pico retains a water-resources and storage-operations business. It also maintains a 57% interest in UCP Inc. (UCP), a homebuilder and land developer.
However, Pico made a major misstep a few years ago by unsuccessfully buying into the canola-oil business -- an error that I believe has heavily weighed on the stock. Although the firm eventually sold off its canola-oil stake, the venture did great damage to Pico's former reputation as a proficient capital allocator.
Why even continue to follow Pico? Simple -- there might be big changes afoot due to activist investors. For instance, River Road Asset Management owns 8.3% of the firm and successfully pressured Pico into both dumping the canola-oil business and instituting a stock buyback.
Central Square Management likewise holds 5.4% of the stock and is pushing Pico to not only sell more assets, but also to alter management compensation and make changes to the company board. PICO did replace two resigning directors last month, but Central Square was disappointed both by its lack of input and the new directors chosen.
Enter Leder Holdings LLC, which owns 1.4% of the company. Leder is asking PICO investors to convene a special shareholders' meeting to replace four of the company's seven directors.
Management issued an unfavorable response yesterday, but it'll be interesting to see where this goes. Pico's next scheduled analyst call on March 15 could be a real barn-burner.
The Bottom Line
One of value investing's greatest dilemmas is that for a company to realize its underlying value, it must have the ability to convert its assets into cash.
Pico has largely failed to do that over the years, but activist pressure might finally force management's hand -- providing a potential catalyst to unlock whatever value is left.