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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Madharry who wrote (24287)	7/9/2006 12:53:10 PM
From: E_K_S	Read Replies (1) \| Respond to of 78768

Hi Madharry - The two things I look at for "Value" when evaluating Resource companies are (1) the net cost to the company for the resource (cost of land plus cost to get it out of the ground) and (2) The current & future market value for that resource. Many times you can find a company that is sitting on huge resource reserves that are significantly undervalued to the market rates even after you discount the capital expenditures necessary to get that resource out of the ground and to market. This is true for many types of resources both above and below ground (Lumber, minerals, oil, natural gas, coal etc.). Land resources also include the utilization "rights" including right of ways (both under and above ground), building zoning regulations by City, County, State & Federal authorities all which may include hidden real tangible value not reflected on the company's balance sheet or by the stock market (i.e. stock price). A few examples - Williams Company sold their "right-of-way" access next to and below the ground of their natural gas pipe lines to telecommunication companies building black fibre digital networks. Some of the railroad companies did this too. Wall Mart has been land banking agricultural and low use acreage later to get them rezoned or traded for high use commercial parcels where new stores and shopping centers are constructed. This is true for many of the home builders that have land banked acreage for future development but may not develop it until they can obtain city approval that may take years to get. These assets are booked on the balance sheet at cost and in a lot of cases understate the true economic value of the resource. Finally, One's worthless asset may be anther's crown jewel and the market does not price the potential value correctly until new buyers show interest. This is the case for James River Coal Co. (JRCC). Pirate Capital LLC, a hedge fund company has been acquiring shares and now owns 14.6% of all shares (as of Feb 2006) and is replacing board members so a sale of the company can be made "to increase stockholders value". biz.yahoo.com Natural Resource Partners (NRP) apparently finds more value in these coal reserves than the market sees for James River Coal Co. (JRCC)NRP has been buying up all the small coal acreage in the area. Maybe James River Coal will be forced to sell NRP. finance.yahoo.com In Summary, there are loads of hidden value to be found in many of these resource companies or companies that own many of these "hard" land assets. Value is not only the discounted stream of cash flows generated from an on going business but is also found in underutilized assets that management neglects or worse does not recognize the potential market value. EKS

To: Madharry who wrote (24287)	7/9/2006 1:42:42 PM
From: bruwin	Respond to of 78768

Yes, Madharry, there may be greater scarcity today in terms of Oil, due to known reserves nearly equating with global demand. However, newer technologies in terms of going deeper in offshore exploitation etc.., may boost reserves, albeit at greater cost. This could reduce the price of oil over the medium term. And certain metals may or may not be in sufficient supply, depending on demand due to industrial output. But their prices can also, suddenly and dramatically, be influenced by political factors or other aspects which are out of the control of a company’s management, irrespective as to how competent that management is in running their company. The recent move of the gold price from over $700/ounce down to under $600/ounce, in a relatively short space of time, is a good example. Needless to say, gold mining stocks felt that volatility. Personally, I believe that experienced and informed Fundamental Analysts are not folk who will go chasing after "fad" stocks. I also believe that they will be more inclined to target companies where that company’s Management has far more control and influence over the components of their own business plan. Speaking for myself, when I interrogate a company’s Financial Statements, I like to think that they are reflecting the ongoing ability of the company and its Management to provide value for their shareholders, without too many question marks related to factors outside of their control. I also prefer to wait until I can see adequate PROOF, within a company's Financial Statements, that they are currently able to make ongoing profits and are currently providing value for shareholders. This may mean "sacrificing" some early Capital Gain because I was not prepared to speculate on what may, or may not, happen. But, in my own experience, once a company has achieved this profit-making ability, there has always been good future profits to be made, with far less Risk involved.