A Slow Land Rush in Texas

Craig Hodges, a Dallas fund manager who runs the Hodges and Hodges Small Cap Funds, stopped by the office this week to talk stocks. I grew up in nearby Grapevine, which is Spanish for "by the airport," so we wound up discussing a few of his favorite local names in addition to the usual market talk.

An extended Q&A is on the way next week, but he picked out one interesting Loan Star State name worth checking out if you're looking for a safe, long-lived investment.

Dallas-based Texas Pacific Land Trust owns about 960,000 acres of ranch land in West Texas. Formed way back in 1888 when the Texas Pacific Railroad went bust, bondholders looking for a return on their investment securitized the land holdings and listed the company on the New York Stock Exchange. For the next century or so, the trust's only job was to eventually sell off the land, buy back shares, and act as a self-liquidating trust. With exactly eight employees, the trust doesn't even have a website. Trustees earn $2,000 a year. Revenue comes from occasional land sales and royalty revenue from gas and oil operations and leases for cattle grazing on the trust's land. All the cash goes to buy back stock, and there are about 10.5 million shares outstanding today.

The investment story, Hodges says, is rising land values. Those holdings are worth about $400 an acre at the company's current valuation. The boost from record energy prices equals higher royalty revenue. Plus, west Texas is the site of a growing number of wind farms, which can boost acreage values to around $1,500, Hodges says.

With those tailwinds, the firm's share price of around 47 today could eventually hit 70 even as the company keeps doing just what it's been doing for the past 12 decades.

"It's probably my favorite stock. It's a very weird, eclectic name that most people don't have any idea about," he says. "Over a short time period nothing big is going to happen. But if you want to ensure your kids will be wealthy, buy them this stock. The shares shrink, the land becomes more valuable, and they have oil and grazing revenue. It's the oldest traded stock on the New York Stock Exchange, and nobody knows a thing about it."

David Landis at Kiplinger.com took a look at the stock earlier this month as well.

Tags: Texas | real estate | stocks | energy

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