October Idea of the Month: Scary Times? Buy Something Strange

By Travis Johnson, Stock Gumshoe, October 19, 2012

As I usually do in the weeks following the Value Investing Congress, I’m featuring a favorite idea from that Congress as our “Idea of the Month” this time around — and though it was hard to narrow down the list this year I decided to go with one of the smaller and more unusual ideas, a company called ClubLink Enterprises.

ClubLink is a Canadian company, trading at ticker CLK in Toronto and on the pink sheets at CLKXF — we’ll talk more about price in a minute, but if you do end up deciding to buy shares of this one please be careful. It’s not too small to buy, with a market cap over $200 million, but it is small and, more importantly, it has huge insider ownership so the trading volume tends to be low — so always be patient and use limit orders or you’ll end up paying a bit more than you probably really need to. I don’t currently own the stock myself. This stock was the first one presented at the full Congress this year, by Canadian value investor Guy Gottfried, and it did get a bit of a pop from that additional attention, but it has since come down a bit. I think it’s worth buying at the current price near $8, but unless they release surprising news the stock could easily drift a bit lower in the quiet winter months so it may be worth building a position slowly if you agree that it’s an interesting speculation.

So … what’s the story?

Clublink Enterprises is really three businesses: A consistent and profitable Alaska tourism destination that seems to be quite recession-resistant; a cluster of Ontario and Quebec golf courses that generate a lot of cash; and a new cluster of unprofitable or barely profitable Florida golf courses that they bought at fire sale prices over the last three years.

Gottfried’s basic argument is that, based on current EBIT or cash flow multiples, we should consider each the Alaska asset (port and tourist railway) and the Canadian golf courses to be worth roughly $200 million, so even if you ignore one of those cash-flowing operations the company is fairly valued. That’s the the age old argument that you get the other division of the company “for free” … and the deep, unloved value increases even more if you also throw in the currently unprofitable ...

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