At their present valuation, which approximates 15x 2014 earnings, the shares may not appear obviously undervalued. We note, however, that prosperity’s current earnings power is significantly depressed, we think more temporarily than not, by the presence of a high proportion of low-rate assets, e.g., government securities now on the books. Should interest rates and economic conditions gradually “normalize,” the company’s earning power will undoubtedly grow and the true multiple of earnings will be a much more favorable 12x-13x, per our estimates. Should business conditions remain unchanged in the periods ahead, we believe prosperity Common has limited downside. in spite of the currently depressed earnings, prosperity continues to earn a respectable 8% to 9% return on equity, a reasonable level given the relatively low-risk approach embraced by management.
From Third Avenue Management (Trades, Portfolio)'s second quarter 2014 shareholder letter.
- Third Avenue Management Undervalued Stocks
- Third Avenue Management Top Growth Companies
- Third Avenue Management High Yield stocks, and
- Stocks that Third Avenue Management keeps buying
- Martin Whitman Undervalued Stocks
- Martin Whitman Top Growth Companies
- Martin Whitman High Yield stocks, and
- Stocks that Martin Whitman keeps buying