“How A Tiny Company That The SEC Forced To Go Public Could Hand You $50,000”

Sifting through the Sovereign Society teaser for an Ag pick

By Travis Johnson, Stock Gumshoe, January 3, 2011

Here’s how this latest teaser ad begins:

“On April 30, 2011, at a small gathering near Los Angeles… this little Agribusiness will make an announcement that could catapult its stock from $28 to over $150 in the coming months…

“On May 27th, 2010, a private California-based company quietly went public.

“Not because it wanted to or because it needed to raise capital, but because of an obscure SEC regulation.

“You see, when a private company has 500 shareholders or more it must begin to publicly file its financial statements with the SEC. Once a company crosses that threshold, it makes little sense for it not to go public.

“Now here’s the thing, because this tiny Agribusiness went public simply to remain SEC compliant – it went virtually unnoticed.”

So it’s a bit of a familiar theme — undervalued assets because they’re carried on the books at their purchase price from 100 years ago, valuable water and land rights, and a company that’s flying under Wall Street’s radar and hasn’t been “noticed” yet early in its life as a public firm.

And the pitch is not for just a regular ‘ol newsletter from the Sovereign Society folks, it’s for their “lifetime” basket — you pay a huge sum up front ($8,000 in this case), and get access to a whole bunch of their newsletters for life … the letter that’s spurring interest here is the one they tease most actively, a new letter that they’re calling Global Growth Strategist and that will launch soon (or maybe just launched), with this special report about an undervalued agribusiness stock.

But, in case you don’t happen to have eight thousand smackers lying around — or don’t feel like parting with it at the moment — perhaps we could just identify the super-secret stock they’re teasing. Sound good? Excellent, first we’ll need a few more clues:

We get a few specifics about the company in this bit of the pitch:

“For 117 years, this tiny Agribusiness has acquired some of the most valuable real estate in America.

“It owns 7,300 acres of land just north of Los Angeles. The company has had much of this land on its books for more than 100 years. Meaning it’s valued at just a few dollars per acre – a miniscule fraction of the land’s value today.

“Indeed, similar orchards in Santa Paula, California, where the company has much of its operations, now fetch between $35,000 and $80,000 an acre.

“That means its land alone could be worth as much as $580 million.

“But it owns more than just the land…

“It also owns ‘adjudicated’ water rights. This means it can sell the water rights it owns… and in arid California, water rights are liquid gold.”

And we hear third-hand that someone at PICO holdings (PICO — a publicly traded company that holds some Nevada water rights) told Jeff Opdyke, who edits this particular newsletter being teased, that he thinks that this teased company’s water rights in California could be worth close to $500 million.

Which is part of why we’re told that an investment in this stock could go up six times in value by April 30, which is less than five months away — certainly returns that none of us would reject. The stock, we’re told, currently trades near $28 but is “worth” closer to $150 per share. Looked at another way, they tease that the land and water could each be worth as much as $500 million for a total asset value of better than one billion dollars, but the market cap is down near $300 million right now.

They even go so far as to speculate as to whether this could be the “next Google” or the “next Apple” — though in this case, they mean that it would be the next “reluctantly public” company (meaning, they gave out enough shares to employees and venture investors that they had to file with the SEC) with shoot-out-the-lights performance.

And we also learn briefly about their actual business — while they own land and water rights, this is a fruit producer, that land is mostly orchards:

“For over 100 years, this tiny California-based company has quietly become one of the top exporters of lemons, avocados and oranges to Asia.

It has contracts in place to ship to the fastest growing Asian markets. From China to Japan to Korea… these countries can’t get enough of their Navel and Valencia oranges.”

OK, so that’s certainly enough to identify the company for you — and it is a fairly new-to-the-markets company that I’ve never looked at before, so I can at least thank Opdyke for bringing something novel to my attention. This is …

Limoneira Company (LMNR)

And yes, this is a big avocado and citrus grower in California (they say they’re the biggest avocado grower, and one of the biggest lemon growers — most of their money comes from lemons right now), and they have been around since 1893 (that’s 117 years, if you’re checking the clues). They do have an investor presentation on their website [pdf file] if you’d like to get a quick idea of how they see themselves. They are headquartered in Santa Paula, CA, and most of their operations are down in that part of the state, roughly between LA and Santa Barbara.

