Back in July, I was lamenting that I'd missed ou" on a couple names that I'd considered buying in a pullback. Two of them -- Fogo De Chao and Manchester United (MANU) -- never got all that close to my miserly price targets. Fogo was acquired, while MANU has enjoyed a solid run to an all-time high. A third company, confusing conglomerate Valhi VHI, has fallen below the $4 buy price, but I have not jumped on that one, either.
Instead, I recently took a position in NL Industries (NL) , which is a subsidiary of VHI that is trading in the mid-$7 range. NL is a potential sum-of-the-parts story, owning shares in three publicly traded companies -- Kronos Worldwide Inc. (KRO) (35.2 million shares), CompX International Inc. (CIX) (10.8 million shares) and (VHI) (14.1 million shares). The total current market value of those holdings is about $885 million, while NL's current market cap is just $368 million.
While that may seem like a no-brainer, the math is a bit more complicated due to the way the some of the assets are accounted for, but suffice it to say the sum of NL's parts appears to be worth about twice its current value.
Unfortunately, there has been an overhang on NL for years regarding its sale of lead paint prior to the ban that began in 1978. But after a nearly 20-year legal battle with 10 California counties, the company agreed to settle the suit for $60 million. NL does have the cash on hand to pay for this settlement, ending its latest quarter with $111 million, or about $2.25 per share, in cash.
Overall, however, markets have not warmed up to the name. While NL shares did pop 27% the day the settlement was announced on May 16, they since have given all that gain back. Each of the companies in which NL has a stake has fallen the past several months. Since NL reached the settlement, Kronos is down 20%, CompX has fallen 12%, and VHI is off more than 50%. Considering NL's ownership stakes in those companies, NL will rise and fall based on how those three stocks are faring.
NL currently trades at less than 4x next year's consensus estimates, though because the company is followed by just one analyst the term "consensus" is rather misleading. Still, with little interest among investors, NL continues to plod along, unloved and unnoticed -- just the type of situation that I can find compelling.
It's certainly not without risk, however. I'm sure some investors immediately would be turned off upon finding out the name the company used from its 1891 founding until 1971: National Lead Company.
