InvestorPlace Blogs is powered by Marketocracy. Marketocracy has authorized Investor Place Blogs as an official registrar for voting through Marketocracy's Investment Research Rating service. Registered members of InvestorPlace Blogs are linked with a Marketocracy account to establish voting power based on their performance of trading and posting on stocks.
BLG is a combination of building materials supply and construction services, and finished 2007 with a massive write off of goodwill and customer relationships. The stock has tanked accordingly, and at today's close of 4.91 it is trading at a discount to its tangible book value, which stands at 5.94. It's attractive as a play on the eventual housing recovery, and offers a margin of security due to trading under tangible book. I added it to my SLOport at 4.07 on 3/14, when the market was at its recent low point.
I got the idea from Krishna Gullapalli, a value investor who did very well in SLO1. I followed it for several months and when it got down around 4.00 I emailed Mr. Gullapalli who agreed it was probably a good time to stick my toe in the water. Initial results have been surprisingly good, consisting of a 20% return in a matter of weeks. I had it in my personal portfolio also but elected to take the quick profit and hold the cash for other opportunities.
Visibility for the next few quarters is not good, and when taking the writeoff, BLG got a very limited tax benefit because they can't realistically project enough earnings to use the losses against. That has been happening a fair amount lately - a number of homebuilders have written off tax benefits for the same reason. Some Financials are in the same boat.
There was an article in the WSJ on Thursday, about a new piece of legislation which would increase the time period to carry back losses from 2 years to 4 years. This would be a big benefit to homebuilders and also to BLG, since it would enable them to recover their taxes, typiclly 35%, on some of the high earnings years of the housing bubble. I hope that is not the only reason this stock is rallying, because I don't like my results to depend on the whim of our legislators. Apparently the PACs of the NAHB (National Association of Homebuilders) stopped donating until some legislation was passed - no tickee, no washee. That's America, the free enterprise system at its best.
Anyway, back in 2002 and 2003, BLG was able to earn .71 and .74 per share. Using that as normalized earnings a P/E of 12 would get you up over 8.00. a doubler, more or less. Earnings were much higher in 2005 and 2006 but I don't think recovery to that level is in the cards for a couple of years. They have some debt but they have amended their terms and have an unused revolver good until November 2011, by which time hopefully things will be moving again.
They plan to do some reorganizing but as of the last earnings report they had not completed their plan. I will look at this again when they announce their plan. In the meantime, if it gets up around its 5.94 tangible book, that might be a good time to take profits.
Tom
| 
RSS 2.0
Comments (1)
Nice trade, Tom. I was in BLG back in its heyday when it made an exquisite rising channel. It was BMHC then. I've been waiting for a washout on high volume which has yet to occur. They don't always bottom that way so it just might tip-toe back up but I doubt it.
Anecdotally, I know some people that either worked there or are hanging on and I understand morale isn't very high because of layoffs. They also closed some outlets. Maybe the downsizing may help. However, it does bear watching.
Bob C.
Posted by creaturecomfort | April 8, 2008 5:36 AM