Any thoughts on my first original stock idea?

[almostbusto]

This is the first real stock purchase I have made as a result my completely independent research. So I thought I'd post here to see if I could get any thoughts regarding how smart this kind of thing is.


Bexil Corporation

symbol: BXL
website: http://www.bexil.com/


The Basics:


Basically this corporation sold off its only asset in May-06, as a result of this sale BXL has ~39 million in cash. It is looking to purchase a company to develop.

right now, the market capitalization for Bexil is 29 million. This gives the stock a very favorable price
to book ratio.


On May 2nd 2006 the company stated its acquisition parameters as:

1) A proven track record with demonstrated earning power.

2) Sales of between $10 million and $50 million.

3) A seasoned business with solid customer relations.

4) Good return (at least 15%) on equity, little or no debt.

5) Solid management must remain. Audited financials required.

6) Particularly interested in a “spin-off” from a larger company.


http://www.bexil.com/press-release050206.html


which to me seems reasonable enough.


The management of this company directly or indirectly owns the majority of this company. The Winmill’s (the CEO and chairman of this company) also run tuxis (TUX) and Winmill & Co. Incorporated (OTC:WNMLA) and both of these companies own a considerable amount of BXL. So it is definitely in the best interests of the management for this company to do well.



My conclusion:
The very low price to book and liquidity of the company’s assets, as well as the management’s large stake
in the company, ensures that there is minimal risk in this company losing value. Despite its low market
capitalization and liquidity (liquidity of the stock, not the companies assets). However, this company
has a lot of upside, once they acquire a company and start making money. I suppose the major risk is that
they make a poor acquisition. It would have to be a fairly poor company though because I purchased BXL at a big discount to its book value. Ultimately this stock seems like a good speculative play with limited downside. reader's probably shouldn't take my advice though because I am a huge novice at this kind of stuff, so buyer beware.

[kiffl]

Excellent pick, I bought bxl at $31.00 not to long ago myself. There is very little to almost no downside risk, and right now this investment is definitately better than cash.

[ubiestmea]

It may well turn out to be an excellent pick but just out of curiosity, how will you determine when to take a profit?

Do you have an “uncle point” that would cause you to get out and take a loss even if the fundamentals didn’t change?

[almostbusto]

if price rose to or near book value, yet no announcement has been made. thats probably a good time. i am 95% sure that won't happen, unless some shady insider trading stuff was going on. if they acquire and the stock jumps 50% well, I can't comment on that since I would have to see the terms of the acquisition first.

basically, i am pretty sure i am going to wait for them to acquire a solid company. which would basically force the market to realize the value of the companies assets and earning power.

regarding the stop loss: i don't have one. i don't see me selling unless some news is released.

[AvivaSimplex]

I like this stock. There is very little downside, except possibly some crony deal where they overpay for their acquisition of someone else's company.

I have to wonder, though, why they don't just liquidate the company. Is an instant 20% gain not enough for them? I'd like the company to have at least some emphasis on rewarding shareholders, rather than just working on book value.

[KDuff]

Several things to consider:

1) This is Maryland chartered small business and its financial reports are not prepared with the same rigor as other corporations you might be used to reading.

2) It seems like this is like some sort of private investment vehicle for a few friends/associates. BXL has 10 employees, non of whom are full-time yet they are paid well. All of the principals are connected professionally and work in the same building as the BXL is headquartered. Be aware of conflicts of interest as previously mentioned.

3) Another post mentioned their focus on building book value. Management holds about 30% of the stock and doesn't seem to be in a hurry to make an acquisition. They're willing for the company to be discovered and appreciated by other investors.

4) Last year they fired Deloitte as their accountant and hired a no-name firm.

5) The price action and dividend payments are a little odd looking considering BXL rarely issues press releases. Be aware of insiders and the stock options they issue themselves.

There probably isn't much downside considering their investment portfolio, but it would be tough to know when the stock will appreciate. This could be an example of a value trap.

[Guppies]

[ QUOTE ]
This could be an example of a value trap.

[/ QUOTE ]

What's that?

[KDuff]

My conception of the word is a bit different from investopedia's (below):

"When a company's stock seems undervalued, investors are sometimes drawn into purchasing it in hopes of a stock price appreciation. If stock price is the only factor an investor looks at before buying a stock, he or she could end up with a stock whose value is likely to decline even further." URL
--

My definition is similar. A company might look good on paper but there's probably a reason why it is trading at such a discount (in this case well below book).

[schnoodleC]

Companies like this one pop up from time to time. Usually what happens is that a company sells out but rather than distributing cash to shareholders, management and/or the majority owners convince the board to keep the company around with the cash and roll the whole enterprise into another venture. Both DCat and myself are currently invested in such a situation with the Kaiser Group.

However, you have to understand that there is significant downside. The downside risk is two fold:

1) Management will fail in their new endeavor. It is hard to find a good company to buy or to start a new one. Even if management is talented they may fail.

2) They will just sit on the money forever earning very little.

For myself, I usually invest in the hopes that they will give up and liquidate the company or that the other shareholders can force the company to liquidate. Actually seeing them go ahead with a startup is not what you usually want.

Finally, understand that these type of plays take a lot of time, sometimes years. Be sure you have the patience for it.

[bav]

A $30M company where the top dude was paid $1M last year? And his father(?) was paid $200K. And they're all also CEO's and CFO's and whatnot of a another teeny tiny company, TUX, with a market cap of $6M which is paying father and son $200k each. This is obviously some family and friends operation. Why should they work to do something with the >$30M in cash they have when they can just sit and do nothing at all and collect $1M/yr in paychecks? They get all of the money eventually this way as the share value goes to 0. If they sold the company or distributed the cash as a dividend, they'd only get part of it.

I'm being cynical, and management may be go-getters intent on building a company so an investment may indeed generate nice returns. But I think I'll let y'all venture into this and I will watch from the sidelines.