Few assets have been more interesting to me as a value investor than real estate. Whether it's agricultural land, restaurant- or retail-owned locations or some other kind of real estate play, these situations often demand a deeper look.
Of course, real-estate-heavy stocks don't always work out -- look no further than Sears (SHLD) or J.C. Penney (JCP). Both sparked big excitement in value-investing circles in recent years primarily due to their real estate holdings, but neither panned out.
Personally, I prefer to look at more off-the-beaten-path names anyway, as I want real estate stocks whose stories aren't as well-known to the market. A handful of these have my attention at this point, including some that the market has recently beaten down.
One such stock is Alico (ALCO), a Florida agricultural-land play. Formed as a spin-off of the Atlantic Coast Railroad Co. in 1960, Alico currently owns some 121,000 acres of land in 12 Florida counties. That's the equivalent of 190 square miles of holdings, or three times the size of Washington, D.C.
Nearly 40% of Alico's land consists of citrus groves. In fact, a recent acquisition has made the firm one of America's largest citrus producers. ALCO is also involved in cattle production, sod and plant sales, rock mining, land leasing and oil exploration. (The company owns the mineral rights to 90,000 acres of land.)
I owned ALCO for several years before selling my stake, but the stock is back on my radar screen now in part because it's plummeted some 40% since November.
On the plus side, ALCO's revenues rose 47% to $153 million last year, while earnings shot up some 74% to $15.7 million for a solid 10.3% net profit margin.
But on the downside, the past two quarters have been rough on the firm. Alico recently revealed that due to pest issues and weather problems related to El Nino, it expects orange production to tumble 29% to 69 million boxes this year from 96.8 million boxes previously.
That certainly explains ALCO's depressed stock price, although one of the pitfalls of owning agricultural stocks is that you're at the mercy of the weather (and at times, pests). But in my opinion, this isn't a permanent problem that will denigrate the company's underlying assets in the long run.
And while Alico does have more than $220 million in debt, the company issued much of that to finance a major land acquisition.
The Bottom Line
I'm not ready to pounce on Alico yet, because I believe that the stock could fall further from here.
But ALCO is nonetheless firmly back on my radar screen. I see other value plays in real estate out there as well, and I'll explore some of these in future columns.