Loews: Value in Front of Your Nose

Over a year ago, I highlighted Loews (NYSE: L  ) as a buyback baron. From the early 1970s until the end of 2007, the company whittled its split-adjusted share count down from 1.3 billion to 530 million shares. The share count has since shed another 18% and now stands at 433 million.

Not all share repurchase programs create value, of course. Sears Holdings (Nasdaq: SHLD  ) and Home Depot (NYSE: HD  ) are just two examples of buybacks gone bad. But in the case of Loews, which receives fat cash distributions from its various operating subsidiaries each quarter, a lower share count does wonderful things for owners of the stock. Equally important, the shares being repurchased and retired are perpetually undervalued.

That's not a subjective statement. Loews is known to trade at just the value of, or even at a discount to, the publicly traded pieces of its empire. That would be the company's 90% ownership of CNA Financial (NYSE: CNA  ) , its 50.4% stake in offshore driller Diamond Offshore (NYSE: DO  ) , and its 74% limited partner interest in Boardwalk Pipeline (NYSE: BWP  ) . This means that other subsidiaries, such as the exploration and production business acquired from Dominion (NYSE: D  ) for about $4 billion two years ago, are assigned no value by stingy Mr. Market. Nor is Loews' significant cash pile -- a pretty liquid holding!

Management admitted to being frustrated by this situation on its recent conference call. As long as the company buys its own stock, though, this really isn't the worst situation. Sure, the company shares lose some of their currency value in a potential mergers-and-acquisitions transaction, but Loews is sitting on $2.4 billion, so it's hardly dependent on these shares to get a deal done. The value captured through repurchases over the years seems to far outweigh any downside of a perpetually underpriced stub.

As long as you can get comfortable with Loews' rather high exposure to the volatile energy sector, I think the stock is well worth your Foolish scrutiny.

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