In my previous article, which can be found here, I detailed why I believe that Resource America (REXI) is extremely undervalued. Since that article, there have been two developments that have reinforced my belief that Resource America represents the chance to own a company that will without a doubt outperform the broader market in the years to come.
First, on 6/18 both Resource America’s chairman and Resource America’s CEO each bought $1.5 million shares of Resource America in the open market. This brings the total value of shares purchased by insiders to over $3.75 million since March of 2008. Resource America’s chairman and Resource America’s CEO now own close to 15% of the entire company. This kind of insider activity would be significant under any circumstances. However, it is even more significant in Resource America’s case because it is happening during the midst of a severe contraction in the credit market.
When Edward Cohen became Resource America’s CEO in 1988, Resource America was a tiny company with only $18 million in assets. Edward Cohen built both Resource America and Atlas America (ATLS), which I talked about here, from the ground up and created unbelievable returns for Resource America’s shareholders. Edward’s son Jonathan, who is now Resource America’s CEO, has also been involved with Resource America for years. You can bet that Edward and Jonathan Cohen know Resource America like the back of their own hands. If they are willing to put even more of their own money into Resource America at $9 then so am I.
The second recent development was the liquidation of the rest of Spencer Capital’s position in Resource America on 6/18. Resource America traded almost 2 million shares that day well above its typical volume of 100 thousand shares. As I talked about in my last article, Spencer Capital has been slowly liquidating its large position in Resource America for months as Spencer Capital’s fund has been shrinking. Spencer Capital’s liquidation has likely been a significant reason for the drop in Resource America’s share price over the last several months. The recent liquidation removes the fear of the Spencer liquidation causing further price drops. Interestingly, Spencer Capital liquidated over 1.7 million shares on the same day that Resource America’s two most involved insiders stepped up to the plate with their own large share purchases. It looks like Ed and Jonathan were in communication with Spencer Capital and helped arrange transactions where Spencer Capital could liquidate its entire position on one day without a substantial drop in Resource America’s share price. Spencer Capital sold over 1.7 million shares on 6/18 whereas Ed and Jonathan only bought about 330 thousand shares. It looks like Ed and Jonathan worked with Spencer Capital to find buyers for Spencer Capital’s entire position. So, who else could have bought the rest of Spencer Capital’s position? One possibility is Resource America, as the company approved a $50 million share repurchase plan a few quarters ago that has so far gone unused. It would not surprise me at all to see in the next quarterly report that Resource America repurchased the remaining Spencer Capital position representing about 7.5% of its total shares outstanding on 6/18.
Management is clearly aware of the profound value in the company’s shares. The recent closure of an additional $280 million for the company’s LEAF Financial division only highlights management’s ability to succeed in difficult times. The upcoming IPO of RAI Acquisition, a blank check company sponsored by Resource America, should provide a catalyst for the stock during the second half of the year as the company will have the financial ability to make incredibly profitable deals in the currently distressed market.Disclosure: Long REXI