Ten years ago, Berkshire Hathaway (NYSE:BRK.A) held 1,727,765 shares in the Washington Post Company (NYSE:WPO). Today, it holds the same amount. In that time, Washington Post stock has gone from $574.05 on June 29, 2001 to $341.49 on September 13, 2011. At its zenith in December 2004, Buffett's holdings were worth $1.7 billion. That's since shrunk to $590 million. While he's not buying any more shares, he's not selling any either. Berkshire Hathaway is riding its investment all the way to the very end. Will his loyalty be rewarded? That's hard to say. But if you're looking to ride alongside the greatest buy-and-hold investor ever, here are three reasons why now is as good a time as ever.

TUTORIAL: Stock Basics

Stock Price
The Post acquired Kaplan Inc., its education subsidiary, in 1984 and it now accounts for over 61% of its overall revenues. The truth is that the Post hasn't been a newspaper company for some time. Therefore, although it's more appropriate to compare it to other educational companies, we'll throw in the New York Times (NYSE:NYT) and Gannett (NYSE:GCI) for old time's sake. What you get is a story of the haves and have-nots; that's after taking into account the terrible struggles for-profit educational companies have experienced over the past two years as students stayed away due to bad publicity about the industry.

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For some time now, investors have clamored for a spin-off or two of WPO's various parts because its stock price doesn't reflect the true value of all its businesses. Shareholders would likely have fared better than the 2% annual return over the last 15 years if Kaplan and/or its cable business were independent companies. In April 2010, Barron's estimated that the Post's stock was worth $900 a share if each of the businesses were valued separately. Though likely much lower today, it still makes sense to revisit the argument.

Company

 Total Return (15 Years)

 Annualized Return
Washington Post Company (NYSE:WPO)

 5.7%

 0.4%
Apollo Group (Nasdaq:APOL)

 565%

 13.5%
DeVry (NYSE:DV)

 249%

 8.7%
New York Times (NYSE:NYT)

 (53%)

 (4.9%)
Gannett (NYSE:GCI)

 (70%)

 (7.8%)
Separate Value
Barron's valuation of Kaplan in April 2010 was $5 billion, or 1.9 times sales, based on its 2009 revenues. Apollo Group's P/S at the time was 2.2 or 13.6% higher. On September 14, 2011, Apollo Group's P/S was 1.3, which puts Kaplan's theoretical P/S at 1.1 and its current value around $3.2 billion. That's more than the entire company. Its Cable One cable TV business would fetch another $836 million based on a P/S of 1.1 and its television broadcasting another $445 million based on a P/S of 1.3. This leaves the legacy business, which is losing money. So too is the New York Times and Carlos Slim, the world's richest person paid $6.60 a share in August of this year to up his stake to over 7%.


Paying 0.41 times sales for the additional stake, the Post has less debt and more cash than its New York rival so at the very least its P/S ratio should be equal to the Times. That gives the publishing division a value of $279 million. Pulled together, we're looking at $4.8 billion less net cash of $260 million for an enterprise value of $4.54 billion. That's much less than Barron's estimate of $8.5 billion just 17 months ago, but almost double where it sits today. (Gathering enough money for retirement is not easy, check out 8 Toughest Retirement Decisions.)

No Sale
Never say never. CEO Don Graham almost did at the annual meeting held September 9, holding out an olive branch by suggesting a business would only be sold if it was losing money and there was no possibility of a turnaround. While unlikely in the near term, a future spin-off seems possible only because, like most things in life, when someone says something's not going to happen, it usually does.

Buffett isn't a fool. He'll wait patiently for the time to come when a sale or spin-off will make economic sense. Right now, it's doubtful they'd get enough value for their assets as the markets are in turmoil. It's better to wait for the markets to perk up before contemplating any grand gestures.

The Bottom Line
The first two quarters of 2011 certainly don't make Graham's job any easier. With operating earnings halved and the publishing business looking worse than ever, it's not hard to imagine its stock dropping further than it already has. However, its stock hasn't traded this low since 1996. Opportunity's knocking - are you going to answer?

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