I discuss the substantial disconnect between the market price of NL Industries (ticker: NL) versus its net asset value (NAV), revealing at first glance what appears to be an asymmetric risk-reward opportunity. With the company's NAV estimated to be within the range of approximately $494 million to $605 million vs. NL' s market capitalization of $190 million, as of the date of this recording, this could be an interesting opportunity for the diversified value investor. The company's three assets are publicly traded companies: (1) Kronos Worldwide Inc. (ticker: KRO), (2) CompX Internatinoal (ticker: CIX), and (3) Vahli Inc. (ticker: VHI). One last note regarding NL, which I forgot to discuss in the video is that given it's relatively low valuation compared to its publicly traded assets, the prospective investor in NL shares is actually buying earnings for approximately 3.8x 2018 adjusted earnings whereas KRO's 2018 P/E is ~8.4x and CIX's P/E is ~12.3x (as of the date of this recording). So, the investor is buying the earnings of a publicly traded company at a cheaper price by going through the parent vs. buying directly. You can see more of this in the provided financial model. The link is below.
HOWEVER, as an investor you must conduct your own research! I discuss the importance of why this is absolutely critical in this episode as well. There are real risks with any opportunity and they must be address. I discuss a number of major risks in this video. Please keep in mind that this content is purely for educational purposes. I believe it unwise to make any investment decision without first accessing the "primary sources" (i.e. 10-Q, 10-K, earnings releases, etc.). You can access them on the SEC website.
► EPISODE NOTES - NL INDUSTRIES
► FINANCIAL MODEL - NL INDUSTRIES
► NAVIGATION
0:07 - Example explaining the NL thesis
2:07 - NL's net asset value: how to think through the calculation
3:54 - NL's per share net asset value
4:49 - Framing: a cognitive bias we can all fall into from time-to-time
7:12 - The background story on NL Industries
12:26 - Personal thought on the reality of what NL actually is...a liability containment vehicle
13:59 - NL has traded at a 40% discount to NAV on average over the last 5-years
14:46 - Practical takeaways for a prospective value investor
16:00 - The risks involved with this opportunity
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Disclaimer:
The opinions expressed in this episode reflects the opinions of the presenter at the time they were made and are subject to change at any time after the date of the episode's production without notice. These opinions are not intended to be a forecast of future events, a guarantee of future results, or investment advice. This YouTube channel is for educational purposes only. While the statements made in this YouTube episode is based on publicly available information and is believed to be accurate as of the date given, no representation is made with regard to its accuracy or completeness. This YouTube channel and the affiliated content are neither an offer, nor a solicitation, to buy or sell securities. The presenter and its affiliates may directly hold securities mentioned in this material. Please do not make any investment decisions based on the content provided here without first rigorously doing your own research or consulting a financial adviser.
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