And like some other big century-old agribusinesses you might have heard of, part of Limoneira’s plan is to monetize their land and water assets through real estate development (not unlike Tejon Ranch or St. Joe). They have some big areas that are moving forward in Santa Paula (the biggest being what they call East Area 1 and East Area 2), which they say, probably with some optimism, will begin construction in the Spring, so perhaps that’s the reason for the teaser bit that says we’ll be rich by the time they make a special announcement around April 30. Still, however, they appear far more focused on continuing expansion of their agricultural businesses than on just converting all their land and water holdings into money for shareholders — they note that their long-term plan includes expansion of lemon and avocado growing and packing in South America, and brand-building within their lemon business.

The company also holds some other assets and income streams — they have a cross-shareholding with Calavo, which buys and markets their avocados, they own shares in a number of mutual water companies, they own a fair amount of rental real estate, much of which houses their workers, and they lease out some of their farmland. But the company is overwhelmingly a lemon grower and packer right now, and will remain so into the near future unless the California housing market suddenly allows them to ramp up sales and construction and turn their projects, particularly the big East Area projects in Santa Paula, into McMansion communities or something equally lucrative.

I have no sense of how their real estate development is proceeding — the words from them are mostly optimistic, but I think we all know how far the California housing market has to go to get back to anything approaching normalcy. I suppose there’s always room for development because there are always some folks who want new homes, but I don’t think you could classify those Santa Paula projects as a “slam dunk” at the moment — probably a better bet is to count on their lemon growing and to hope that they’re able to get the timing right for bigger developments, since these kinds of projects from other landowners (like the aforementioned Tejon Ranch in California and St. Joe in Florida) always seem to take far, far longer than investors initially hope — even when the economy and real estate market are doing well and in some semblance of balance.

In terms of the agribusiness side, it looks from their presentation materials as though 2009 was a bit of a weak year for lemons, but that things have snapped back in terms of production and revenue so far in 2010, so they are profitable right now, with a trailing PE reported at about 600. If you use the adjusted numbers that show their business much more favorably — like EBITDA, which lets you ignore the fairly high interest expense and depreciation/amortization charges, then LMNR has typically posted somewhere between $8-10 million in annual EBITDA for the last several years (ignoring the money-losing year of 2009), which means that they’re trading for something in the neighborhood of about 30X EBITDA.

That’s kind of a lot for a company that hasn’t grown over the last five years, so clearly investors in this firm are doing an asset valuation … or anticipating that either their agribusiness expansion, or their real estate development will perk up the income statement in the years to come. There are no analysts covering this stock yet with estimates, so we’re left on our own to figure out whether or not the picture looks sunny for Limoneira — if you’re looking for some additional commentary, there was a good SeekingAlpha analysis of LMNR over the Summer, useful for some perspective if you keep in mind the dated nature of the comments, and there was some local news coverage when they decided to open up what had effectively been a family company — including the little tidbit that now, with increased filing oversight, all investors get to find out that the company is bankrolling the auto racing career of the son of a board member (he’ll have to pay them back, though if he goes to college — “settles down”, to read between the lines — he won’t have to pay any interest … straight out of a soap opera plot, no?)

As for me, I’ll color myself a bit intrigued but I’d have to learn quite a bit more about the company before I became comfortable paying this much for the shares. As their cotton colleagues JG Boswell (BWEL — also a CA water story that sometimes intrigues me) still do, LMNR used to trade on the pink sheets with very low volume before they got their Nasdaq listing and started trying to raise their profile in 2010, and though volume has picked up dramatically with the major listing it’s still fairly light, so any increase in interest can move the shares pretty quickly. Their push for more investor attention over the Summer and Fall probably has a fair amount to do with the spike in price to the high 20s where you could buy shares now if you so chose, we’re now nearing $30+ highs that this stock last saw in 2007. The shares are obviously not completely unknown, and with a market cap of $300 million they’re small but not ridiculously so — they are in the Russell 2000 index, and there is some institutional ownership, though much of the stock is still controlled by the founding farm families.

So what do you think? Ready to place your bets on lemons and Southern California real estate and water? Think Limoneira looks like an appealing pick? Let us know with a comment below.

