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Loews has a graph on its website that shows its book value per share has grown from $30.17 at the end of 2006 to $47.49 at the end of 2011, an increase of 9.5% annually. Its book value at the end of March was $48.96 a share. In the first quarter of 2002, it was $19.10 a share, for an annual increase of 9.9%. Berkshire Hathaway's (NYSE:BRK.B) book value increased 9.1% over the past decade. Long considered the champion of book value growth, Berkshire Hathaway actually came last behind Loews, Markel (NYSE:MKL) at 11.5%, Fairfax Financial (OTCBB:FRFHF) at 9.5% and Leucadia National (NYSE:LUK) at 11.1%. On the surface, it appears as though Loews hasn't kept up with either Leucadia or Markel. However, you have to remember that since CEO Jim Tisch took over in December 1998, he's reduced share count by 30%, often buying at a deep discount to the sum of its parts. According to Bloomberg, Loews' share price in mid-April was trading at more than a 25% discount to all of its holdings. Despite this, its stock's outperformed Buffett's by almost double in the 14 years Jim Tisch has been at the helm.
Loews continues to be popular with some of the better investment managers in America. Its two largest fund owners are Southeastern Asset Management's Longleaf Partners Fund (LLPFX), which holds just 20 stocks including Loews in the number three position and the Davis New York Venture Fund (DNVYX), which also holds Loews in the top 10. Both funds have incredibly low turnover ratios and have been long-time owners.
According to Longleaf's 2011 annual report, Loews has a free cash flow yield, when adjusted for net cash, of 11.6%. Furthermore, Longleaf believes that CNA Financial (NYSE:CNA) CEO Tom Motamed hasn't been given enough credit for the turnaround he's achieved at the property and casualty insurer. As a result, CNA's shares trade at a substantial discount to book value compared to its peers, including Chubb (NYSE:CB), where Motamed came from. If CNA were valued equally to Chubb, Loews holdings would be worth almost $7 billion or $18 per share more. That's why patient investors like Mason Hawkins and Chris Davis are holding tight despite Tisch not making an acquisition in five years, along with slowing earnings.
SEE: Investing Below Book Value
Once upon a time, I thought Loews might sell or spin-off the hotel division run by Jonathan Tisch, Jim's cousin, because it's only 17 hotels and adds less than $2 a share in value to its stock. However, Jonathan Tisch expects it to grow to 30 hotels within 10 years to take advantage of the global growth in travel. Besides, hotels are where Loews began. Currently, it's not in Boston, Chicago, San Francisco, Washington D.C. or Toronto. It has two hotels in Quebec but none in the rest of Canada. That will likely change soon enough. Ritz Carlton opened a hotel in Toronto in 2011 and Four Seasons will replace its old hotel in the next couple of months. Toronto is the fourth-largest city in the U.S. and Canada and Loews needs to be there.
The Bottom Line
Loews closed trading May 30 at $38.77 a share, 28% less than the sum of its parts. I don't think it will hit $60 in 2012. For that to happen, CNA's stock would have to get a move on and although its first quarter report handily beat analyst estimates, the market as a whole will likely act as a serious drag on its appreciation. However, I'd be buying from here down to the low 30s. When you least expect it, it will pop through into the $60s; just not in 2012.
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At the time of writing, Will Ashworth did not own shares in any of the companies mentioned in this article.