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Remember back in the 1960’s when you saw some guy sitting in your kitchen talking to your parents about this great investment opportunity that couldn’t go wrong? For $10.00 down and $10.00/month, they could own this great property somewhere that they could one day sell for millions?
Perhaps the property looked something like this:
Or maybe like this:
Either way, that guy in the checkered suit wasn’t all wrong. Sure, the property your parents bought was probably deemed worthless about 20 years after they bought it. As for that nice salesman? Like Ken Lay, he’s probably dead by now. However, what that salesman, your parents, and the early internet investors had in common was that they had the right idea, but they were just a little ahead of their time.
Take for example the city of Rio Rancho, New Mexico. It was founded in the 1960’s on land purchased for pennies an acre back in the late 1800’s. What your parents didn’t know is that the city of Rio Rancho is actually located only a few miles from the enormously popular and ever expanding largest city in New Mexico => Albuquerque. Now that Albuquerque is busting at the seams, the most sensible place for people to live has become the city of Rio Rancho.
I bought AXR (AMREP Corporation) today at 49.80. I will sell it in 4 – 6 weeks at 57.45. Here’s why I like AXR:
AXR’s stock is up 90% over the last 12 months yet its PE is only 16. Look at this chart:
AMREP Corporation, through its subsidiaries, engages in the real estate, fulfillment services, and newsstand distribution businesses. It develops both residential lots and sites for commercial and industrial use, as well as secures entitlements for development tracts for sale to homebuilders. As of April 30, 2005, the company owned approximately 19,550 acres of land in Rio Rancho, 55,000 square foot of office building, and a 30,000 square foot commercial rental property in Rio Rancho, as well as 2 tracts of land properties located in Colorado. Its fulfillment services include magazine subscription fulfillment services, lettershop and graphics arts services, customer telephone support, list services, and product fulfillment services. The magazine subscription fulfillment services comprise processing new orders, receiving payments, preparing and mailing renewal and statement notifications, maintaining subscriber lists and databases, processing Internet orders, and printing forms and promotional materials. The list services comprise maintaining client customer lists, merging rented lists with a client's list, and sorting and sequencing mailing labels. The company receives, warehouses, processes, and ships merchandise as part of its product fulfillment services. AMREP distributes automotive, men's sophisticates, comics, puzzle, romance, and sports magazines for publishers.
Now I’m not going to spend a lot of time discussing the magazine subscription fulfillment services business, called Kable Media Services. I really can’t trust a business that doesn’t know how to spell “cable”. I love cable. I love clicker. I love football. I love beer.
Having said that, this part of the business actually pulled in almost one half of AXR’s net income last year and Kable is now the second largest subscription fulfillment company in the United States. What is fulfillment? It’s not eating all the chips you want and washing it down with the coldest beer on the planet. Magazine fulfillment is the process of getting an order into the hands of a consumer. It involves employees taking an order by telephone, through the mail or over the Internet. Kable employees then sort and scan the mail, process the order, create the bill or renewal notice and provide customer service support. Finally, a mailing label is created and the item is sent to the customer. Kable’s business represented about $100 million of the $135 million of AXR’s annual revenue. I would expect demographic growth will continue to drive revenue growth for Kable. There will also be some increase in earnings velocity attributable to web design services most recently being offered by Kable. Having access to customer addresses, emails, and phone numbers via the magazine fulfillment service should dovetail well with future internet offerings.
But magazines and fulfillment isn’t what makes AMREP’s stock so exciting to me. No, what I like about AMREP is that this company effectively IS the city of Rio Rancho. The city of Rio Rancho is 65,000 acres of which 20,000 acres is owned by AMREP. That’s right, AXR owns 1/3 of the land of this small city which is in the embryonic stages of hyper growth.
Consider:
• Existing population of Rio Rancho is 74,000 people. Median age is 35 yrs old. 4 year growth rate has been 18.5%. Estimated 2010 population is 125,000.
• Rio Rancho has a top rated school system. Go to Myspace.com and search on all of the kids from Rio Rancho. For the most part they seem to be very bright, interesting and admirable youths. Test scores are well above national/state norms. A 2nd High School is scheduled to be completed in 2009. The University of New Mexico West and New Mexico Highlands University are within the city limits.
• Rio Rancho is in the Northwest quadrant of the Albuquerque Metropolitan area. The only reasonable place left for Albuquerque to grow is West and Northwest.
• In Money Magazine’s America’s Best Places to Live, Rio Rancho scored #83 of 1,321 places studied and received the highest scores on jobs/economy and arts/leisure.
• Home sale prices are rising. Record setting home construction continues.
