by Travis Johnson, Stock Gumshoe | November 28, 2018 2:41 pm
My experience in digging through these teaser ads over the past dozen years tells me that the super-expensive “premium” newsletters are no more likely to generate long-term returns than the “entry level” newsletters… but we’re conditioned to associate price with value, and $5,000 newsletters are simply out of reach for so many small investors, so our readers tend to assume that they must be better… that there must be some secret insight or stock tips reserved for these well-heeled subscribers.
And maybe there is sometimes, I don’t know, but it seems mostly to be chance — and publishers usually use the high-priced letters to recommend stuff that’s dramatically more risky and volatile… whether that means junior miners, or options and warrants, or hit or miss tech or biotech stocks, or even, in more recent years particularly, the “private placements” that small investors find so appealing (it’s Private! I’m an insider!)
There are a lot of small companies that you can easily write about to 500 friends without impacting the market too much, but can’t really recommend to 50,000 subscribers. So what you often get with the high-end newsletters, other than a jolt to your credit card statement, is a somewhat higher-touch experience (like staying at a Marriott instead of a Courtyard Marriott, perhaps), and a dramatically riskier set of investment ideas.
That’s a long intro to tell you that, yes, when a $5,000 newsletter has a widely-distributed ad touting the next big thing… readers tend to go a little bonkers with the notion that if it’s this much more expensive, the stock idea must be that much better! Woohoo!
And this week, the pricey letter banging on our e-door is from Frank Curzio, who’s pitching his Curzio Venture Opportunities service (currently “on sale” for $297/month, which would be about $3,500 a year… a pretty typical “sale” price for a $5,000 letter, no one ever advertises their letters at list price).
Most of Curzio’s previous ads for this newsletter have been in the junior mining space, which is not terribly appealing for investors at the moment unless they like that “let’s catch a falling knife” game — so it probably shouldn’t be surprising that he’s got a different idea to pitch this time: Land.
He starts out the ad by talking about his dad’s great success investing in Texas Pacific land Trust (TPL) 20 years ago, that’s the old railroad land owner in Texas that is now a beneficiary of lots of oil and gas royalties (and even after coming back down sharply in recent months, it’s still risen 100X in value since the late 90s).
The that leads into the new idea he’s teasing:
“Companies like Texas Pacific fly under the radar of most investors and brokerage firms. It’s an operator of land… sitting on property for years, looking to sell or lease it.
“And most land operators have strong balance sheets and rarely acquire companies. That means there’s no value for Wall Street to provide research on these companies, since they won’t generate investment fees….
“… there’s one under-the-radar land company right now that reminds me of Texas Pacific in the late 1990s….
“With humble roots in cattle ranching and fruit farming, this company now manages world-class properties… providing leases, utilities, and resort amenities.”
Hmm… leases, utilities and resort amenities sounds a little less sexy than oil royalties… but what else do we learn about this secret land stock?
“This company acquired tens of thousands of acres over 100 years ago. And right now its land is valued for pennies on the dollar. That’s incredible, considering the property is prime real estate—located in one of the most beautiful and prominent places in America.”
Frank says this might triple your investment, based on “super conservative estimates” when the value of the real estate is realized… and that the land is carried on the balance sheet at “a fraction of what it’s worth today.”
That’s been the case with a lot of the old ranch, timber or railroad companies who have massive land holdings — they carry that land on the balance sheet at their original cost, which means there’s “hidden value” that can be realized if they are ever able to upgrade or sell the land. I don’t know what the current state of accounting rules is when it comes to land, but presumably there’s still some stuff out there that’s worth more than its reported value.
Other clues? He says that he has already recommended the stock to Curzio Venture Opportunities subscribers, so it’s not a brand new idea — and that it’s up 11% since that recommendation “a few months ago.”
And, well, that’s about it… though he does also say he’s got a new “triple digit” opportunity to release in tomorrow’s issue (no clues on that one, sadly).
So let’s see what the Thinkolator says.
Ugh, the weather has been ugly up here — first I’ve got to find my other boot, which the dog keeps stealing, and slog through the puddles… then scrape a bit of ice off the Thinkolator’s hood, and dry the hopper so our clues don’t get stuck. But she’s a good old beastie and starts up on the first pull, so shoveling our clues in nice and slow works just fine and doesn’t disturb the neighbors too much. A little extra time to chew on this one, but eventually our answer does come out the other end: This is very likely Maui Land and Pineapple (MLP).
