This past week, the stock breached the $25 mark for the first time in two and a half years. As usual, however, there is little to no news about the company, which has long confounded investors, including yours truly.
Perhaps best known for its ownership of water rights and storage in the southwest through its Vidler Water Co. subsidiary, the company has morphed over the years. At one time, it also owned 1.2 million acres of former Nevada railroad land, which along with the water exposure, is what led to my initial position in the company.
The company sold parcels of land over the years piece by piece, and the 480,000 acres that remained were sold for $31 million in late 2011 when the company parted with its Nevada Land Resources subsidiary.
The company is still active in real estate, but of much better quality than its previous Nevada land holdings. Subsidiary UCP Holdings (UCP), which PICO took public last summer, acquires and develops residential real estate, primarily in Northern California and the Puget Sound area in Washington state.
PICO owns about 58% of UCP, worth $70 million based on UCP's market capitalization of $122 million. Shares of UCP have done little since the IPO, up about 12%, but the stock has been inching up and is trading at an all-time high.
UCP itself appears to have substantial upside potential. The balance sheet is solid, with $58.5 million, or $7.55 a share, in net cash (cash less debt).UCP data by YCharts
PICO also has some of its eggs in agribusiness, with its canola oil operation, PICO Northstar Hallock. The company's entry into the canola business was designed to take advantage of growing demand in the U.S. for canola oil, 65% of which is now imported.
Full-scale production of canola oil and meal commenced in the third quarter of 2012, and revenue for the nine months ended Sept. 30 totaled $140 million ( revenue for the company overall was about $269 million during that period). PICO, however, has yet to turn a profit from the canola business, as the environment for canola producers has been challenging.
Still, the canola business does bring with it an element that PICO has lacked -- at least during the time I've been a shareholder -- and that is recurring revenue. In the past, the company has generated much of its revenue through asset sales, be they land, water, businesses or securities. That has resulted in lumpy revenue and earnings, which has rendered the company difficult to understand in the investment community.
Management has measured success by the growth in the company's book value -- something it has not successfully accomplished in recent years -- and that is a foreign concept to many investors.
Shares trade at about 1.2 times book value per share. (I've never seen a company whose share price so closely tracks book value.)PICO data by YCharts
Success for PICO will depend on the canola business generating a positive bottom line, and that remains to be seen. Meanwhile, as a "patient" value investor, I continue to like the company's major assets -- land, water and agriculture holdings.
Although news coverage is thin for this company and only one analyst follows it, we should get an update when fourth-quarter and full-year results are released in early March
At the time of publication, Heller was long PICO.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.