Is Loews Corporation the Next Berkshire Hathaway?

It is too late to invest in Berkshire Hathaway (BRK.A) (BRK.B) and expect the same results as the past 30 years. But is there anything in the stock universe that resembles the next Berkshire? The closest company that I could find is Loews Corporatio (LTR).

First, the similarities.

Both BRK and LTR are centered around their insurance operations - BRK with General RE, Geico, etc. and Loews with its roughly 90% stake in CNA Financial Corporation (CNA). Why is this important? Basically, the insurance operations allow these companies to collect premiums and wisely invest the proceeds before claims are paid out. Second, both management teams seem to be master allocators of capital.

With BRK, the track record speaks for itself. With LTR, the company has investments in many cash generating businesses that fly under the radar of Wall Street. These businesses include a wholly owned hotel business and a wholly owned natural gas business, and majority ownerships of a pipeline (Boardwalk) and offshore driller (Diamond Offshore). In addition, the company owns a cigarette business with has a tracking stock named Carolina Group. Loews plans to spin-out this business as some point in 2008.

A final similarity between the two companies is that management has huge ownership positions and as a result have been shareholder focused.

Now, the differences.

Warren Buffett has a tendency to buy entire companies and let management run those companies. Loews also lets different managements run the various businesses; however, Loews doesn't always own 100% of these businesses. In some ways, it makes the company more difficult to value and results in the holding company (LTR) trading at a discount to the sum of its parts.

Other more subtle differences between BRK and LTR is that LTR pays a small dividend and has historically split it's stock (the last one being a 3 for 1 split in May 2006). BRK is famous for both not paying a dividend (Mr. Buffett would rather invest the money) or splitting the stock (note the $100,000+ share price). For LTR to reach BRK status, it is my opinion that they would need to dramatically expand their insurance operations. They could easily buy some other mid-tier insurance companies - Allegheny (Y), Markel (MKL) and Endurance Specialty (ENH) all have good management teams and would look great under the LTR umbrella.

Needless to say, with the financial markets in distress, LTR's management will soon put its excess capital to work. Although I find it unlikely that they would buy another insurance company, it will be interesting to see their next move.

Disclosure: I am long LTR and continue to buy more shares at these levels.

Comments

[helplessobs...:]

They recently sold Bulovia Watch so have several hundred million more to invest, probably in the energy sector. Diamond Offshore grosses 400-500K per day on their deep water rigs while expenses are around 100K. Bookings go out 3-5 years. Jim Tisch also requires DO to pay a nice dividend enhancing shareholder returns. These guys are sharp cookies. In the '70 daddy Larry Tisch bought oil tankers for 10 cents on the dollar and made a killing for LTR. A young Jim still remembers walking around on the steel decks of their tanker fleet.

2008 Feb 24 09:53 PM

[Chungst:]

"In some ways, it makes the company more difficult to value and results in the holding company (LTR) trading at a discount to the sum of its parts."

Making such a statement by itself does not prove the statement. Can you supply valuations to support your assertion? It would be nice to see what valuation metrics you used and to compare those with BRK.

Thanks.

2008 Feb 24 11:40 PM

[Dan Braem:]

Chungst - thanks for your comments. Here is my back of the envelope calculation, much of which is based on the FMV of the publicly trade subsidiaries:

Boardwalk 1.7B
CNA 6.7B
Lorillard 4.0B
Diamond 8.3B
Highpoint 4.0B (cost)

Total 24.7B. LTR is currently trading at 22.7B. Also, these figures do not include other net cash and investments held at LTR. Barron's did an article on this several weeks (months?) ago - if you are interested in the company, it is a good read.

Total

2008 Feb 25 09:53 AM

[cuznbruce1:]

I always enjoy a good article about Loew's and it does me proud to know that my Mom and Bob and Larry Tisch were cousins. Bob and Larry were the artictects that set this Company in motion and they have done well in bring their kids into the businesses they have bought or created. LTR is and always will be a great investment vehicle for value / growth investors.

But, I do not think it will be the next Berkshire Hathaway. The next Berkshire Hathaway is a relative newcomer named Enstar Group Ltd. ESGR. Enstar Group is the almost perfect clone created by J. Christopher Flowers from the ashes of Enstar Group which rose from the ashes of Bankruptcy 10 years ago with $80Million+ Cash and tons of NOL's and Tax Credits. Since coming on board, Flowers has essentially created earnings to handily do away with the tax credits and NOL's and has built, and continues to do so, a financial machine capable of making money in any financial environment, currency or part of the world. Insurance Companies are his specialty...run-offs in particular...but he also likes distressed assets and misunderstood or mispriced companies. He owns, either directly or through several operating / investment vehicles, entire or parts of casualty, auto, life insurance companies and an old line securities brokerage firm.
Enstar is his lead vehicle and he owns over 20% of the stock. ESGR serves as a sourcing point for all deals done.

Enough blubbering about this company. Do your homework and let me know what you think. When buying stock, be careful with entering orders as the stock is thinly traded.

Yes, I own stock in ESGR and have been an owner since 1995

2008 Feb 25 10:44 PM

[cuznbruce1:]

Oh by the way...ESGR was up $7.00+ today

2008 Feb 27 10:07 PM