My wife is the “Recycling Queen”. I can show her something and ask, “Can this be recycled?”, and within three seconds she can tell me, “Yes” or “No”. If there was a game show called “Can This Be Recycled?”, I have no doubt she would trounce the competition. She also has the “recycling police” under her command—my four sons. They patrol the Abbate household watching my every recycling move. I have been told many times, after throwing something in the trash, “Don’t you know that can be recycled?” I acknowledge I have limitations in recognizing what can be recycled in everyday living. However, in the investment world I have no problem recognizing a recyclable investment idea. This is best illustrated by the fact that during the first quarter, in our Intrinsic Value Equity Strategy, we recycled a company we bought and sold in the past—Oppenheimer Holdings.

Oppenheimer Holdings is a small financial firm that offers brokerage, investment banking and asset management services. About two-thirds of its revenues are derived from asset management—mostly to high net worth individuals. We estimate the intrinsic value of the company to be its tangible book value per share, or what we call the “theoretical liquidation value”. The chart above compares Oppenheimer Holdings’ stock price against our estimated intrinsic value since going public in 2003. Notice how the stock price has tracked our estimated intrinsic value over time.

The first time we owned Oppenheimer Holdings was in 2013. We bought the shares between September 16, 2013 and October 8, 2013—paying an average price of $16.83 or equal to 71 percent of our estimated intrinsic value of $23.65. Within two months the shares appreciated to our estimated intrinsic value and we sold the shares on December 31, 2013 at $23.96 for 42 percent return.

Since we sold our position, Oppenheimer Holdings’ stock price has fallen by 40 percent and reached a price that we think is very attractive. Between February 25th and February 29th we established a position in the stock and paid an average price of $14.37 or 55 percent of our estimated intrinsic value. We estimate the intrinsic value of the company, or its “theoretical liquidation value”, to be $26.13 or 82 percent above our purchase price. We think over the next few years the stock price of this “recycled” investment idea has a good chance of generating an attractive return.


The above post has been excerpted from a recent letter of Granite Value Capital.

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