“One of the Greatest Businesses We’ve Ever Found”, plus a look at Facebook for the Friday File

Solving a Dan Ferris teaser, and sharing some thoughts on advertising stocks

By Travis Johnson, Stock Gumshoe, November 11, 2014

We’re closing up shop early today for Veteran’s Day, and in the spirit of the holiday we’re running a membership special today. Stock Gumshoe will donate 50% of all membership revenue today and tomorrow to Homes for our Troops, an excellent charitable organization that builds specially adapted homes for severely disabled veterans — so for those who are thinking they might join as Irregulars (our paying members), I thought I’d give you a taste of the benefits that the Irregulars receive — aside, that is, from the warm feeling they get in their belly from supporting Stock Gumshoe and, this week, Homes for our Troops. (This is part of our “Gumshoe Gives Back” campaign that we do every year — this year we’re spreading it out a bit instead of doing it all in one concentrated week — we’ll have a couple more opportunities to join and have some of your membership contribution benefit a charity or nonprofit over the next few weeks).

So… what follows is the Friday File from about a month ago. It has not been edited, updated or revised — the teaser solution stock, PHX, is down about 20% from the day this article first came out, so in retrospect I’m glad that I said that I liked the business model but saw “little real rush” for this very volatile energy stock since we were then in the crush of falling oil prices… but maybe you’ll find it more appealing now. The Irregulars, in addition to the other benefits they receive for being the backbone that supports Stock Gumshoe (including guest articles and columns, the ability to start discussion topics, and the “Quick Take” box summarizing each article), receive special commentary each Friday from yours truly. Those commentaries often include updates on stocks I like and follow, new ideas I want to explore for you, or teaser solutions similar to what’s in the free articles, and they often read something like this:

—from 10/10/14—

There are two things I want to do for your Friday File today: chatter a bit about online advertising and Facebook, partly because I’ve been looking into the sector and partly because folks have been asking me about some of the stocks; and solve a Dan Ferris teaser pitch for y’all.

First, the teaser pitch. Dan Ferris edits Extreme Value for Stansberry & Associates, and this latest pitch of his is probably for a smaller company and wasn’t really widely teased — it has been pitched only in the S&A free newsletters, from what I can tell, like the S&A Digest, and some of those ads have been forwarded to me.

The emails quote Mike Barrett, who works on Extreme Value with Ferris:

“In the July issue of Extreme Value, we told readers about one of the greatest businesses we’ve ever found.

“Last month, the story behind our investment thesis got even better. Fortunately, most investors still haven’t figured this out. And the recent market weakness pushed this unknown small cap below our buy-up-to price.”

More clues:

“Most companies issue shares to raise money… This company hasn’t issued a single new share (other than share splits) since it went public 35 years ago. And it has paid a regular dividend for more than 50 years….

“What makes this company really special is its assets – the perpetual mineral rights to more than 250,000 acres across America where oil and natural gas are prolific… Places like the Fayetteville Shale in Arkansas, the Permian Basin in Texas, and the emerging South Central Oklahoma Oil Province (also referred to as SCOOP).

“Most energy companies must acquire leasehold interests from mineral owners, giving them the right to look for and extract any oil and gas they find. In return, energy companies are obligated to pay the mineral owner a percentage of the oil and gas proceeds (or a “royalty”). But the company we recommended is the mineral owner. That means it gets to collect (and keep) the royalties, not pay them. It also uses its oil and gas expertise to identify the highest-returning wells drilled on its acreage, then takes small working interests in these wells to generate additional revenue.”

So it’s not a lot, right? But don’t worry, you’ve got the Mighty, Mighty Thinkolator on your side — this is Pandhandle Oil & Gas (PHX).

They have indeed been paying a dividend for 50 years, and they did go public 35 years ago (1979), and it does own “more than 250,000 acres” of mineral rights (255,000, actually). This is al