Would you pay 10.3x earnings and 11.2x free cash flow for a company that is far and away the best in its industry? How about paying those multiples for a stock that Warren Buffett has bought hundreds of millions of dollars of, at prices 10-25% above what you would be paying right now?

With more than a century in business, this company has staying power, but the market is currently giving it away because of an abundance of short-term thinking and herd-like behavior. The risk-to-reward here is so compelling that I see about $2 in downside to $20 in upside, but I’m not alone in buying this stock: I have a deep-pocketed and very savvy buyer on my side, and they are lending strong support by scooping up every share they can get at this price. If you’re a short seller (and this stock has attracted huge short interest) you have to hate this situation because the stock just hasn’t gone down since this buyer has stepped in…

But if you’re an investor, you have to love the opportunity the market is giving you here - one industry leader buying up shares of another on the cheap in what looks to be a preparation for an eventual buyout offer, and I haven’t heard even one other person mention the possibility yet.
Of the seven analysts following this stock, only one has a “buy” rating on it - and his firm is known for its long-term, value-based approach. Every other analyst is making poor extrapolations about recent struggles indefinitely into the future, including in the one downgrade I saw today. The pessimism and fear created by all the uncertainty is tangible, but this firm doesn’t carry much risk - especially at these current prices - which is something many institutions are missing.

The bottom line here is that investors who are willing to accept some temporary uncertainty will find a situation with excellent odds of success simply by purchasing shares of this industry leader at low double-digit multiples. While there is a very good chance that this company is taken private soon by either Berkshire Hathaway or the new investor accumulating a sizable stake in the company, even without a takeout bid I see a combination of short covering and a decrease in pessimism moving this stock up to 50% higher as the market realizes the overblown fears priced in to this otherwise great company.
You can get my full stock report by registering at Wall St. Newsletters, where you can also get a great bargain in The Full Monte, or check out my individual picks.

Subscribe to our feed: