Chasing Value: Newcastle Reports Great Results

For the quarter ended September 30, 2010, income applicable to common stockholders ("GAAP income") was $162 million, or $2.61 per diluted share, compared to $50 million, or $0.94 per diluted share, for the quarter ended September 30, 2009.

Income of $162 million consisted of the following: $30 million of net interest income less expenses (net of preferred dividends), $37 million of other income, and $95 million from the reversal of prior valuation allowances on loans net of the impairment on securities, and a gain on the extinguishing of CDO debt partially offset by the decrease in value of the Company's derivatives.

Newcastle management has plenty of work ahead of it to return to glory and perhaps reinstate what was once a very nice dividend paying stock. Although they continue to reduce and restructure debt there is still plenty of it. However, certain metrics are noteworthy. The PEG ratio is 0.64, the price-to-sales is 0.28, and it is trading at a price-to-cash-flow of 3.96, less than half the market average.

One more very important factor, in particular for investors ahead of the curve, if and when it stabilizes at a stock price over $5.00 per share (which could even happen today) many institutional investors will be able to consider adding it to their portfolios again, increasing demand for the stock.

Having bought in at 60 cents, I am looking at over an 800% gain and climbing. I have been following this stock from when it was in the low $20's, and glad I did. Also props to "my pal Sir John Templeton" for his coaching. Congratulations to anyone that acted on my posts four dollars ago.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value™ and Serious Money. Disclosure: He owns shares and options of NCT.