Loews: Unabashed Conglomerate

| About: Loews Corporation (L)
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Warren Buffett's Berkshire Hathaway (NYSE:BRK.B) is widely known as an outstanding conglomerate. Loews Corporation (NYSE:L) may be little followed, yet Loews has its own remarkable and conservative history. Loews has strong prospects and shares trade at a discount.

As a patient investor, Loews is a long-term, value focused diversified holding company. Loews public subsidiaries operate in insurance, offshore drilling and natural gas pipelines. The smaller wholly owned subsidiaries include E&P HighMount, Loews Hotels in addition to a cash hoard.

Loews owns 90% of CNA Financial (NYSE:CNA). CNA is conservative and strong enough to raise its dividend in February despite Hurricane Sandy losses. Diamond Offshore (NYSE:DO) is 50.4% Loews owned and performing especially well in the offshore drilling market. Loews owns 53% of Boardwalk Pipeline (NYSE:BWP) and an additional 2% general partner interest.

While Loews has a market cap of $17.3 billion, Loews ownership portion of the three public subsidiaries totals $16 billion alone. Additionally, these businesses may be undervalued on the stock market, particularly CNA Financial. The three public subsidiaries paid Loews $683 million in dividends in 2012.

Natural gas producing HighMount Exploration is Loews least exciting subsidiary. Loews purchased HighMount in 2007, one year before the long decline in natural gas prices began. After years of write-downs, HighMount still has a book value near $2 billion and is well positioned to benefit from a modest turnaround in natural gas prices.

On a macro level, the hotel business is good and improving while additional supply is not forthcoming. Loews has long had a small presence in the industry and is looking to invest upwards of $1 billion in hotels going forward.

Loews typically has a large cash balance, and ended 2012 with $3.9 billion in cash and investments at the holding company against $0.7 billion of debt.

Analysts often consider the large cash balance an under-utilized asset and a drag. On the contrary, Loews uses its financial strength as an advantage. When a subsidiary would like to expand its business opportunistically, Loews will use parent company cash for bridge financing. During the financial crisis, Loews used its balance sheet to protect CNA and Boardwalk.

On rare occasions Loews will use the cash to enter another business. When Loews initially took control of CNA in 1974, the insurance industry was depressed. In 1988 Loews entered the offshore drilling industry by purchasing drillships at scrap pricing.

In 2003 Loews acquired pipeline operator Texas Gas Transmission during a period when some owners of natural gas pipelines were experiencing financial distress in the aftermath of the Enron collapse. The next year Loews acquired Gulf South Pipeline, a strategic fit with Texas Gas as their pipelines were contiguous. These assets became Boardwalk Pipeline.

Over the course of 2006 to 2008 Loews spun off the hugely profitable Lorillard (NYSE:LO). Management's philosophy is to take care of the current Loews first while patiently being on the lookout for the next cyclically depressed capital intensive opportunity.

Loews' book value is over $50 a share when measured conservatively and book value can be expected to grow robustly going forward. When shares are undervalued Loews has 'a long and glorious history of share repurchases.' Since 1971 Loews has retired 70% of outstanding shares. In 2012 Loews bought back 5.6 million shares for $222 million.

Loews as a conglomerate was built by the Tisch family. Jim Tisch is Chairman and CEO and always demonstrates an attitude of conservatism. Loews is among the safest of common stocks and perhaps on the cusp of breaking to new 52-week highs. Investors and speculators may trade accordingly.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in L over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I first bought Loews shares in 2000.