Monday, March 15, 2010

Bad Times Are Good Times

We've seen how some companies don't take quite as big a hit as do others during recessions, based on the cyclicality of the respective businesses. But surprisingly, some companies actually see business conditions improve during recessions. As an example, consider Daily Journal Corp. (DJCO), a publisher of specialized information services.

The company trades for $96 million, but has no debt and cash and marketable securities of $64 million. The company has been consistently profitable over the last several quarters, and it finished 2009 with operating income of $12 million, which results in a return on equity of 15%!

So how does the company manage to turn in such stellar results while most companies out there are struggling to cut costs to avoid large blots of red ink? The company saw large increases in public notice placements, due to the large number of foreclosures in California and Arizona. Public notice advertising for foreclosures is mandated by law, and so this company is likely to continue to benefit from the foreclosures that are continuing to occur in this tough labour market.

Worried about how the company is investing its large stable of marketable securities? How about its corporate governance structure, or how it allocates its retained earnings? We've recently seen a few companies that are not so shareholder friendly, could this be another one of them? Value investors and fans of corporate governance will be pleased to know that the company's chairman is none other than Charlie Munger, Warren Buffett's right-hand man at Berkshire Hathaway.

Disclosure: None


Anonymous said...

Also, their securities portfolio is mostly WFC, JNJ, and KO.

Ankit Gupta said...

We don't know that for a fact - there's speculation around BYD being in it as well.

Or did you find something in a filing that I've missed?

The Personal Finance Blog said...

This is as recession-proof as a business can get! Scratch that, this business is recession-friendly. This is the kind of business one needs in their portfolio

Anonymous said...

It's not BYD. It's almost likely WFC and some unidentified bonds. The returns from balance sheet to balance sheet reflects the high likelihood that the securities are WFC. Worth noting from Munger's latest letter: "If the Company is to move ahead over the long term, it needs success in its Sustain software business, or gain in online revenue, on a scale not yet achieved despite much effort."