I have one more 13F filing to talk about before we move on to other activities. As predicted, all the big filings have been dissected and discussed on all the major business media outlets, so I do not see any point talking about those.
I read them. They have some interesting information, and you should read the filings, or articles about the filings of Einhorn, Buffet, Loeb and others, but my real value is the filings of the good investors no one else is talking about.
Having been around for almost 30 years, I know who most of the players are and who is worth following. For pretty much all of those 30 years, Michael Price has been worth following and I have been doing so since the dark days when we actually had to wait to get a copy of the filings in the mail.
He is not quite the media rock star he used to be when he was managing tens of billions of dollars, but he is still a very solid investor managing his own partnership. He is a fan of the trade of the decade and has been a buyer of community banks almost consistently the past few years. In the second quarter he added Kearny Financial (KRNY), SI Financial (SIFI) and Towne Bank (TOWN) to the portfolio. I like all three of these and will be a buyer on a big down day.
One of the more interesting positions is his new stake in Wheeler Real Estate Investment Trust (WHLR). This is a bit of a special situation, as it just did a preferred stock offering of $83 million and then swapped that for common equity at $2 a share. Wheeler buys grocery anchored shopping plazas in secondary markets where there is not much competition from bigger REITs and investment firms. It is able to acquire properties at what it describes as a discount to replacement value and earns higher yields than it would be able to do by finding larger, more crowded markets around the United States.
The current portfolio is 38 shopping center and retail properties, eight undeveloped land parcels, one redevelopment property and its own home office building. About 90% of the shopping centers have a grocery store tenant and about 25% of the space is taken up by service providers like dry cleaners, restaurants and health care offices that will see regular traffic. The average remaining lease life is almost five years, and the grocery leases have an average life of more than six years. The REIT has an occupancy rate of about 95% right now. This one is going right to the top of the deeper dig pile.
Mr. Price was also a buyer of Universal Stainless and Alloy Products (USAP) in the quarter. The company is a classic deep value stock, with the shares trading at 50% of tangible book value. The balance sheet isn't too bad, with a debt to equity ratio of just 0.45 and a current ratio over 5.0. However, a glance at the difference between the current ratio of 5.4 and quick ratio of 1.6 tells us that a lot of the current assets are inventory.
A quick look at the balance sheet shows that $99 million of the $140 million of current assets is inventory; since that inventory is stainless steel, nickel alloys, tool steel and other alloyed steels, Universal Stainless is going to need to see a pickup in orders from key industries like aerospace, power generation, oil and gas, as well as heavy equipment manufacturing. That's a tall order in the current economic environment. CEO Dennis Oates described the conditions the company is facing in a recent press release saying "Our current backlog points towards a challenging third quarter and we have taken steps to reduce spending in line with lower activity levels, and to improve yields and generate cash."
I am intrigued by the company, as it is very cheap, but am not quite ready to step up just yet. I already have a pretty good inventory of very cheap companies that are badly in need of an economic recovery.
Mr. Price was a buyer of one of those. It will work when the economy finally recovers, but will test your patience until then. He added to his position in shares of Resolute Forest (RFP) products during the second quarter. Resolute's main business lines are newsprint, specialty papers, market pulp, and Wood Products, all of which need a much stronger economy to thrive. When that happens, this stock will make us a lot of money, but there is no way of knowing when that finally happens. If you do not own it you should probably buy some, with a very long time frame in mind.
Michael Price has been making money in the stock market for decades. He continue to excel and his filings should be required reading for long-term, patient investors.