Friday, April 19, 2013

Solving the Ridley

Lately, some of the longest-standing names on the Stock Ideas page have been graduating to the Value In Action page. The latest stock to make this transition is now Ridley Inc, maker and distributor of animal feed products.

This relatively obscure stock has even less liquidity than you would expect for a company trading for less than $100 million (as it did when it was first brought up on this site). That's because the company is majority-owned.

While majority-ownership may normally scare investors off, in this case the majority ownership is a very good thing for minority investors. That's because the majority owner is not some manager looking to expand his empire. Nor is it some already-rich owner who cares more about prestige than generating returns. The majority owner is none other than value investing behemoth Fairfax Financial.

This kind of scenario is great for value investors! A whole bunch of things you'd normally have to worry about (e.g. excessive compensation, acquisitions at any price, questionable growth strategies) are all taken care of for you! Considering that the company traded for substantial discounts to both earnings and book value, this became a no-brainer.

Alas, Ridley now trades above its book value, having recently issued a giant special dividend. I would love to find more investments with the same characteristics as this one.

Disclosure: No position

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