Leucadia Is Looking Good - Barron's

With both savvy management and cheap assets, Barron's Andrew Bary says Leucadia National Corp. (LUK) may be the closest thing to what Berkshire Hathaway (BRK.A) was 20 years ago.

Invested in a diversified portfolio of stocks and businesses, Leucadia has generated impressive returns and gained dedicated fans amongst value-oriented investors. Its shares, however, are down 60% since the end of September.

Some investors fear that Ian Cumming and Joseph Steinberg, the duo that have run the company for the last thirty years, have lost their touch and point to declines in many of Leucadia's key equity holdings. Given recent market declines, Leucadia's book value has probably fallen close to $20/share, and investors tend to value the company on book value, rather than earnings, because most of its worth lies in investments. But fans defend the stock, saying it's oversold and could rise from its current $18.55/share to $30 in the next year if equity holdings turnaround and the company displays its old stock-picking magic once again. With Cumming and Steinberg signed on through at least 2015, many holders are buying as much into the investment acumen of those two individuals as into the company itself.

Like Berkshire, the company believes in a strong balance sheet. As of the end of September, Leucadia had $8.4B in assets and $2.6B in debt and other liabilities. It had about $500M in cash and cash equivalents, and will not be paying out dividends this year. Unlike Berkshire, Leucadia tends to focus on speculative companies rather than operating businesses, which has hurt profits during the current economic downturn. Still, Leucadia presents an attractive play on its depressed investments and on the ability of Cumming and Steinberg to continue to find new investments.

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• In December, Leucadia's board of directors eliminated 2008 dividend payments because of current market conditions and the weakening economy. The company had last paid a dividend of $0.25 in December 2007.

Comments

[auto44:]

I was ready to buy this stock until I noticed that one of the folks running this outfit dumped a large block of stock shortly before it tanked. Never seen Warren do that.

2008 Dec 07 11:40 AM

[swaps:]

I actually worked for Ian Cumming years ago when he ran a Utah land development and homebuilding company. (Lenders had placed him in charge and it eventually filed for bankruptcy and Cumming took over Talcott Factoring which morphed into Leucadia.)

He's had quite a run and he is brilliant and I note that he has made his riches from growing the company and modest stock options, unlike another top boss i worked under several rungs down the ladder - Dr. John Malone, who essentially became a billionaire by skillfully diverting stockholder equity into his pocket.

The question that is unanswered for Leucadia is whether they can match their record for another 30 years since they will both be in their 70s in 20015 and who knows what the succession plan is.

I just wish I had secretly taken a photo of Ian and stashed it away to sell to publications like Barrons that lamented they could not find one.

2008 Dec 07 07:57 PM