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Commentary

A Stock with Hidden Assets

Intrawest's real estate is worth a lot more than book value.

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With soaring energy prices and the possibility of stagflation, many value investors (including hedge funds, private equity firms, corporate raiders, and mutual funds) have been scouring the marketplace to uncover companies with hidden "real" assets. These hidden assets include real estate, timber, and oil or natural gas reserves. The assets are considered hidden because they're listed on the balance sheet at cost, even though, in many cases, their market values may be much higher. Over the past couple of years, many of these asset plays have shot up in value on takeover speculation (or outright takeover bids).

Notable examples include  Toys R Us (TOY) (stock price up 53% over the past year), the St. Joe Company (JOE) (up 75% over the past year), Hallwood Group (HWG) (up 414%), ShopKo (SKO) (up 65%),  Kmart/Sears (SHLD) (up 226%), and  Kerr-McGee (KMG) (up 50%). These companies have two things in common: They all have hard assets that are listed below market value on their balance sheets, and each has taken steps--either willingly or through coercion from outside investors--to unlock that value.

Mark Sellers has a position in the following securities mentioned above: HWG, IDR. Find out about Morningstar’s editorial policies.

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