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I find this interesting about CNA and Loews


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Loews has performed well over time beating the market.  Their largest holding of course is CNA which I think they still own 80% of- or so.  CNA has basically had no market return and very little book value return for the last 25 years.

 

Lots of stuff runs through my mind thinking about this correlation/relationship.  Anybody have any thoughts on it?

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I find it amazing that Loews has such an outstanding record despite the poor performance of CNA over the years.

 

Loews has always suffered from the "conglomerate discount". Every couple of years, Barrons publishes an article about Loews showing the market value of Loews being less than the sum of the publicly traded pieces. I do not think that this discount is going to disappear or even reduce, but I do think that the stock price of Loews will rise steadily as the value of the pieces rise.

 

For years Loews owned Lorillard tobacco and the valuation suffered as a result of the tobacco risk. Once the tobacco lawsuit risk went away and the price of Lorillard rose, they were able to spin out Lorillard in a tax efficient manner.

 

There have been a number of insider buys for CNA Financial recently, and Loews itself had made some smart purchases in March. In my opinion, these insider buys, the discount to book, the new CEO that has been recently hired bode well for the stock price.

 

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Loews plus CNA combine to be one of my larger holdings.

 

All Loews Oil and Gas holdings seem to be working out well. CNA and Loews Hotel seem to be the dogs of the group.

 

CNA is being fixed up. It seems like they have a new CEO to work on Underwriting and are simplifying the investment portfolio. Basically it looks like they loose money on underwriting and that kills most of the investment gains on the 45 billion dollar portfolio. I see potential here and am comfortable with there assets and BV Discounts.

 

Loews Hotel is very small and they said they are looking to expand it. I think they will stabalize these dogs while making new investments into other platforms. On the last call they said CNA is an intregrel part of Loews and I believe they want to fix it verses sale it.

 

Here is an interview with the CEO.

 

http://www.insurancejournal.com/news/national/2010/01/06/106430.htm

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There was a poor article written on Investopedia that suggests Loews hotels may be spun off.  No chance.

 

The pipeline business should be much better in 2010 than 2009. 

 

Diamond Offshore is still a cash cow.

 

CNA is on the mend, but the FMV of the stock is about 2/3 of book value. 

 

They may have slightly overpaid for their E&P business, but it is profitable due to some hedges on nat gas and oil.

 

I don't see them doing any major deals until CNA pays back the $1 billion in owes the parent.

 

Any further deals will most likely be in the oil/gas space - but who really knows.

 

It is nice to have a CEO with major political connections. 

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  • 1 month later...

Have been following Loews for years. Saw the opportunity to buy it on the cheap early last year so opened a modest position. The Tisches are honest operators with their money on the line. They run a conservative balance sheet with a good amount of cash to support their member companies as evidenced last year during the dark days. Am a long term holder. Will add more during the next downtown.

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Oldye - not saying it is a valid reason, but they state in CC that they keep it public so that Loews S/H's can place a value on the parts.

 

Personally, I believe CNA is so cheap they should buy it out.

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  • 1 month later...

Looks like Loews sold some BWP and also lightened up on some assets in Highmount to Line Energy. This is what I think they will do with CNA if it rebounds.

 

I believe they should keep the subs at 80% for the DRD except for the MLPs. They should keep the MLPs at 50% and sell high and buy Low. They did well with the BWP buyback and sale. The problem with CNA is they cant really by more due to it being 90% owned by Loews already.

 

I really like the new presentations on CNA just think if they could get a 4% return on that $40 billion dollar portfolio, that plus breaking even on insurance would do wonders for book value.

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Myth - I don't agree 100% with you, but I like the way you think.  The reason I suggested buying out CNA is b/c it is so cheap.  I always believe in allocating capital to best source.  But there is merit to your argument of keeping it public to value the parts.

 

A 10-19.99% IPO of highmount would be interesting.  I think a lot of shareholders would like that.  I find it personally hard to value - nat gas prices are so low but the properties are selling all over the place at high prices.

 

I am wondering what Loews plans to do with all their cash.  There was $3B at 12/31/09 (gross cash, not net).  Another 300 million should arrive from the BWP sale, maybe $150 from dividends (subs), and another 300m from the highmount sale.  All in Q1. 

 

When CNA pays back their preferred - cash will jump another 1B. 

 

It isn't hard to see this company reaching $5B in cash in the near future.  I know they are intent on buying back shares - but any other plans on the horizon?

 

 

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As a purist I agree with you, why not pickup the remaining 10% via a buyout and get yours subs under full control.

 

As a realist I think its best to keep it public. Loews has an almost useless 10k due to consolidating CNA and it would be a nightmare to review unless they drastically improved reporting. Now they just have to highlight the public parts and tell you about the non public assets and let you make your own judgment.

 

DO - Fair to slightly undervalued.

CNA - Undervalued should sell for book once fixed up.

BWP - Fair to slightly overvalued depending on how you see things.

 

Loews sales for cheaper then those 3.