• Rio Rancho offers a variety of recreational activities including golfing, swimming, and ice skating, with multiple parks and playgrounds. A new 47 million dollar, 6,500 fixed seat event center will open in October 2006. Rio Rancho will be getting a minor league ice hockey team to play there.
• Plans for a new City Centre downtown area, destined to become New Mexico’s premier commercial/retail/dining and entertainment venue, are underway. A new 60,000 sq ft City Hall building is planned for opening in June 2007.
• 1,720 building permits were issued in 2004, vs. 1,224 permits in 2003. Plans for redevelopment projects under way in Rio Rancho call for mixing high-density residential with commercial, retail and public uses such as schools, community centers, parks, open space and trails.
• Only about 25 percent of Rio Rancho's 103 square miles is developed or under development. There is room to grow big…really big.
Rio Rancho's population is growing so fast you can almost see it happening.
"We're getting 25 new people a day, 365 days a year," a resident said. "They're building 275 to 280 new homes a month here."
''There used to be lots of coyotes when we first came out,'' said Fred Schueler, a retired commercial artist from Ohio who moved here with his wife in 1979. ''But now houses are springing up all over, and the development has chased them away. We still like it out here a lot, but I'm glad that we bought when we did.''
Big deal, another southwest America growth story? It wouldn’t mean anything to me unless you remember again that AMREP is sitting on 30% of the land for this expansion. In 2005, AXR completed a large sale of commercial property for the site of a Wal-Mart store. If you don’t think Wal-Mart knows what they are doing before they go into a town, you are smoking crack. Have you ever seen a Wal-Mart store close down? This is right on the heels of a 2004 sale of property at the Northern tip of Rio Rancho to none other than Home Depot (the first one in Rio Rancho). These mega retailers don’t build boxes unless they see growth potential.
Also in 2005 AMREP built a spec 30,000 foot property for its own account which they will be leasing out. Chances are they will grow this end of their business as well.
Ok $$$MR. MARKET$$$, you’ve pitched the growth story. Why is this stock worth more than $49.80/share?
Start with earnings…earnings…earnings. In June, AXR reported net income of $10,389,000, or $1.56 per share, for its fiscal year 2006 fourth quarter ended April 30, 2006 compared to net income of $4,743,000, or $0.72 per share, in the same period of fiscal 2005. Fourth quarter 2006 revenues were $47,846,000 versus $36,152,000 in the fourth quarter of fiscal 2005.
For all of fiscal 2006, the Company reported net income of $26,050,000, or $3.93 per share, compared to net income of $15,525,000, or $2.35 per share, in fiscal 2005. The 2006 results consisted of net income from continuing operations of $22,494,000, or $3.39 per share, and net income from discontinued operations of $3,556,000, or $0.54 per share, versus net income from continuing operations of $15,588,000, or $2.36 per share, and a net loss from discontinued operations of $63,000, or $0.01 per share, in the prior year. Fiscal 2006 revenues were $148,296,000 compared to $134,506,000 in fiscal 2005. The Company's fourth quarter and full year 2006 net income and earnings per share were all records for any quarterly or annual period.
While the earnings are pretty impressive, the real story is in the balance sheet. It’s pretty simple. A call to several Rio Rancho realtors revealed that the average Rio Rancho undeveloped acre was going for $30,000. If you take AMREP’s 20,000 acres and multiply it by $30,000 per acre, you get $600,000,000. If you divide this by the 6.6 MM shares outstanding, you get a share price of $91, just for the land value alone. The $91 figure doesn’t even include the Kable business or the fact that land prices will most certainly be appreciating in Rio Rancho.
I don’t know how AXR is valuing their land holdings, but it isn’t at market prices, that’s for sure. I was going to call the CFO and ask him, but I was too lazy. The rest of the balance sheet is in great shape. AXR has no long term debt and their current assets exceed current liabilities.
On December 7, 2005, the Company's Board of Directors declared a special cash dividend of $3.50 per common share payable on January 9, 2006 to shareholders of record at the close of business on December 19, 2005. The Board indicated that the Company's financial condition, substantial cash position and anticipated cash flow, particularly from its real estate operations, in relation to its current capital requirements were major factors in its determination to reward shareholders with this special cash dividend, which follows a special dividend of $0.55 declared on July 13, 2005, and other special dividends of $0.40 and $0.25 per share that were declared following the close of AMREP's fiscal years ending April 30, 2004 and 2003. The Company said that the Board may consider special dividends from time-to-time in the future in light of conditions then existing, including earnings, financial condition, cash position, and capital requirements and other needs.
