Leucadia owned a stake in mid-market investment bank Jefferies Financial Group (JEF) and increased its position when the company came under attack from short sellers who incorrectly believed it had an illiquid balance sheet in 2011, explains Gordon Pape, editor of Internet Wealth Builder.

We previously recommended Leucadia as a smaller version of Warren Buffett's conglomerate, Berkshire Hathaway (BRK.B), with which Jefferies has a commercial mortgage servicing joint venture called Berkadia.

The Jefferies management team of CEO Rich Handler and President Brian Friedman took over from Leucadia founders Ian Cumming and Joseph Steinberg in 2015. They have refocused the company on financial services, leading to its being renamed Jefferies to reflect the new orientation.

The company successfully realized large gains from the sale of a 48% interest in National Beef ($860 million in the second quarter) and auto dealership Garcadia, ($222 million in the third quarter). However, the share price has declined from a five-year high of $28.30 in January.

Net income attributable to Jefferies was $193 million ($0.55 per share) for the third quarter and $1.04 billion ($2.91) for the first nine months.

Jefferies earnings tend to be lumpy as capital gains and mark to market gains and losses on its investments are reflected in its numbers. The year end of the company is being changed to Nov. 30 to align with its Jefferies subsidiary year end.

The dividend has doubled over the last three years to $0.50 per year, giving it a 2.3% yield. Higher interest rates and increased volatility are helpful to an investment bank like Jefferies although the big sell-off in October falls outside these figures.

Leucadia, as Jefferies was then known, was recommended for investors who could tolerate higher volatility in exchange for higher returns. While the company has realized excellent returns on a number of its major investments, the market is still reluctant to recognize the move towards a steadier return represented by the increasing focus on financial services.

As a result, Jefferies sells at a discount to its larger banking peers and at a one-third discount to its conservatively estimated book value of $33.20. It remains a Buy for its widely diversified and non-correlated range of subsidiaries and the track record of its conservative management.

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