A Look at Loews
12/26/2003 12:00 am EST
Gordon Pape publishes five newsletters; his monthly Top Stocks features favorites in various categories, including top picks for growth, income, and value-oriented investors. Contributing editor Irwin Michael reviews the value stock of the month—Loews Corp.
"Loews Corp. (LTR NYSE) is a New York City-based holding company. Its largest holdings include: majority stakes in CNA Financial, an insurance company; Lorillard, the largest producer of menthol cigarettes in the US; and Diamond Offshore, which is engaged in the contract drilling of offshore oil and gas wells. Loews also has a number of wholly-owned subsidiaries including Loews Hotels and Bulova watches.
"Why do we like it? We believe that Loews’ net asset value approximates $67 a share, based on the current share prices of its publicly-traded subsidiaries and the book value of its remaining businesses. The shares currently trade at a 33% discount to our estimate of net asset value. We believe the shares of Loews’ two largest public subsidiaries, CNA Financial and Lorillard, are also undervalued since they, too, are trading at significant discounts to their fair value. In other words, if Loews and its component parts were valued at either book value or peer comparables, we believe that Loews would be worth substantially more than its NAV of $67.
"On Nov. 10, Loews reported a net loss for the third quarter of $1.4 billion. These results were significantly impacted by charges at CNA Financial. It is important, however, to understand that the news was largely reflected in the price of both Loews and CNA shares. The charges were related to underwriting mistakes made by a management team that is no longer at the company. In fact, we believe that, if anything, these events could spell relief for anxious investors and signal a bottom for the stock. Loews is suitable for patient investors seeking capital gains potential with limited downside risk. We rate the stock as a conservative buy."