Whenever you get a bunch of great investors in a room, you are almost certain to walk away with a solid idea or six, and last week's Value Investing Congress in Las Vegas was no different. I was not able to attend, but thanks to the Internet, we can still steal the ideas. In addition to the stocks I covered yesterday, I came across a few ideas that might be of interest to value investors, in general, and income investors, in particular.
Eric Anderson of Western Standard presented three ideas, one of which has a fantastic yield in addition to the upside potential. Anderson has a background in investment banking and private equity, which he uses to find small companies that are off Wall Street's radar screen. He suggested we might want to take a look at OFS Capital (OFS), a busted business development company IPO.
The company sold off after its initial public offering (IPO) because it lost its license to make loans under the Small Business Investment Company created by the Small Business Administration. According to Anderson, that license was restored in December. The fund is externally managed but the management company has a vested interest in succeeding as they won 30% of OFS. The CEO directly owns 10% of the firm. The shares are trading around 87% of net asset value and they yield 10.8% at the current price, so it is worth deeper investigation.
John Lewis of Osmium Partners presented one of the most intriguing ideas that I saw in the various reviews and write-ups covering the conference. He suggested investors take a look at a company called Intersections (INTX). The company provides subscription based consumer protection services in the U.S. and Canada. They offer identity theft protection and credit information management products as well as services for consumers to access to their credit reports and credit monitoring. The company sells its services primarily through banks -- Bank of America (BAC) is the biggest reseller of Intersection's services. The company also has a division that offers data management, bookkeeping, accounting, reporting and decision making tools for the bail bond industry.
Its newest product is a device that monitors a pet's activity and health level. It was actually in the swag bags given out at the Oscars this year and that placement could help launch the device. The company also recently launched a new premium product called SafeConnex, which helps prevent identity theft by providing secure log-in, credit-card auto fill and secure web browsing services.
According to Lewis, management and the board own 50% of the company so they would seem to have the same objective as outside investors. They are very generous with their dividend policy and the shares currently yield more than 14%. The stock trades at 97% of book value, so it is getting cheap on an asset basis. Lewis thinks the stock can double from its current price. With the generous dividend payout, this would add up to an impressive total return over the next several years.
Chris Mayer has a newsletter called Capital and Crisis and has had a decent track record since 2002. He suggested investors consider Cherry Hill Mortgage Investment (CHMI). The mortgage real estate investment trust (REIT) went public in October of 2013 and the stock is now trading below its $20 offering price. The firm partners with a private mortgage originator, Freedom Mortgage Company, which owns about 13% of the REIT. Cherry Hill has an agreement with Freedom that provides a steady flow of excess mortgage servicing rights that have been valued by a third party.
According to Mayer, excess mortgage servicing rights go up in value when interest rates rise. This makes CHMI an interesting idea for income oriented investors who are concerned about rising rates over the next few years. The shares trade at 85% of book value and yield 10.7% at the current price.
These ideas are all intriguing as cheap, high-yielding opportunities. However, please do your homework before rushing out to buy them. Everyone, even the high caliber investor who presented at the Value Investing Congress, can make mistakes. They may not have the same objectives and investment criteria that you are using. Steal the idea, but do the homework.