Friday, July 20, 2007

Pink Sheets - Part I

The Pink Sheets can be a scary place to invest. They have a terrible and well-founded reputation for illiquidity, lack of financial transparency, fraud and pump and dump scams, and mainstream investors and publications generally scorn stocks that are listed here. However, to completely ignore stocks that trade here is a mistake as there are some wonderful stocks in this part of the market that have provided above average returns to investors for years, even for generations in some cases.

So I have done some poking around in this area and have discovered some real interesting companies that deserve a look by other investors. Now let me qualify what I mean when I say that I “discovered” these stocks. To claim that I discovered the stocks I mention in this post is analogous to Columbus saying that he discovered America, when we all know that there were native people living on this continent for tens of thousands of years. These stocks are well known to people who have been investing here. In fact, I found out about many of these names because I stumbled across another web site while researching a different stock. The web site was for an investment firm called Standard Investment Chartered, Inc., which specialized in these names:

I did notice that there is not a lot of chatter about these stocks in the Value Investing blogosphere, but I would be interested to hear from others about them. I am going to write a paragraph or so on some of the names and try to expand on them in future posts. As I have stated before, just because I post on them doesn’t mean that I am recommending that someone run out and buy them right here and now.

Limoneira (LMNR) is a pink sheet company out in California that owns 7,000 acres of farmland that they grow avocados and other produce on. They have another division that has been developing land in its inventory that has been converted to higher uses, i.e. development purposes. They are one of the more accommodating and open pink sheet companies out there. They have a web site, and even agreed to send out the annual shareholder report even though I am not a shareholder. Remember, pink sheet stocks are non-reporting companies so they are under no obligation to provide the standard financials even to shareholders. The stock has been on a tear the last 5 years, possibly coinciding with the rise in value of California real estate.

Calavo Growers, Inc. (CVGW), a NASDAQ listed company, owns a large stake in LMNR, so there is a back door way to own LMNR if one feels that it is a worthy investment.

1 comment:

Anonymous said...

Great post. I found this whitepaper on pink sheets that discusses the new rating system. Thought that you and your readers may be interested in it. Thanks