 

You get hotels, bwp gp, hotels, cash & securities, and highmount for free. I think it makes for an easier story. Once we can place a value on the hotels and highmount things will get even easier for Mr. Market. To your point, Buffett has done very well fully owning most of his subs and trades at a premium to book most of the time.

 

----------

 

The cash portion, is what is most interesting to me. Selling BWP made sense from a value perspective, but the Highmount sales with gas at $3.99 dont. Unless Highmount wants to move out of that area completely it looks like they are raising cash.

 

I have the same question as you. What do they want all that cash for? I dont really like the hotel business because its too small and needs high debt but, they have mentioned wanting to expand that platform, also if you want to grow that segment now is the time to do so. It will be interesting to hear the next call because I think many will ask that question.

 

 

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Peter Burke - I believe I mentioned the same thing somewhere here.  The problem I see is that the theory is great, but the market misprices both CNA and L! 

 

As Myth pointed out, CNA should be good money soon with $40B in investments. 

 

Stil awaiting Loews next big move (other than massive buybacks). 

 

Good weekend to all.

 

-Bronco

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As a purist I agree with you, why not pickup the remaining 10% via a buyout and get yours subs under full control.

 

As a realist I think its best to keep it public. Loews has an almost useless 10k due to consolidating CNA and it would be a nightmare to review unless they drastically improved reporting. Now they just have to highlight the public parts and tell you about the non public assets and let you make your own judgment.

 

DO - Fair to slightly undervalued.

CNA - Undervalued should sell for book once fixed up.

BWP - Fair to slightly overvalued depending on how you see things.

 

Loews sales for cheaper then those 3.

 

You get hotels, bwp gp, hotels, cash & securities, and highmount for free. I think it makes for an easier story. Once we can place a value on the hotels and highmount things will get even easier for Mr. Market. To your point, Buffett has done very well fully owning most of his subs and trades at a premium to book most of the time.

 

----------

 

The cash portion, is what is most interesting to me. Selling BWP made sense from a value perspective, but the Highmount sales with gas at $3.99 dont. Unless Highmount wants to move out of that area completely it looks like they are raising cash.

 

I have the same question as you. What do they want all that cash for? I dont really like the hotel business because its too small and needs high debt but, they have mentioned wanting to expand that platform, also if you want to grow that segment now is the time to do so. It will be interesting to hear the next call because I think many will ask that question.

 

 

 

Myth465

 

I am unable to understand your enthusiasm for CNA.

 

1. In the last 10 years they managed to decrease per share book value at 3.5% (From $53 to $37). Since 1992, if you ignore the 50% jump in book value in 1995 they have not created any value.

 

2. Their combined ratio’s are horrible over the last 12 years, although they have improved over the last couple of years

This abdominal performance seem to be vindicated by the market prices of its stock which is trading at a large discount to book every year since 1993 with exception of 2007.

 

3. Their assets have been larger than current year right from 1998 onwards but it did not seem to have done any good. The only investment thesis I can see is that the new CEO would transform CNA into a disciplined underwriter.

 

What am I missing here? I am tempted to invest in L but cant seem to get past CNA.

 

Thanks

 

Vinod

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CNA has basically sucked for the better part of 30 years. I dont know how you lose money with $40 billion in float but they have for a long time.

 

My hope is in the new CEO who seems to be making all the write moves. He has come in and brought in a whole new structure and Management team. He worked for Chubb for 20 - 30 years and knows insurance. He is also putting his money where is mouth is and has been buying stock. They even made him Chairman of the Board so I believe he has free reign to do his thing. The Tisch brothers have also sold Loews stock to bet on CNA.

 

CNA has 3 major insurance components -

 

Speciality makes money and has $7 billion of Float. - Trying to grow this business.

 

Commercial losses money and has $13 billion in Float. - Shrinking this business a bit.

 

and Runoff which is long tail business has surprisingly about $15 billion in Float. - Mentioned selling the legacy runoff.

 

 

I believe unrealized gains make up the rest, total float is around $42 billion.

 

They took a huge hit with MBSs and are right sizing the portfolio. They have put the non agency MBS into run off and are trying to hold mostly corporate, agency mbs, and equity in LP Hedge Fund investments.

 

---

 

The CEO wants to make money writing insurance and appears to want a vanilla investment portfolio with 7% - 10% in equities to juice returns. Everything sounds good and things appear to be changing very quickly.

 

This gives more detail and if you have time listen to the broadcast, this one is good but I also like the one with the CEO.

 

-----

 

Many others who invest in Loews either short CNA (DO, BWP also auctually) out. To pick up the GP, Hotels, Highmount, and $4 billion in securities for free.

 

I invested in Loews and considered CNA fairly valued. I begin to look further into it and have come to like it overtime. I agree with you though. After watching FFH its hard to see a company continually lose money with such a high per share portfolio. I saw the massive insider purchases, and have slowly bought into it as I have learned more details. If they can turn it around before the market hardens then it should be a cash flow cow. The brothers say its the best value they see in the market right now. They see CNA as the driver of value for L. I agree DO and BWP will be cash cows but are closer to fully valued and Highmount will have to deal with low gas prices though they are the low cost producer next to MCF. The hotels are in the tank as well.

