Hidden Assets

07/29/2005 12:00 am EST

Focus:

Paul Tracy

Editor, The StreetAuthority Market Advisor

"Accounting rules require companies to list certain assets, such as real estate, on their balance sheet at their original cost," notes Paul Tracy. "But the value of those assets are not adjusted over time." Here, he looks at a trio of firms with 'hidden" real estate assets.

"Six Flags (PKS NYSE) is the world's largest pure-play amusement and water-park operator. Six Flags owns parks in 34 of the 50 largest metropolitan areas of the US. Around each park, the firm owns hundreds of acres of undeveloped land, much of which was bought 10, 20 or even 40 years ago. This includes properties in some of America's hottest real estate markets, including Los Angeles, Washington DC, Atlanta, and Houston. A potential acquirer could simply buy up Six Flags and then sell off its real estate assets, likely pocketing a tidy profit. Alternatively, Six Flags could use the land to build residential or commercial properties. Or, the company could sell off some of the land around its parks to raise cash. Adding to my conviction are investments from the likes of Bill Gates and Dan Snyder (owner of the Washington Redskins). They wouldn't be invested so heavily in this struggling company if they didn't see tremendous value in the firm's assets.

"Scotts Liquid Gold (SLGD OTC BB) is a beauty and household products distributor. Its wood preservative and cleaner is probably its best-known brand. It has been a staple in American households for more than 30 years. In 1992, the company expanded into the beauty care business through the acquisition of Neoteric Cosmetics. The company sells products such as the Jeunesse beauty care line and the Alpha Hydrox line of skin care products. More importantly, however, Scott's has a hidden asset that's been ignored by the investing public. It owns more than 16 acres of land in Denver with three buildings and a parking garage. This real estate alone could be worth more than $12 million, nearly double the company's current enterprise value of just $7 million. And if management succeeds in turning around its core business, then the stock should be worth a lot more than that.

"American International Industries (AMIN OTC BB) is a holding company, which owns a majority stake in Delta Seaboard Well Service. In addition, its also owns Brenham Oil & Gas, a company with royalty interests in several oil and gas producing properties. In April, the firm announced plans to sell 287 acres of waterfront property in Galveston, Texas for a list price of more than $16 million. The property previously had been carried on the company's balance sheet at its historical value of just $225,000. Although that might not seem like a great deal of cash, keep in mind that American International's current enterprise value currently sits at just over $17 million. In other words, the company is likely to sell its waterfront property-which represents just one of the firm's many assets- for a sale price that is almost equal to the entire value Wall Street has currently placed on the stock."

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