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Value Investing Congress: The Case for Owner-Operators

Chris Preston

Chris Mayer kicks off Day Two of the Value Investing Congress.

As editor and founder of Capital & Crisis, Mayer is the lone newsletter publisher scheduled to speak at the two-day conference. Since he founded Capital & Crisis in 2004, the newsletter’s recommendations have average a solid 16.7% annual return.

In this morning’s speech, Mayer talked about the advantages of “owner-operated” companies – Howard Hughes (NYSE: HHC) with Bill Ackman and Covanta (NYSE: CVA) with Sam Zell are a couple examples. However, Mayer’s stock recommendation today is from a sector he particularly likes right now – banks.

His reasons for liking banks are fairly simple:

  • Bank stocks have low valuations based on price to tangible book value
  • Because of consolidation, there are a lot less banks these days
  • Takeover prices are on the rise, averaging 140% of book value this year

One example of a bank stock Mayer likes is Charter Financial (CHFN), a Georgia-based bank that he dubbed a “dividend machine.” The company has paid $16.80 per share in dividends since going public in 2001. It currently pays a quarterly dividend of 5 cents per share, and earlier this month paid a 25-cent special dividend.

Mayer believes Charter Financial’s downside is low, but he’s unsure what the upside is. Because of that, he only likes the Charter Financial as an EXAMPLE of the type of bank he looks for. Really, Mayer says, investors should buy a basket of stocks – banks or otherwise – that have similar profiles to Charter Financial.

One such stock is Pulse Seismic (TSX: PSD).

Pulse Seismic is a Canadian-based company that provides data and maps to natural gas explorers. It has free cash flow of 47 cents per share, very little debt, and is trading for less than 10 times free cash flow. It currently trades on Toronto Stock Exchange for just over $4 per share.

And like Charter Financial and some of Mayer’s previous examples, Pulse Seismic is an “owner-operated” company.

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