I have a general rule: if someone offers me an asset that can’t be replaced, at the price of its depreciated PP&E, the asset earns a respectable return, and demand for the product won’t change over the next 100 years, I buy it. I don’t build a model or wait for a catalyst. I just pull the trigger.
Today’s company has the kind of valuable asset that nobody builds anymore and has zero obsolescence risk. The business is robust as hell. Over the past 30 years, it has earned 20-25% pre-tax returns on new capital. It has no debt, and cash and investments make up close to 20% of the market cap.
It has traded at book value twice in the last 17 years. It trades at a little more than 2x book today, so this writeup is no pitch. I’m merely writing this one up as the best example I know of an incredible margin of safety that doesn’t originate purely in the price you pay for the stock. It’s a stock on my list for the next time the market misprices it again, which I think will happen at some point.
Assets like these almost never trade at book value, because people aren’t that dumb. But every so often, the market gets bored, or scared, or both.
Both times this stock has sold at book value since 2011, a buyer who didn’t overthink it made a fortune.
The company is…