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Sydnee Gatewood
Sydnee Gatewood
Articles (3388) 

Murray Stahl Digs Deeper Into Mesabi Trust

Guru increases stake in royalty trust that benefits from iron ore mine

Horizon Kinetics leader Murray Stahl (Trades, Portfolio) disclosed earlier this week he expanded the firm's stake in Mesabi Trust (NYSE:MSB) by 18.04%.

The New York-based firm, which was co-founded by Stahl in 1994, takes a long-term, contrarian, fundamental value investment approach to achieve superior absolute returns. Instead of taking on more risk, the guru and his team believe investors are better served by extending their investment time horizon as it provides them with a wider range of opportunities and valuation than are available to those with a short-term strategy.

According to GuruFocus Real-Time Picks, a Premium feature, Stahl invested in 206,146 shares of the trust, which is headquartered in New York, on Nov. 30, impacting the equity portfolio by 0.20%. The stock traded around $23.70 per share on the day of the transaction.

He now holds 1.34 million shares total, which represent 1.3% of the equity portfolio. GuruFocus estimates Stahl has gained 25.73% on the investment since establishing it in the third quarter of 2018.

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Mesabi, which is a royalty trust that derives its income from an iron ore mine located near Babbitt, Minnesota, has a $349.12 million market cap; its shares were trading around $26.51 on Wednesday with a price-earnings ratio of 17.88, a price-book ratio of 28.83 and a price-sales ratio of 16.31.

The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced. The GuruFocus valuation rank of 1 out of 10 also supports this assessment since the share price and price-sales ratio are both approaching multiyear highs.

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GuruFocus rated Mesabi's financial strength 10 out of 10 on the back of a comfortable level of interest coverage as well as a robust Altman Z-Score of 262.46, which indicates it is in good standing even though the Sloan ratio indicates it has poor earnings quality.

The company's profitability scored a 9 out of 10 rating, driven by an expanding operating margin, strong returns that outperform a majority of competitors and a moderate Piotroski F-Score of 6, indicating its business conditions are stable. Mesabi's predictability rank of one out of five stars, however, is on watch as a result of revenue per share declining over the past 12 months. According to GuruFocus, companies with this rank return an average of 1.1% annually over a 10-year period.

Stahl holds 10.28% of the company's outstanding shares.

Portfolio composition and performance

Over 30% of Horizon Kinetics' $2.46 billion equity portfolio, which is composed of 362 stocks, is invested in the energy sector. The firm also has smaller representations in the financial services (16.64%) and basic materials (13.39%) spaces.

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Other basic materials stocks Stahl's firm owns as of Sept. 30 include BHP Group Ltd. (NYSE:BHP), Osisko Gold Royalties Ltd. (NYSE:OR), Nutrien Ltd. (NYSE:NTR), Newmont Corp. (NYSE:NEM) and Barrick Gold Corp. (NYSE:GOLD).

GuruFocus data shows the Horizon Asset - Core Value Fund returned 9.4% in 2019, significantly underperforming the S&P 500's return on 31.48%.

Disclosure: No positions.

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