Billionaires For Rent.....Cheap!
Ken is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Editor's Note: The initial version incorrectly identified the CEO of Loews. This version has been corrected.
Wouldn't it be great to have a self-made billionaire manage your money right alongside his own? Would it be even better if they didn't charge you for the service and even offered a discount if you hire them now? If you choose your investments correctly, you can come pretty close to exactly that situation today.
Berkshire Hathaway (NYSE: BRK-A) or (NYSE: BRK-B), Loews Corp. (NYSE: L) and Sprott Resource Corp. (TSX: SCP) are publicly traded companies run by successful billionaire investors who keep large portions of their own wealth invested in the shares of the businesses they run and we can place our money right alongside theirs, receiving the same expert management services they insist upon for protecting their own wealth.
There is probably not an investor in the world that is not familiar with Warren Buffett and Berkshire Hathaway, his holding company. While Mr. Buffett’s original success was primarily driven by investments in the insurance industry, Berkshire Hathaway has become a multi-dimensional holding company with interests in multiple businesses and spanning a wide range of industries. While the returns have slowed in recent years, it is hard to argue with a 40-year track record of success that makes a good case for a strong buy and hold investment that will produce market beating returns over an extended period of time. Berkshire currently trades at 1.36 times book value and 12.4 times cash flow. It is not currently a cheap stock, but 12.4 times cash flow is not ultra-expensive and Warren Buffett IS the most successful investor of the last 40 years as well.
Loews might well offer a superior opportunity compared to Berkshire Hathaway at the moment based its performance over the last 20 years and its current valuation in the market. Loews is not as well known to the general public as Berkshire, but it is a very similar business model and was built by purchasing distressed assets far below replacement value and holding them until the market was willing to pay fair value for them again. The business is led by billionaire investor James Tisch and he and his family keep a large portion of their wealth in the shares of the business. Right now, the price to book ratio on Loews is 0.87 which means that you will receive a 15% capital gain if the price were to simply rise to book value. If Loews were to rise to the same premium to book value currently bestowed upon Berkshire’s share price, people who invest today would enjoy a 56% return on capital. Loews currently trades at a price to cash flow ratio of 8.4 to 1, which is very low for such a well-run business, and almost 50% below that of Berkshire. I am happy to place my money alongside James Tisch anytime I can do so and getting the opportunity at a substantial discount to fair value is just gravy on my potatoes.
The third billionaire for rent opportunity I have found actually acquires the services of at least two of the most successful resource investors in recent times. Sprott Resource Corp. is run by billionaire natural resource and commodities investor Eric Sprott along with one of the key members of his team, ultra-successful resource investor, Rick Rule. Eric Sprott is often referred to as “The Warren Buffett of Canada” and it is a reputation he has earned in the very difficult world of natural resource investing. Sprott Resource Corp. differs from Berkshire Hathaway and Loews in three primary ways. First, Sprott trades on the Toronto Stock Exchange and only trades in the U.S. in the over the counter market under the symbol (NASDAQOTC: SCPZF). The volume in the over the counter market is quite thin so this security is best traded on the Toronto Exchange. Secondly, as you might guess from its name, Sprott invests in natural resources and has a substantial stake in a business called One Earth Farms. One Earth is a massive commercial farming project on First Nations Reservation lands in Canada, some of the best farming land in the country. Self-made billionaire investor Jim Rogers has been recently pounding the table for agriculture and farming related businesses as the best opportunities available for future profits.
Sprott is currently trading at a 1.02 price to book value ratio and only 7.6 times cash flow which is just plain dirt cheap. It also sports a monthly dividend that produces an 11.2% yield based on the current price.
So, we have two ultra-successful resource professionals at the helm and an internationally known billionaire investor pounding the table for the industry. For any investors interested in generating a solid current income while also having the possibility of exceptional long-term capital gains, Sprott Resource Corp. might just be the perfect fit for their portfolios.
Ken McGaha has no position in any stocks mentioned. The Motley Fool recommends Berkshire Hathaway and Loews. The Motley Fool owns shares of Berkshire Hathaway and Loews. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!