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Tickers in this Article: LUK, JEF, BRK.A, L
Richard Handler is CEO of Jefferies Group (NYSE:JEF). In September, Handler sold $25 million of his company's stock to holding company Leucadia National (NYSE:LUK), which now owns 28% of the New York-based investment firm. The news story caught my attention because it's been awhile since I'd read anything about Leucadia, and it prompted me to revisit its business. What I found is a stock that's incredibly cheap and priced to move. Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Its Assets
There's no quick way to assess the various investments that Leucadia National holds. They are much more diverse and unrelated than say Berkshire Hathaway (NYSE:BRK.A) or Loews (NYSE:L), two other well-known holding companies. The easiest way is to go through its 2010 letter to shareholders, a very entertaining read similar to Warren Buffett's annual letter, and compare it to the second quarter report. At the end of June, it had assets totaling $9.2 billion. The biggest single line being $3.5 billion in non-current investments, which includes a 5% interest in Fortescue Metals (an Australian iron ore company), 16% of Inmet Mining (a Canadian company with operations in Turkey, Spain, Finland and Panama) and $1.5 billion in other investments.

The next biggest line item are investments in associated companies at $1.8 billion, with slightly more than 75% of it in Jefferies Group stock and a high-yield fund operated by the firm. The last interesting investment I'll mention is Berkadia Commercial Mortgage LLC, a 50/50 joint venture with Berkshire Hathaway that originates and services commercial loans. In the first six months of the year, it generated $168 million in revenue and $28.5 million in net income. All told, Leucadia National probably has over 20 investments, of one kind or another, that together seem to grow in value most years. Since 1979, its compound annual growth rate for shareholder equity and price per share is 20.2 and 21.5% respectively. By comparison, the Standard & Poor's 500 Index (S&P 500), with dividends included, grew by 8.2% annually. Its assets might be a ragtag bunch, but they get the job done and have been for over 30 years.

Market Cap
As of the close of trading on October 12, its market cap was $6.1 billion. With the exception of 2008, it hasn't been this low in more than six years. Its stock is down 15% year-to-date, 36% below its 52-week high and 58% below its five-year high. It's definitely undervalued if you go by its history. And here's the best part. In the last 11 years, if you take out the best and worst years in terms of annual return, you average 18.3% on the downside and 24.3% on the upside. Even better is the fact that over those 11 years, eight were positive and only three negative. Your odds of a good year in 2012 are reasonably assured because in those 11 years, it didn't have two consecutive down years. I'm not saying it can't happen, but the odds are stacked in your favor.

Valuation
As the market cap points out, its stock is at, or near, historic lows. In its annual report, Berkshire Hathaway uses a similar scorecard to Leucadia National that places emphasis on the growth in book value per share, and because its revenues and income are erratic in nature, the best valuation metric to use in this instance is the price-to-book ratio (P/B). Leucadia's stock trades at 0.9 times book value compared to 1.8 times for the S&P 500. Further, its average P/B over the past five years is 1.5. By price-to-book, anyway, its stock seems very cheap. (For more on the P/B, see Using The Price-To-Book-Ratio To Evaluate Companies.)

The Bottom Line
In the past five years, Leucadia National's stock's traded below $20 for just four months out of 60. Amazingly, it's just 16% away from that magical number, despite producing quarterly reports that are more than satisfactory. Take this opportunity to pounce. Leucadia National is priced to move.

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