My Favorite Stock Right Now
On Friday, I got home from the office a little early. The weather was beautiful and there was a slight breeze. It was about 80 degrees. I grabbed a cool drink and sat on the back porch.
Linda was riding her horses.
After awhile, I grabbed some reading material. If you know me, you know my reading material is always about business.
I picked up the Primedia (PRM) 10-K and Proxy.
Don’t roll your eyes at me right now. Yes, this information was sent out over a month ago… yes, I was slow to review it. I’d tossed the information on my giant pile of things to read. And I’m just getting to it now.
Regardless of my delay, this 10-K and Proxy holds a ton of interesting and relevant information. Most companies post this information right on their corporate website… free for anyone to view.
Remember, you can never learn too much about one of your investments… and this is one of my favorites.
Let me show you why…
Flipping through the proxy, I learned KKR is still one of the largest stockholders. Take a quick look at page 35 of the Proxy… KKR owns over 61.8% of the company – which is fantastic. You’ll also learn that KKR paid themselves a consulting fee of $400,000 in 2009 – not so fantastic.
KKR, by the way, is one of the oldest private equity shops around. They’ve made billions buying and selling businesses. When people talk about “smart money”, they mean investors like KKR!
You can learn a lot from the 10-K and Proxy.
Another big investor, Marathon Asset Management, owns 12.5%… and the Directors and Officers own over 3.4%. A little quick math and you’ll realize more than 77% of Primedia stock is held by this small group of people.
I see it as a great sign and here’s why…
The company has approximately 44 million shares outstanding. If 77% is closely held, it leaves about 23% of the stock out on the open market. 23% of 44 million is a mere 10.1 million shares.
Think of it this way… if another investor wants to buy a big chunk of this stock, there’s only 10 million shares out there. And we all know how supply and demand works. Less supply and more demand lead to higher prices!
I learned that simply by reading the Proxy statement.
Now, let’s take a quick look at the 10-K…
This huge document is overflowing with information. The 10-K talks about product offerings, cost cutting efforts, Net Operating Losses, stock repurchase programs, and even dividends.
Let’s just say, everything I learned made me smile.
Take for example Primedia’s product offerings (page 26 for those of you following along in the 10-K). Their New Home Guide revenue was off by 50% because of the soft housing market. Many would see this as a huge negative. I see it positively. Just think… when the housing market returns (and it will), advertising will accelerate… and this one product could see huge growth in revenue and earnings!
You’ll also learn about cost cutting. Just look at page 27 and you’ll see their cost cutting efforts. Who doesn’t like a management team that’s watching every penny?
On page 22 of the 10-K, you’ll learn about a hidden asset they have – NOLs.
NOLs are Net Operating Losses. It means that sometime in the past, the company lost a big chunk of money ($452.4 million in Primedia’s case). That $450 million isn’t an asset, but it can be used to offset taxes from future profits.
Primedia profits generated today are shielded from the tax man… And that gives them more money to distribute to shareholders!
This leads me to their share repurchase program. On page 75, you’ll see the company is authorized to buy up to $5.0 million in common stock from the market. I like the plan and I think management should push to make it bigger!
And that brings me to page 38 of the 10-K. Here you’ll discover management is paying out about $12 million a year in dividends. It’s all going to fatten the pocketbooks of shareholders.
When I bought Primedia back in the fall of 2008, the P/E ratio was 1. The company was just starting to pay a dividend of $0.07 a quarter. The dividend yield was 28%!
Here I am a year and a half later. The stock has climbed from $1 to $3.50 and I’ve grabbed more than $0.42 per share in dividends! (The longer I hold, the higher the dividend number will go.)
My cost basis is now a mere $0.65! With the stock appreciation, I’m sitting on gains of more than 438%. That’s why Primedia is my favorite stock right now.
So if you don’t already have a position, should you buy Primedia today?
My short answer is YES!
Of course, I own this stock so I’m a bit biased.
Think of it this way… The company has a simple business model, they’re generating tons of cash from operations, and their dividend yield is over 7.9%. Owning Primedia gives you an opportunity to invest alongside some of the brightest investors out there (KKR). Don’t pass up this opportunity.
Category: Dividend Stocks
