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A Backdoor Move On Real Estate

Posted: Nov 06, 2009 14:48 PM by Sham Gad

Tickers in this Article: LEN, TOL, PHM, IACI, MOVE

There's not much to like about real estate these days. After five years of unprecedented home price appreciation, prices are falling back to their historical trend line. How long this will take is anyone's guess. And now, with the government essentially keeping the mortgage market alive, it seems like this industry will be on life support far longer than many think.

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Making A Move
Move Inc. (Nasdaq: MOVE) operates a network of websites that support the real estate industry. Its websites include the popular REALTOR.com that offers a suite of services to facilitate real estate transactions. The company's products also support the rental market, real estate advertising and marketing, and directory services. In essence, the company offers a broad service range to the overall industry that is not necessarily dependent on home prices increasing nor other catalysts necessary for physical homebuilders like Toll Brothers (NYSE: TOL), Pulte Homes (NYSE: PHM) and Lennar (NYSE: LEN).

Move's shares trade at $1.92, valuing the business at approximately $300 million. Cash is $109 million against total debt of $65 million, leaving a net cash position of some $44 million or about 30 cents a share. So, from a statistical standpoint, these shares look appealing. (For related reading, check out Add Some Real Estate To Your Portfolio.)

House Cleaning
The numbers alone wouldn't be satisfactory to me in this case. Move has cleaned house with past managers and replaced them with more shareholder-oriented executives. CEO Steve Berkowitz is famous for his tenure at internet company Ask Jeeves, which was acquired by IAC/InterActiveCorp (Nasdaq: IACI) in 2005. When Berkowitz joined Ask Jeeves in 2001, the stock price had tanked like all internet companies at the time and was near a buck a share. When the company was sold in 2005, the share price was near $30. Because the sale was a stock deal, the final price was supposedly around $33. Not a bad five-year return.

Bottom Line
Having someone like Berkowitz heading Move Inc. is a very big deal considering his experience with creating value in internet businesses. The company's finances are sound enough to keep the business in good shape until an economic rebound, or even better, until Berkowitz finds a way to deliver again.

For related reading, check out Pinpoint Takeovers First.

By Sham Gad

Sham Gad is the Managing Partner of Gad Partners Fund's, value inspired investment partnerships modeled after the Buffett Partnerships of the 1950's. Previously, Gad ran the Gad Investment Group and delivered annualized returns of 22% from 2002 to 2005. Gad is also the author of "The Business of Value Investing" which will be out in the fall of 2009. Gad earned his MBA at the University of Georgia in May of 2007. Gad runs a value investing blog. He can also be reached by visiting the Gad Partners Funds site. When not writing or analyzing businesses, Gad enjoys hanging out with his wife Maggie, reading, golf, and yoga

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