 

http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MjgwNzcwMnxDaGlsZElEPTM3MzgxNnxUeXBlPTI=&t=1

 

The main downsides are the soft market and the Tisches see rates going up which means unrealized losses on the bond portfolio for CNA.

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The Loews annual letter is out. Nothing earth shattering, but a good recap of their strategy. For some reason I am drawn to the type of investments they do. Commodities and cyclical business. I think this is because you can pick your spots and buy when things are at look bad.

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Myth - I read yesterday at lunch - you're right - nothing earth shattering.

 

Kind of funny though - it seems the management team is saying - "Hey, look at us, we're f-----ing undervalued!!!!". 

 

I am very happy they have approximately 3.5B in cash at parent level.  They can sleep at night, and so can I.

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Can someone answer this:

 

"On February 24, 2010, the aggregate market value of Loews’s ownership

interests in our three publicly traded subsidiaries totaled approximately

$15.2 billion, or $36 per share of Loews common stock. Other assets attributed

to Loews common stock include our two wholly owned subsidiaries, HighMount

and Loews Hotels; our 100 percent ownership of Boardwalk Pipeline’s

general partner; holding company cash and investments net of holding company

debt; CNA senior preferred stock; and Boardwalk Pipeline Class B units and

subordinated debt."

 

What I don't get though is why they say:

 

"Book value = $39.76 at year-end 2009".. does that mean that their other own subs are only 3.76/share?

 

Or is does the market value of their public subs not make it directly into the book value calculation?

 

 

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Bargain - I think you are mixing BV and FMV.

 

3 publicly traded subs were worth $36 at a certain point.  That represents their stakes in CNA, BWP, and DO. 

 

The BV of $39 is what it is.  I don't really find the BV that important.  I look at L the stock as a holding co, with investments in the above co, 3 billion in cash, stakes in Highmount and the Hotels, and some other stuff (GP interests in BWP, preferreds in CNA, etc.)

 

Hope this is helpful.  To me, this co. is BRK Jr.  Not as well run, but still managed really well.  And trading for a bigger discount to intrinsic value IMO.

 

Good luck!

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I am a canadian investor + am currently looking at undervalued US assets with current strength of Canadian dollar. ie looking to convert some can$ into US $

 

I reviewed Loew's as a potential candidate. Here is my "conservative" valuation of L:

 

Run by value orientated owner managers (managers own 25% of stock)

CNA financial 90% x $11.17 billion (1 x book value) =$10.5 billion

Diamond Off shore  50% x $14.9 billion ( 8 x pre tax income)=$7.47 billion

Boardwalk Pipeline 72% x $1.34 billion ( 8 x pre tax income) =$967 billion

Highmount exploration 100% x ?  (2 TCF proven nat gas reserves)

Loews Hotels 100% x $.320 billion (8 x pretax earning for 2008)

Cash: $3.03 billion

debt:$0.87 billion

Total Est. Value:$21.387 billion

divide by 425 million shares outstanding

IV:$50 per share (~25% discount)

 

What do you guys think, am I in the right ballpark?

 

are there any other possibilities with larger margins of safety +/- with some dividends as well?

 

I have also looked recently at JOE. Brief investment thesis=buying prime beach front raw land on the Gulf of Mexico for ~ $5000 per acre . No debt. (Fairholme owns good amount of this)-seems like an value(tangible asset=raw land).

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biaggio I think that is a good starting point. I value Highmount at $2 billion, about 50% of purchase price. Auctually I value it at $1 Billion, $2 Billion, or $3 Billion or low, medium, or high. It was purchased for $4 billion including debt. They just sold a chunk of Highmount's assets for $300 million cash. I think at $9 gas it will be a cash cow, but with $3 cash its not worth too much.

 

I also value the CNA and Boardwalk debt securities at face value or $1.25 billion. Finally the BP GP is worth quite a bit. After a watermark the GP will own 50% of the distributions from Boardwalk. That has to be worth something and is largely why I believe they are growing the platform and dividends.

 

Also this is a current value based on todays prices. All of Loews businesses are at the bottom of the cycle.

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Bargain - I think you are mixing BV and FMV.

 

3 publicly traded subs were worth $36 at a certain point.  That represents their stakes in CNA, BWP, and DO. 

 

The BV of $39 is what it is.  I don't really find the BV that important.  I look at L the stock as a holding co, with investments in the above co, 3 billion in cash, stakes in Highmount and the Hotels, and some other stuff (GP interests in BWP, preferreds in CNA, etc.)

 

Hope this is helpful.  To me, this co. is BRK Jr.  Not as well run, but still managed really well.  And trading for a bigger discount to intrinsic value IMO.

 

Good luck!

 

Bronco, sorry, let me clarify my question.  I guess I was asking "why the discrepancy between BV and FMV?"  I was mostly curious at how they were tracking the 3 public companies on their books.  Did they buy them at a cheaper price and have them at a much lower value on their books?  Just curious if anyone has done that research.  Thanks.

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