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Steven Wood was one of three finalists in the first Value Investing Challenge in 2012, which had more than 110 submissions that were judged by a panel of top money managers. Here's an update on his thesis on Fiat.

IN THIS ISSUE

Introducing a New Challenge for Value Investor
By Value Investing Challenge
The Unknown Asset Manager You Need to Know
By Alex Rubalcava, Rubalcava Capital Management
The Joy of Fishing Where Others Are Not – Tw
By Tim Eriksen, Eriksen Capital Management
Book Excerpt: The Investment Checklist
By Michael Shearn
Book Excerpt: The Little Book of Hedge Fund
By Anthony Scaramucci
These Five Stocks Could Be Value Opportunities
By Scott Rubin, Benzinga Staff Writer

FINANCIAL AND BUSINESS VIDEOS

VALUE INVESTING ARTICLES

THIS MONTH'S ISSUE

The Joy of Fishing Where Others Are Not – Two Small Cap Bargains
By Tim Eriksen, Eriksen Capital Management

The goal of every enterprising investor is to achieve attractive absolute returns and to outperform a passive index approach over time. The best way to achieve that is to focus on the least efficient segments of the stock universe. As Seth Klarman wrote in Margin of Safety, “ample investment opportunities may exist in the securities that are excluded from consideration by most institutional investors. Picking through the crumbs left by the investment elephants can be rewarding.” In other words, we should fish where others are not.

That is the basis of how we manage money. We spend our time looking at the most ignored segments of the market - companies with market capitalizations of less than $200 million, spin offs, misunderstood mid and large caps, stocks trading under $5 per share, and unlisted companies. Two attractively priced unlisted companies that we have been adding to recently are Carter Bank & Trust (CARE – OTC BB) and Pardee Resources (PDER – OTC).

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Comment
Wed July 18, 2012, 12:31:13
Regarding the process - You are correct that you would miss some gems that do not have SEC filings or filings on their websites. In 2004 and 2005 I worked for a firm called Wallker's Manual which every few years put out separate manuals on Unlisted Stocks, Micro Cap Stocks and Community Banks. That is where I came across Pardee and probably Carter as well. They haven't published since 2003 but if you can find an old copy it is a good start. Blogs are very helpful as well. There are a few that cover banks and others that cover unlisted stocks.

Regarding the question "What is (my) estimate of the real book value of this company?" I assume you asking about PDER and mean intrinsic value since book value is an accounting value we can derive from the balance sheet. Obviously it would be an estimate and it depends on how conservative I am being. For example, 10 times pre-tax earnings (15 after tax), which is what Buffett is typically willing to pay for a quality company, results in just over $450 per share. That is probably too cheap for a company that has grown at a mid teens rate, and has the physical resources like PDER. I strongly doubt they would even consider selling the company at that price.
teriksen
Comment
Wed July 18, 2012, 10:19:03
Regarding the process - You are correct that you would miss some gems that do not have SEC filings or filings on their websites. In 2004 and 2005 I worked for a firm called Wallker's Manual which every few years put out separate manuals on Unlisted Stocks, Micro Cap Stocks and Community Banks. That is where I came across Pardee and probably Carter as well. They haven't published since 2003 but if you can find an old copy it is a good start. Blogs are very helpful as well. There are a few that cover banks and others that cover unlisted stocks.

Regarding the question "What is (my) estimate of the real book value of this company?" I assume you asking about PDER and mean intrinsic value since book value is an accounting value we can derive from the balance sheet. Obviously it would be an estimate and it depends on how conservative I am being. For example, 10 times pre-tax earnings (15 after tax), which is what Buffett is typically willing to pay for a quality company, results in just over $450 per share. That is probably too cheap for a company that has grown at a mid teens rate, and has the physical resources like PDER. I strongly doubt they would even consider selling the company at that price.
idkmybffjill
Comment
Wed July 18, 2012, 09:11:29
Hi Tim, thank you for the links! Just out of curiosity, the process with which you found these two....was it similar to the one employed here? (basically, brute force, going through all the OTC stocks one by one)

http://www.valueuncovered.com/a-journey-through-the-pink-sheets-3698-stocks-later

My only question is how you decided to further pursue both when the SEC filings weren't available....you found their filings on their website right? For the bank, I can understand since they are a bank, so they must have filing somewhere, but for Pardee, what made you decide to look into them further? I guess what I'm trying to say really is...if I were to follow a process like the author of the article I just linked, where you manually go through all the OTC stocks, and he points out he skips the ones that don't have financials filed, it appears that there are some like PDER that would be missed since they do have audited financials, but they aren't officially filed anywhere?
Comment
Wed July 18, 2012, 09:09:37
Hi Tim, thanks for the interesting article. I was wondering, what's your estimate of the real book value of this company?
teriksen
Comment
Tue July 17, 2012, 17:41:14
I've also posted Pardee's 2011 Annual Report on scribd
scribd.com/doc/93349619/Pardee-Resources-2011-Annual-Report

Tim
teriksen
Comment
Tue July 17, 2012, 16:59:32
Carter Bank & Trust's financials are available on their website. Click the Investor Relations tab and then Filings and Documents. It shows all their filings with the FDIC.
Pardee is not required to file publicly. They are audited by Ernst & Young. Shoot me an email and I will send you (and anyone else) a pdf of the 2011 annual report. They mail quarterly updates to all shareholders, including beneficial owners.
Reminder to anyone considering a purchase - I recommend limit orders with any otc or pink stocks.
Comment
Tue July 17, 2012, 15:59:28
Hi Tim, great article! Just out of curiosity, where did you find the financials for both CARE & PDER? I wasn't able to find anything on the SEC (you had mentioned PDER doesn't file with the SEC, but where do they file then? are their results audited by a big 4 firm?)
idkmybffjill
Comment
Tue July 17, 2012, 15:58:47
Hi Tim, great article! Just out of curiosity, where did you find the financials for both CARE & PDER? I wasn't able to find anything on the SEC (you had mentioned PDER doesn't file with the SEC, but where do they file then? are their results audited by a big 4 firm?)
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