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This morning before the market opened, Newcastle Investments (NCT), one of my 2011 stock picks (see Chasing Value: 2011 Picks Dust the S&P) reported earnings that stomped all over analysts estimates. The company reported that in the fourth quarter of 2010, income applicable to common stockholders ("GAAP income") was $197 million, or $3.18 per diluted share, compared to $17 million, or $0.31 per diluted share, in the fourth quarter of 2009.
For the full year 2010, GAAP income was $657 million, or $10.96 per diluted share, compared to a loss applicable to common stockholders ("GAAP loss") of $223 million, or $4.23 per diluted share, in 2009.
At yesterday's closing price of $8.44, the P/E ratio based on trailing earnings was 6.07. Now the P/E is 8.44 / 10.96 or a ridiculous 0.77. Can you say screaming buy -- I did -- and, I am!
For the last six months leading up to Newcastle's inclusion in this years picks, I have been drawing investor attention to a great turnaround story, most recently posting Chasing Value: Newcastle's Huge Gain Leaves Me at a Loss in November when NCT was $3.84. This is a 120% gain in 3.5 months, or 411% annualized.
You would think this would juice the stock, but it's down 30 cents in early morning trading after an initial rise. Clearly profit-taking is natural on the part of investors given the rapid run-up in the stock and the "to good to be true" scenario always on people's minds, including mine.
Insiders were buying stock last May and there has been no selling since. I will be interested to read the most current data when it is available.
Not only is the P/E below 1.0, but the price-to-book (P/B) and price-so-sales (P/S) are too. That price-to-book means Newcastle is still worth a look.
UPDATE: NCT closing price, $7.87, down 0.57 with the market, DJIA off $168.32.
Sheldon Liber is an architect and the CEO of Chasing Value™ Asset Management, Inc., a small private investment company. He writes the columns Chasing Value™ and Serious Money and is on twitter: @ChasingValue. Disclosure: Mr. Liber owns shares and/or options of NCT.
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Reader Comments (Page 1 of 1)
3-04-2011 @ 11:29AM
MatWith1T said...
So about yesterday's $500M shelf filing (more than the current market cap for the whole company)... it change your thesis on the stock at all?
3-04-2011 @ 2:08PM
Sheldon L said...
Mat...
Very good question.
At this time I see no reason for concern.
Here is the intro summary from the prospectus:
"We may offer, issue and sell from time to time, together or separately, shares of our common stock; shares of our preferred stock, which we may issue in one or more series; depositary shares representing shares of our preferred stock; our debt securities, which may be senior, subordinated or junior subordinated debt securities; or warrants to purchase debt or equity securities, up to a maximum aggregate offering price of $500,000,000.00."
Over the last year the management has demonstrated great acumen in allocating resources increasing shareholder value significantly and turning around the company.
If NCT was taking on debt to build a new HQ, buy Jets, or party on some island I would bail out. However that is not the case. The way I see it they have basically created an extended opportunity fund to take advantage of the deals they ... More separately, shares of our common stock; shares of our preferred stock, which we may issue in one or more series; depositary shares representing shares of our preferred stock; our debt securities, which may be senior, subordinated or junior subordinated debt securities; or warrants to purchase debt or equity securities, up to a maximum aggregate offering price of $500,000,000.00.
Over the last year the management has demonstrated great acumen in allocating resources increasing shareholder value significantly and turning around the company.
If NCT was taking on debt to build a new HQ, buy Jets, or party on some island I would bail out. However that is not the case. The way I see it they have basically created an extended opportunity fund to take advantage of the deals they may find in the market place in 2011, just like they did in 2010.
The debt will be carried by the cash-flow or equity of the deals they do.
The debt shelf simply creates more liquidity.