My Take On Loews Corp.

I just had this published on RealMoney.com today...

Back at the beginning of the quarter, I wrote about Loews Corp. (LTR). The thesis was to buy the Tisch family investment expertise and their portfolio of investments at a 20-25% discount to the sum of the parts and enjoy the ride in their investments -- the public ones (Diamond Offshore (DO), CNA Financial (CNA), Boardwalk Pipeline Partners (BWP) and Carolina Group), the private ones (principally HighMount, a natural gas producer; the GP of the Boardwalk Pipeline Partnership; and Loews Hotels), and the ones to come from the billions of uninvested cash at the holding company level.

The stock is up more than 20% since then, but the discount remains about 25%.

Since the beginning of the quarter, several events have benefited Loews shareholders:

• Through the Lorillard (LO) spinout, completed Tuesday, Loews was able to effect an exchange of its 37% Lorillard equity position into about 93.5 million shares of Loews stock, or about 18% of the outstanding shares. I expect these shares to be retired.
• Natural gas prices are up 25% to more that $12.60 per thousand cubic feet (mcf). Loews spent $4 billion in July 2007 to buy HighMount Energy -- a natural gas producer with 2.5 trillion cubic feet (Tcf) of reserves -- from Dominion Resources (D) back when natural gas prices were about $6 per mcf.
• Diamond Offshore continues to benefit from still-rising oil prices and scarcity of deepwater drilling vessels.

My math works like this:

Based on current prices, Loews holdings in Diamond Offshore, CNA and Boardwalk Pipeline equal $18.1 billion. Conservatively valuing HighMount's 2.5 Tcf of reserves at $2.75/mcf adds $6.9 billion. Add $500 million for the value of Loews Hotels real estate, including the massive hotel in the middle of South Beach in Miami. Add $940 million for the valuation of Boardwalk Pipeline Partners GP (assumes a 6% yield on a public vehicle in three years that generates about $75 million of GP distributions). Add $1.95 billion net cash after the Lorillard spinoff and you get about $28.4 billion. At $49.19, Loews has a market cap of $21.5 billion, or about a 25% discount to the sum of the parts, and the parts are in pretty strong businesses.

Possible catalysts include

1. more buybacks,
2. a possible public offering of HighMount,
3. increased cash flow at Boardwalk Pipeline Partners associated with ongoing capital projects coming online, and
4. a return of CNA to book value (about 20% up from here to March 31 stated book value) when many other insurance companies trade at a premium to book value.

With the reduction of shares, the Tisch family ownership is up to 21% from the high teens. Based on their investment history, discount to the sum of the parts and the potential catalysts, I and my clients have decided to tag along. I'd love to hear your thoughts ...