Joe Lucid

The Only Construction Stock To Own

For the true microcap investor there's another one: entx. Selling at 0.2 x book. A ton of NOLs to use in the future that are fully reserved. Huge operating improvements have been masked by write-offs on bad investments entered under the old management team.

There's an asbestos liability that makes this stock look bad. But if you do the math the intrinsic value distribution looks really favorable vs stock price. Company also has a odd lot tender offer in the works that would purchase up to 500 stocks per account for 35c a piece if approved by shareholders. That's more than a 100% premium over recent prices, but still about half of what I would consider the floor to a fair price.

Western Sizzlin's Secretive Quarter

I need to correct myself. The release is still not visible on any of the usual news aggregators (see finance.yahoo.com/q?s=... for example). It seems like it has only been posted on their website, not broadcast via pr newswire etc.

Western Sizzlin's Secretive Quarter

I was talking about the press release for q1 earnings, not the letter. WEST actually has issued one now on 5/20th. Better late than never I guess.

One comment for all the folks who keep pointing out they believe SNS is undervalued and hence WEST a better value than it looks marking SNS to market: If you think that's the case why not go long SNS instead of WEST? That way you can avoid WEST's corporate capital gains tax if/when WEST sells SNS. You're profit will be a nice ~20% better than participating via WEST.

Arbitrage Opportunity: Western Sizzlin/Steak 'n Shake Pair Trade

MC, the problem is that the SNS stake has declined in value quite substantially since end of 2007 for another ~$3M in investment losses net of tax which will be reported for Q1. The Q1 report will look much worse than the 10-k with a substantial overall loss. Putting everything together and still assuming $20M business value for the operating business I get about $12 in intrinsic value.

I'd be hesitant though to say that the operating business is still worth $20M. Will be interesting to see the revenue numbers for q1.

Arbitrage Opportunity: Western Sizzlin/Steak 'n Shake Pair Trade

Well, the ~$2M required for the mustang and ITEX purchases (at least as tendered today) could have easily been attained via a margin loan against the SNS stock.

Anyway in my view Sardar knew that SNS will take longer to get resolved than he thought last year. He needed to prevent fund redemptions in the Lion Fund to avoid having to exit SNS at a huge loss. So miraculously the thinly traded WEST stock hit a high of a completely unjustified $18 just before the end of the year, in time to save the year for the lion fund - and WEST announces the ITEX tender offer using this inflated currency.

Buying assets issuing overvalued stock is a nice way to generate value so I don't blame him. But it does seem like he's playing his shareholders a bit at the moment - delaying the bad 07 numbers until the last moment etc. I've actually owned WEST for some time last year when the market didn't correctly price the rights offering - and sold end of last year. I've been trying to short WEST since those days - but only recently found shares (thanks to the nasdaq listing).

With regards to your comments on ITEX/SNS value: ITEX is immaterial. I don't know what SNS's value is - which is precisely why I was suggesting the pair trade. Given the current stock price of SNS, WEST was trading too high at $16 so either SNS moves up, or WEST moves down or a combination of the two. Seems to be working so far.

Arbitrage Opportunity: Western Sizzlin/Steak 'n Shake Pair Trade

Jayhead, if Sardar didn't think WEST was overvalued he'd buy in cash, no? Cash never has a discount to intrinsic value. Buffett has said repeatedly that issuing stock to purchase some of his early acquisitions was one of his bigger mistakes.

Also note that Sardar started to purchase assets using shares precisely when WEST shares became overvalued according to my model.

Consolidated Mercantile: Cheap in Terms of Cash

The stock is still traded OTC with very similar bid/ask spreads as before on nasdaq - but I agree liquidity is a concern with this stock. Frankly in my view the most rational next step would be for Fred Litwin to take the company private. Given their small asset base and the high costs of being public this would benefit Fred (CEO and majority holder) as well as us shareholders.

We'll see how it pans out. For me the value is more important than the ability to trade - so I'm very comfortable where we are.

The CEO Litwin is a good and charitable guy (see www.mtsinai.on.ca/publ...). We're in good hands.

Consolidated Mercantile: Cheap in Terms of Cash

earflea, you may want to check out the earlier post I was referring to. I did discuss that the CEO owns the majority and that there's the typical potential conflict of interest. However after talking to management, given how the players have behaved in the past and given the significant discount I'm comfortable.