Wall Street Transcript Interview with Greg Roeder of Adirondack Research & Management: Inefficiencies in Small-Cap Stocks Point to Investment Opportunities

Wall Street Transcript

67 WALL STREET, New York - October 26, 2012 - The Wall Street Transcript has just published its Investing Strategies Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with highly experienced Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Socially Responsible Investing - Value Investing - Small-Cap Investing - Evidence-Based Investing - Risk Management - Downside Protection

Companies include: Internet Capital Group Inc. (ICGE), International Business Machine (IBM), Chiquita Brands International (CQB), Fresh Del Monte Produce Inc. (FDP), Matrix Service Co. (MTRX) and many others.

In the following excerpt from the Investing Strategies Report Report, an expert portfolio manager discusses one of his top picks:

Another company we own is Dole Food Company Inc. (DOLE). Dole runs essentially three businesses - one, a packaged food business, which is products, like fruit cups, canned pineapples, frozen strawberries; two, fresh fruit business, which is mostly bananas, but also strawberries, blueberries, pineapples and various other fruits; and, three, fresh vegetables business, lettuce, broccoli, carrots, cauliflower. Their primary competitors are Chiquita (CQB) and Fresh Del Monte Produce (FDP). Along with Dole, the top three represent roughly 65% of the worldwide sales of fresh produce.

We originally bought this stock about a year ago, and when it traded below $10 per share. At the time we bought Dole, they had a lot of expensive debt, and because of that we didn't make it a core position. However, we felt that the company had assets it could sell in a pinch, so we believed we had some downside cover. Last month, Dole agreed to sell its packaged foods division and its Asian produce business to a Japanese company for a very good price. The sale leaves Dole with a business focused on fresh fruit and vegetables around the world with the exception of Asia. Naturally, North America and Europe are the largest geographic segments of that business.

That said, a potential negative of this transaction for Dole would be an increased exposure to Europe. Their debt levels after they close on this transaction will be roughly one times the pro forma EBITDA with enterprise value at roughly six times EBITDA. We believe that they could generate north of $1 a share of free cash flow starting in 2013. With the stock at roughly $12 today, we see a compelling valuation for a relatively steady generator of free cash flow.

Another piece of the puzzle is that Dole owns 25,000 acres of land in Oahu, Hawaii, and they're looking to sell about half of it. Currently, only about 15% of this land is used for actual farming. They grow pineapples and harvest coffee beans. Depending on who you talk to, the estimated value of this land ranges from $200 million to $400 million. That's a hidden asset representing about 20% or more of current enterprise value. The nice thing is that Dole is no longer under any immediate pressure to sell the land. In an economy like this, we like the fact that we own a steady cash flow generator with a modest amount of debt and some hidden assets. We feel very good about that.

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Rates

View Comments (0)