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26 Comments on "“How A Tiny Company That The SEC Forced To Go Public Could Hand You $50,000”"

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Jerry
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Jerry
January 3, 2011 4:26 pm
I think this is way too optimistic. For one thing California is headed in only one direction an that is down. I think there is very high risk on the government side because the state and it's localities are desperate for money. Don't be suprised if there are further cripling regulations against their water rights or some type of government taking of these water rights for the cash strapped State coffers. Also I was in the citrus business in Florida. And while it can be lucrative it is quite a crapshoot with weather and once again government regulations and interference.… Read more »
Joe
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Joe
January 3, 2011 5:49 pm

This is one for my watch list! I keep a yahoo watch portfolio, where I can see a stock break out. I don't like to invest money and wait for years. Sharp upturn, and I may buy, maybe just a little. If it continues I add if I can afford it. Joe (pcolajoe)

Tim Holsworth
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Tim Holsworth
January 3, 2011 6:14 pm

Travis, does your paid subscription address companies that are more often "buys" in your estimation? I appreciate your free site, but am considering your paid subscription…..

Eddy
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Eddy
January 3, 2011 7:17 pm

I had to laugh when opening your expose.No need for me to send a note to the Gumshoe.
You're mighty quick on-the-draw!

Stuart
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Stuart
January 3, 2011 7:45 pm

Too expensive and risky for my tastes. The 5 year chart shows that there are probably a lot of shareholders from 2007 & 8 that paid $28 to $34 per share and as a rookie trader I would expect to see a lot of sell pressure in the mid $30s. Add to that the new Gov, a wet winter and a near bankrupt state. I will leave it alone. Thanx as always to Mr. Gumshoe for another teaser exposed.

Klaus
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Klaus
January 3, 2011 8:16 pm

This is another case where pragmatic thought would seem obscured by Shine-ola. Really folks we're talking lemons here. How many do you eat a year? And Avos,? I live near there and still have to pay $1 ea and they aren't that good here either .What do Ca avos cost in NYC? I say grow your own Avos and legalize pot in ca. to bail out the state.
No I don't smoke and don't care who does just like lemon investors don't eat lemons and don't care who does.

ROSINA
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ROSINA
January 3, 2011 8:33 pm

I am pretty much in agreement with Stuart.
California much too risky right now.
I love avocados and they have cost approximately 99c in NYC BUT mainly imported from Mexico.
I find the risk too high, price too high.
Maybe in a few years?

araven31
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araven31
January 3, 2011 10:46 pm

April 8th there was a 10 for 1 split. That means for every share you owned you go 10more.
How's that for $100 tequila in your Marguarita.

ET69
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ET69
January 4, 2011 1:02 am
This might be a good company to hold long. Forget the housing development- that is years away but the orchard development in South America sounds much more intriguing. As for the water rights — they will be fought over tooth -n-nail in California. by tons of lobbyists – so nothing will change there.. I must confess that I would not want them to develop the land in California as I grew up in Ventura County which used to be called, "the lemon capital of the world" Sadly a lot of people made money from overpopulation and destroyed the entire area… Read more »
Myron Martin
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Myron Martin
January 4, 2011 9:23 am
Like Travis i find this mildly intriguing when you have a family run 117 year old company with water rights and land carried on the books for far less than it is worth today going public. It reminds me of a stock that was sold in a similar way years ago with huge land holdings in Hawaai (pineapple plantations) on which I made very good money. On the other hand I also bought the "water rights" story with Pico, and it never went anywhere but down, so while it is definetely one to WATCH, I agree that it seems a… Read more »
Myron Martin
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Myron Martin
January 4, 2011 9:26 am

The stock I was referencing was Alexander and Baldwin who also own a shipping Co. (Matson from memory) so the stories are very similar, and if Limoneira repeated their stock performance it would certainly be a worthwhile investment.

Isaac
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Isaac
January 4, 2011 1:06 pm

I find it hard to take anyone seriously when they can't spell.

"Meaning it’s valued at just a few dollars per acre – a miniscule fraction of the land’s value today."

It's "minuscule".

Isaac
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Isaac
January 4, 2011 2:42 pm
No offense taken. However, other reference sources which I feel are more reliable say different: http://dictionary.reference.com/browse/minuscule This is from your reference: "The word you've entered isn't in the dictionary. Click on a spelling suggestion below or try again using the search bar above." Additionally, http://dictionary.reference.com/browse/miniscule : Word Origin & History miniscule common misspelling of minuscule. Bottom line, the word is misspelled. I don't find that a problem in most areas, but when done by someone who apparently writes for a living, I take issue with it. And, if the organization can't be bothered to get something so simple correct, how… Read more »
RAM
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RAM
January 4, 2011 5:03 pm

I may consider on a pullback to the 21-23 area. It is not option able, so selling put is out.

Leah 1
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Leah 1
January 4, 2011 6:18 pm

what China has not grown the worlds needs for avos and lemons. i grew up on orange orchard in Australia….its alll gone now….eventually land values will pick up and orchards in advance ecomomices will go….as for water rights i think the CA introduced a new law …law 571 ….lol….may be a stock just to watach out for….

JJ177
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JJ177
January 5, 2011 2:28 am

Post from the grave:

I was broke and starving. The ad said "FREEE money and free FOOOD. Beacuse of the spelling, am now dead.

Who knows what evil lurks in the world of finance. The Gumshoe do!!

david
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david
January 5, 2011 11:41 am

Does anyone follow the Oxford Club recommendations and if so what is their pitch for Jan, 2011, in the communique? Also is there a way to find it online?

Amy
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Amy
January 8, 2011 1:22 pm
I looked at the charts on this stock and for some reason, you fail to mention in the article that the share price was trading for $300 in mid 2007. You also fail to mention that their share price dropped literally overnight in April 2010 from $175/share to $18/share. What is all of this about? Why the big drop? You said also that: and I quote, "we’re now nearing $30+ highs that this stock last saw in 2007." This simply isn't true. Again, their share price was $300 in 2007! So I am not sure where you are getting your… Read more »
Nanoinvestor
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Nanoinvestor
January 8, 2011 5:10 pm

Ref above post by araven31, there was a 10 to 1 split in April, which would account for the apparent "drop."

tou0033a
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tou0033a
October 4, 2012 11:44 pm

i hope nobody lost any money on this one… a real lemon from the Sovereign Society!

Gravity Switch
Admin
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January 3, 2011 7:08 pm

Hi Tim. For the paid folks I do also share a buy idea each month, sometimes a teaser stock and sometimes not, and I provide a bit more opinion in most of my Friday articles for that group than I do in a typical article on the free site.

Bill Lambert
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Bill Lambert
January 4, 2011 2:58 pm

A&B also bought C&H sugar in the early 90's and they have a little cattle bussiness in Stockton, Ca which is what they use the Molassis they produce in Hawaii for to mix in the cattle feed.. They took the sugar cane fields in Hawaii and built Affordable housing on them starting at $350,000.00. A&B / Matson is also getting their feet wet in the China trade. At this time they are leasing 5 ships running to China and the U.S..

streek53
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streek53
January 4, 2011 3:08 pm

Hasn't California passed a law requiring anyone who might conceivably create a job to leave the state ASAP?

Or is this just serendipity?

CA's debt: your tax dollars at work and play… much like the pension plans for union thugs. (My mama isn't too thrilled to be picking up this tab, either!)

Gravity Switch
Admin
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January 8, 2011 1:46 pm

Amy, they had a 10:1 split last Spring, which is why it looks like a big drop on chart systems that missed the split. Given the current share count, the $300 was effectively $30 for our purposes. They needed the split to increase liquidity as a “more public” stock.

Abner Doon
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Abner Doon
January 9, 2011 3:56 pm

I think you are referring to the 10:1 split that araven31 mentioned.

wrkdiver
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wrkdiver
January 12, 2011 1:42 am
Good point. I get ALL my avocados from a tree in my back yard my Mom planted 30 years ago! I give them to the neighbors, friends, give them away at Church and eat way more than I should – best I ever ate. I also have an orange, a lemon, pineapple guava, pomegranate, loquat and grapefruit. I love SoCal! Thanks, Mom! My Granddad was a farmer and ag scares me to death. One good hailstorm or drought and you can lose everything! But I would buy if the price ratio was better – The land and water really is… Read more »
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