Collection: Peter Lynch - #43 'Fifth Category of Stocks; Asset Plays'



Sometimes two and two equals eight. How could this be?

Because a company has a hidden asset that is not reflected in the stock price. When Wall Street wakes up to the hidden assets, the stock could be terrific. Want a great example? Let’s look at Disney (NYSE:DIS).

Walt Disney is an example of an asset play. After they opened up Disney World and after they have opened up Epcot, the company’s growth rate sort of slowed down. They were not growing very fast.

And then they discovered there’s a lot of assets inside the company. There was a name Walt Disney. They started the Disney Channel. They started selling things that they sold at Disney World and the Disneyland, they started selling them everywhere. They use their licenses for Mickey Mouse and all their characters. Made a fortune on that. These are on the “books” for nothing. The company was loaded with assets.

In addition, they had all that land inside of Disney World. Everybody had hotels outside of Disney World. They decided to use their land inside to develop more parks and they even had other companies come in. These companies paid them money to build inside Epcot or inside of areas of Disney World.

So, what are hidden assets? Many companies, particularly old-line companies, companies that have been around 20, 40, 50, 100 years or more, have real estate holdings whose true market value is not reflected on the balance sheet in the annual report.

In many cases, the hidden asset is the company’s name and its reputation. Disney is one example of a company with a great name, so is Coca-Cola (NYSE:KO). That name can be a huge asset when the company rolls out a new product. This name is carried at little or no value on the balance sheet, whereas it is incredibly valuable.

Companies like Intel (NASDAQ:INTC) and AT&T (NYSE:T) not only make great products, but they have numerous patents for these great products. As long as they have those patents, no one can make the exact same product. That is a tremendous aid in any business.

Back in 1987, when the stock market had a major correction, Dreyfus fell to below its price of cash per share. The stock fell from over $50 to under $20. At that point it was selling for less than its cash. Anytime you buy a stock at less than its cash after subtracting all debt and it has good business, you are getting something for nothing



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