That’s not a 100% certain match, sad to say — but it’s the best one we’ve got so far. There are quite a few other old landholding companies who might feasibly match some of those limited clues, including Tejon Ranch (TRC) in Southern California, which has not had the opportunity to return 11% over the past six months (in fact, it’s down more than 25% since May, in what has been a pretty steady decline… and is just about at a two-year low right now)… or their near-neighbor, lemon orchard owner Limoneira (LMNR), which would have almost certainly been stopped out for Curzio in September when it dropped from $32 to now $24 but could technically still be up 11% if you had bought it back in early March (what, after all, does “a few” months mean? My dictionary still says “three or more”). Consolidated-Tomoka (CTO) is right near its low for the year as well, despite its “crown jewel” land holdings in Daytona, FL… as is St. Joe (JOE), with its huge Florida pandhandle timberland holdings and high-profile investors (both long and short) over the years… and even Alexander and Baldwin (ALEX), which, like Maui Land, is valued largely based on its Hawaii landholdings. The market has not been friendly to these largely unprofitable or agricultural stocks lately.
Other feasible matches could include Howard Hughes (HHC), which owns some irreplaceable real estate assets… though it’s more of a master planned community developer now, and also hasn’t really had a chance to rise 11% this year… or Alico (ALCO), which is up on the year and is actually doing pretty well, with the possibility that you could have an 11% gain on the stock if you had bought as recently as April or maybe even caught the lows in May or June…. though Alico, which is trying to actively manage for “higher and better use” like many big landholders, is still, like Limoneira, more of an agribusiness company and doesn’t have anything the way of development or “resort fee” income as far as I’m aware, they’re really dependent on their orange crop more than anything else (so Hurricane Irma and the associated insurance payouts from that are impacting the income statement as much as anything else these days).
Maui Land and Pineapple does also fit the clues better than the others — it does have “humble” roots in ranching and farming, though I don’t know exactly when the bulk of the land was actually acquired. They were pioneers of large scale pineapple farming on Maui under the leadership of the Baldwin brothers in the late 1890s, and their website says that they owned and managed over 22,000 acres “by 1923” and that forms the core of their holdings to this day, though a large chunk of that was turned into a private nature preserve that they still manage.
They went public many years later, in 1969, and started to enter the resort business and think about monetizing their land in the early 1970s, with the Kapalua resort and associated tennis courts and nature preserves and golf courses… and their revenue comes from those resort facilities (including a Ritz-Carlton), some commercial land leases, and the water utilities they own on the island, but, far more importantly, from land sales as they encourage residential development of these communities. Their real strength, if it’s to come, will be from building up their master planned residential communities with more high-end land sales from the relatively small portion of their land holdings around Kapalua that’s most valuable.
And there’s not much to complicate that story…. Unlike most of the historical “ranch” companies like Tejon and Limoneira and Alico in other states, Maui Land and Pineapple is no longer an agricultural business — Hawaiian land and employees are too valuable to waste on pineapples, apparently (there are still pineapple plantations in Hawaii, including Dole’s which doubles as a tourist attraction, but MLP was losing money on pineapple growing and halted planting and harvesting in 2009). So it’s really all about how the Kapalua area of West Maui continues to develop and attract home buyers and vacationers… and, well, I’ve never been there and don’t know anything about Hawaii real estate trends or tourism, so I’ll leave it to you to make your own call on that front.
The stock has been pretty much rangebound for the past eight months or so, with seemingly a little magnet around the $12 point following the decline from 2017’s much better prices (it got as high as about $30 in mid-2017, then collapsed to the mid-teens before coming down again early this year to the current range. It’s hard to guess where the future value of this real estate will be, the company had a market cap as low as about $50 million back in 2010, when no one loved real estate and the cash flow from their pineapple business disappeared and they were in restructuring and (arguably) “rescue” mode… but even more recently it has seen both $200 million and $300 million in market cap just this year, so, as is often the case, investing based on real estate value is probably going to require patience. Unlike some past years (2016, for example), they don’t have a lot of debt on the books to pressure them to sell property quickly… but as a real estate company that doesn’t currently have much leverage, they also aren’t all that likely to generate quick returns if they’re focused on a slow grind of profitably selling down their still large real estate holdings, and their “ongoing” lease and fee income isn’t enough to support the stock by itself just yet.
I have no idea what the timing of sales will be in the future — this year has been a weak one in that regard, whether because of volcano worries or just development timelines or something else. According to their latest quarterly release, in the first nine months of this year they did not have any meaningful real estate sales, and the leasing and utilities and resort fees were not enough to cover their operating costs so they reported a loss… in the first nine months of last year, they had $14 million in real estate revenue from sales and $12.5 million of that went right to the bottom line as profits.
As Curzio noted, there is no analyst coverage — partly because they’re not raising money from debt or equity (so there’s nothing to get the big banks interested), but mostly because they’re quite small and pretty boring in the grand scheme of things.
So I’ll leave you there, dear friends — have another possible match for this tease? Think that Maui Land is an appealing investment candidate right now? Have a fondness for any of the other “land” stocks out there? Let us know with a comment below.
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