As 2015 comes to a close, it's prime time to survey the landscape of companies that got beaten up this year to look for value.
This year's losers might not become 2016's turnaround stories, but there are certainly some downtrodden stocks that rate checking out. Sometimes markets punish companies beyond what they deserve -- prime hunting ground for value investors.
One of the biggest losers I've seen this year is mini-conglomerate PICO Holdings (PICO), a firm I once called "The Poor Man's Berkshire Hathaway" (BRK.A, BRK.B).
I held PICO stock about a dozen years ago, when it owned substantial amounts of former railroad land and a vast array of water rights (among other assets).
The stock was tremendously undervalued then, but later rallied to $47 in 2007 from just $12 a share in 2003. It's bounced around ever since, and while I haven't owned the stock for a couple of years, I've continued to follow its progress (or lack thereof).
PICO's recent performance hasn't been pretty. Shares have fallen 47% so far this year and the stock is back to 2002 levels.
This definitely isn't a situation where "buy and hold" would have worked, nor is this the same PICO that I owned many years ago. That PICO purchased assets it saw as cheap and later sold them to fund its next venture, scoring some successes along the way.
Management at the time focused not on the traditional metric of earnings, but on boosting book value instead. That confused investors -- but when it worked, no one cared.
But PICO's strategy eventually stopped working. Book value stopped growing and many investors threw in the towel.
The company has since sold all of its railroad land, as well as its interests in a couple of insurance companies that had significant investment portfolios. PICO eventually made a foray into agribusiness by buying a canola-oil plant, but that was a bust and has been sold, too.
What remains are basically two businesses. First, PICO owns 57% of UCP Inc. (UCP), a land developer and homebuilder that trades as a separate stock. PICO also owns Vidler Water Co., a water-resources business.
PICO's book value per share -- management's traditional measure of success -- has fallen to $15.08 as of the last quarter, down from $27.84 as of Dec. 31, 2009. The stock currently trades at just two-thirds of book value, as well as just above tangible book value per share.
Overall, it appears as if the market has all but given up on PICO, which is usually the time I get interested unless insolvency is on the horizon.
There are already a couple of activist investors on the scene. For instance, River Road Asset Management owned 8.5% of PICO as of Sept. 30 and has already flexed its muscles with management.
River Road urged the company to sell the canola-oil business and use the proceeds to buy back shares or pay a special dividend, which PICO did. The company announced a $50 million stock buyback last month. Other changes included cutting the CEO's base salary, which had been a long time in coming.
Another activist investor is Central Square Management, which owns a 5.7% PICO stake and is pushing management to sell more assets. Central Square believes UCP Inc. is worth $14 a share (about twice the current market price), which would value PICO's 57% stake at about $63 million. The activist firm also believes that Vidler is worth well more than its current $203 million book value.
Yet despite all of the above, PICO's shares have fallen to a level that I once again consider intriguing. But consider yourself warned -- success will only come from asset sales, not from any potential operating earnings.