Over-The-Counter Bi-Weekly #7 - Comic-Con, $1 Land, Investment Manager And Casino/Aerospace

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Includes: BUKS, BXLC, DNI, MGAG, WIZD
by: Jan Svenda

Summary

Search for alternative ways to screen the OTC land continues. Let me know your favorite strategy in the comments.

Below you will find three interesting stocks that might become an investment opportunity and one curiosity.

This time my favorite is a business holding various investments in profitable real-estate partnerships at a negative value on its balance sheet.

Without further ado, here are 3 stocks that I found in the past two weeks or so and that I believe could lead to more interesting research. These might not result in an investment opportunity but I feel that if one looks at stocks properly in-depth he/she can always learn something new. Some of them are also dark and just caught my interest because of material information that I saw online.

Before I dig in I feel obliged to say; Caveat Emptor! Always do your own due diligence and do not take the following tickers as a solicitation to buy.

This company has nothing to do with oil anymore. After 1991 they started to invest the leftover proceeds from past operations into real-estate partnerships across the US and currently hold an interest in at least 45 such partnerships from which the company receives annual distributions. One would have to do an in-depth analysis of each investment but from just quickly Googling some of the investments (such as this or this) one can see that they are likely to be uptown communities that are unlikely to be worthless, especially when MGAG received roughly $1 million in distributions last year, a number which is likely to increase this year.

What is so interesting about this? The carrying value of these investments. MGAG now accounts for these investments at a negative amount of $0.25 million. This is a result of receiving a significant amount of distributions that are larger than the income of the partnerships and thus the company has to always decrease the amount carried on the balance sheet. So the key question here is, what could be a rough value estimate for these partnerships?

I believe that it is definitely more than $2.8 million which is the current market cap. of the company, especially when they have $0.8 million in cash and $0.5 million in securities (again held on the balance sheet at underappreciated value). The current valuation then assigns roughly only $1.4 million to the real-estate partnerships which are likely to return almost as much in a single year.

On top of all this, the company owns a stake in a private company and owns land in San Bernardino county which is held on the balance sheet at an entertaining amount of $1 (yes that is one dollar). While the land is unlikely to be extremely valuable (it is 0.3 acre, although location might change my view) it certainly is worth more than that.

The issue here is definitely liquidity. The stock price did not move for a significant amount of time and as according to OTCmarkets.com the last trade might have been in 2010. That being said every person interested in the OTC space should definitely have this one on the list. Once trading occurs we might see an opportunity.

Price: $70

Volume (30-Day Average): 0

Reporting: Grey - OTCmarkets.com

This is another holding company with an awkward set of business exposures (casino management and aerospace products) and while the operations are not stellar at this time the management is undergoing a slow change which might unlock some value.

First, they wanted to buy the remaining stake in the real estate of Boot Hill Casino in Kansas (where the state owns the underlying casino license) and after this they might want to spin-off this stake. BUKS then might be split into two distinct companies which might help the operations as each management team will focus solely on one line of the business.

The aerospace products are mainly aimed at refurbishing and upgrading of aircrafts which is mainly done through obtaining ‘supplemental type certificates’ from the FAA.

While the company’s current valuation is not screaming undervaluation on the balance sheet side, they do trade significantly below tangible book while having healthy cash flow (the profit is low due to depreciation and amortization) and thus further research is warranted.

Finally, it seems that there is an activist present in the stock (Joseph Daly) who is likely to prevent any significant value destruction.

Thomas Neil recently wrote about the company with a bullish outlook.

Price: $0.24

Volume (30-Day Average): 9,577

Reporting: SEC Available

This is an investment manager that operates the publically listed Dividend and Income fund (DNI) for which it receives a steady a fee. It also acts a broker-dealer and in the past it tried to enter the mortgage origination business which it left at the end of 2015. After the reorganization they regained profitability. They currently trade at a significant discount to NCAV as their market capitalization is roughly $7 million and they hold $17 million in cash and investments (Level 1 closed end funds) with having only $1.8 million in liabilities.

The issue here might be the management that could be reluctant to unlock the value, but for such a dirt cheap price one might want to research further.

Nate wrote about the stock in 2013.

Price: $8.10

Volume (30-day average): 371

Reporting: Grey - Their own website

And lastly here is the bi-weekly curiosity that might not be an investment opportunity, but might be worth hearing about for whatever reason.

Are you fan of comic books and want to get exposure to your favorite convention of the year, the Comic-Con? WIZD will get you exactly that. The event-management company has been around for some time now and arguably its focus became a bit more mainstream. That being said the company struggles with cash flow despite being profitable and recently got a financing at an attractive rate of 12% (what low-interest environment?). There is apparently a ‘deep value activist investor’ that lend the money to the company (possibly with an outlook to get more shares as it is a convertible note) who might turn things around.

Finally, I would like to borrow few words from Thomas Braziel;

‘Think about it - where are the truly undervalued securities? It is in the overlooked, deep dark reaches of the markets. The boomed out, the busted, the complex, and the convoluted.’

I would add; Are you wondering how to find them? Just research, research, research!

P.S. If anyone should diagnose themselves as a possible member of ‘Anonymous OTC-holics’ hit me up with a ticker that you do not have the time to look at or want to have a second pair of eyes on!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

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