PICO: Poor Man's Berkshire Hathaway Rebounding

NEW YORK ( TheStreet) -- We're finally seeing some new signs of life at PICO Holdings (PICO), a small conglomerate that I have, perhaps unfairly, referred to as the "poor man's Berkshire Hathaway" over the years.

The comparison to Warren Buffet's great empire is unfair and even ridiculous for many reasons, not the least of which has been PICO's poor stock price performance in recent years.

PICO announced Friday that its residential land development and homebuilding subsidiary, UCP plans an IPO to raise up to $125 million.

This sent PICO shares up more than 7% on nine times normal average volume, a huge day for the stock. UCP, which PICO formed in 2007, owns or controls 4,916 residential lots in California (Central Valley and Monterey region) and Washington (Central Puget Sound).

PICO Chart PICO data by YCharts

PICO has been a name with seemingly much to offer deep value investors over the years. It has a compelling array of assets including land, water and a securities portfolio, but the company has been unable to deliver any semblance of consistency.

PICO has also been very difficult for investors to understand. Earnings and revenue have been lumpy at best. There's never been much stability because the only time the company posted a positive bottom line has been due to asset sales. Management has instead focused on growing book value as its measure of success, which is a foreign concept to many investors, at least as a way to measure success.

Unfortunately, book value per share has been falling the past three years, from $27.84 at year end 2009 to the current $20.80. Relative to the current stock price, that still puts the price to book ratio at just 1.12. But if the company's measure of success is in decline, already confused investors are unlikely to want to own it.

However, PICO has been making some changes these past few years. It's been selling off some businesses and entering new ones, including one that might ultimately deliver a source of consistent revenue and earnings.

PICO Price / Book Value Chart PICO Price / Book Value data by YCharts

In late 2010, PICO made a foray into agribusiness, funding construction of a canola crushing plant in Minnesota, which went into production during the third quarter of 2012. Operating as Northstar Agri Industries (PICO owns 88%), the business delivered more than 50% of PICO's entire 2012 revenue, despite the fact that it was operational for less than two quarters. Northstar is not yet profitable, but it does open the door to the steady revenue stream that PICO lacked.

I took my first position in the name primarily due to the company's vast land and water rights holdings. While the water rights remain, the company sold off the land subsidiary, Nevada Land and Resource Company in late 2011, which at one time owned more than 1.2 million acres of former railroad land. After selling off pieces strategically over the years, the final 480,000 acres garnered $31 million in cash. In late 2012, PICO sold two of its two insurance subsidiaries Physician Insurance Company of Ohio, and Citation Insurance Company, which were both in run-off, for $44.4 million.

I've owned PICO shares on and off since 2003, with the most recent position established in late November, when shares fell below $18. Shares are up 31% since then, but I've been to the dance with PICO before, and in true Forrest Gump fashion, the company is a bit like a "box of chocolates". You never know what you are going to get.

At the time of publication the author is long PICO.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Jonathan Heller, CFA, is president of KEJ Financial Advisors, his fee-only financial planning company. Jon spent 17 years at Bloomberg Financial Markets in various roles, from 1989 until 2005. He ran Bloomberg's Equity Fundamental Research Department from 1994 until 1998, when he assumed responsibility for Bloomberg's Equity Data Research Department. In 2001, he joined Bloomberg's Publishing group as senior markets editor and writer for Bloomberg Personal Finance Magazine, and an associate editor and contributor for Bloomberg Markets Magazine. In 2005, he joined SEI Investments as director of investment communications within SEI's Investment Management Unit.

Jon is also the founder of the Cheap Stocks Web site, a site dedicated to deep-value investing. He has an undergraduate degree from Grove City College and an MBA from Rider University, where he has also served on the adjunct faculty; he is also a CFA charter holder.