Canadian Pacific Railway Limited (USA) (CP), Canadian National Railway (USA) (CNI): Finding Ideas In Whitney Tilson’s Portfolio

Being a real estate company, the book value of the company’s properties most likely understates the true value. Tilson has some slides here that detail how he values the different properties and how he comes up with the $125 per share estimate. The theme seems to be that the properties are very difficult to value, but it is almost certain that the true value is higher than the book value. Currently the stock is trading at about 1.4 times the book value, but for a time last year it was trading well below the book value.

HHC Price / Book Value data by YCharts

I think it’s safe to say that the stock is very likely to be a bargain at a price below the book value.

Spark Networks Inc (NYSEMKT:LOV)

Spark Networks owns a series of niche-dating sites such as JDate.com, BlackSingles.com, and ChristianMingle.com. JDate is the most mature site, with a generally flat subscriber count of about 85,000 members. ChristianMingle has been growing quickly, with Q4 revenue up 76% year-over-year.

The idea of a niche dating site certainly makes sense, but by its nature growth is limited. The company recorded $61.7 million in revenue in 2012 and a net loss of $15 million. It appears that JDate, on its own, is profitable, but the newer sites like ChristianMingle are dragging down profitability. The stock has surged for some reason since the beginning of 2012, and the company is now valued at $150 million.

The problem with dating sites is that once a customer finds someone they stop using the service. In a way, the better the site is at matching people the shorter time people stay customers and the worse the company does. And since the market for these niche sites is small to begin with, growth is very limited and saturation occurs quickly. It seems like a lot has to go right for Spark to be a reasonable investment here, and I don’t think it’s worth the risk.

The bottom line

Of these three stocks in Tilson’s portfolio I only like one – Howard Hughes. The other two, Canadian Pacific and Spark Networks, both seem like pretty big gambles to me. It’s one thing to buy a troubled company, but to pay an exorbitant price for one seems like a bad idea. At the very least Tilson’s portfolio has introduced me to a few companies which I didn’t know anything about before, and that’s always a good thing.

The article Finding Ideas In Whitney Tilson’s Portfolio originally appeared on Fool.com and is written by Timothy Green.

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