The $3.50 payout is about a 7% dividend…not too shabby at all. This ain’t Halloween candy they are handing out. This extra cash is coming from land sales. I expect more, and bigger, in the future. With 20,000 acres, they won’t be running out of land to sell really soon.
Remember the Pink Floyd album, “The Wall”? We don’t need no education. Jim Wall is the man who put the "vision" in the City of Vision. The chairman, president and CEO of AMREP, Wall came to Rio Rancho in 1968. "We started with the bare ground," he recalled, and started building inexpensive houses for retirees from the East Coast and a handful of younger people from Albuquerque looking for affordable housing. But even then, Wall had his eye on the future.
"We realized early on that to be anything more than a bedroom community to Albuquerque, we had to establish our own economic job base," he said. The businesses providing those jobs derive revenue from selling a product or service outside the city in which they are located, and collect new dollars to infuse into the local economy. Those jobs, in turn, foster retail businesses and other services.
"Everyone is concerned about the problems that go along with development," Wall observed. "But those are the good problems to deal with. A shrinking population, a shrinking tax base, those are the hard things to deal with."
The economic development torch has been passed to the Rio Rancho Economic Development Corporation. AMREP Southwest has returned to its roots selling land and no longer builds homes. "The time has now come for other builders to come and take their roles building the city," Wall said. "But we will always be the master developer." The city now is the fourth largest in the state, Wall noted, and predicted to be the second largest by 2020.
"We've called ourselves the City of Vision and obviously, our vision focuses on the future," he said. "I always look forward and I see us on the brink of developing into a major city."
My vision is the kah-ching I’m going to get when I see this stock hit my target. I don’t need no stinking coyotes or roadrunners or Home Depots. Just give me cash. I am HUGE!
Tell me what you think of this pick..and this write up.
$$$MR. MARKET$$$
Perhaps the property looked something like this:
Or maybe like this:
Either way, that guy in the checkered suit wasn’t all wrong. Sure, the property your parents bought was probably deemed worthless about 20 years after they bought it. As for that nice salesman? Like Ken Lay, he’s probably dead by now. However, what that salesman, your parents, and the early internet investors had in common was that they had the right idea, but they were just a little ahead of their time.
Take for example the city of Rio Rancho, New Mexico. It was founded in the 1960’s on land purchased for pennies an acre back in the late 1800’s. What your parents didn’t know is that the city of Rio Rancho is actually located only a few miles from the enormously popular and ever expanding largest city in New Mexico => Albuquerque. Now that Albuquerque is busting at the seams, the most sensible place for people to live has become the city of Rio Rancho.
I bought AXR (AMREP Corporation) today at 49.80. I will sell it in 4 – 6 weeks at 57.45. Here’s why I like AXR:
AXR’s stock is up 90% over the last 12 months yet its PE is only 16. Look at this chart:
AMREP Corporation, through its subsidiaries, engages in the real estate, fulfillment services, and newsstand distribution businesses. It develops both residential lots and sites for commercial and industrial use, as well as secures entitlements for development tracts for sale to homebuilders. As of April 30, 2005, the company owned approximately 19,550 acres of land in Rio Rancho, 55,000 square foot of office building, and a 30,000 square foot commercial rental property in Rio Rancho, as well as 2 tracts of land properties located in Colorado. Its fulfillment services include magazine subscription fulfillment services, lettershop and graphics arts services, customer telephone support, list services, and product fulfillment services. The magazine subscription fulfillment services comprise processing new orders, receiving payments, preparing and mailing renewal and statement notifications, maintaining subscriber lists and databases, processing Internet orders, and printing forms and promotional materials. The list services comprise maintaining client customer lists, merging rented lists with a client's list, and sorting and sequencing mailing labels. The company receives, warehouses, processes, and ships merchandise as part of its product fulfillment services. AMREP distributes automotive, men's sophisticates, comics, puzzle, romance, and sports magazines for publishers.
Now I’m not going to spend a lot of time discussing the magazine subscription fulfillment services business, called Kable Media Services. I really can’t trust a business that doesn’t know how to spell “cable”. I love cable. I love clicker. I love football. I love beer.
Having said that, this part of the business actually pulled in almost one half of AXR’s net income last year and Kable is now the second largest subscription fulfillment company in the United States. What is fulfillment? It’s not eating all the chips you want and washing it down with the coldest beer on the planet. Magazine fulfillment is the process of getting an order into the hands of a consumer. It involves employees taking an order by telephone, through the mail or over the Internet. Kable employees then sort and scan the mail, process the order, create the bill or renewal notice and provide customer service support. Finally, a mailing label is created and the item is sent to the customer. Kable’s business represented about $100 million of the $135 million of AXR’s annual revenue. I would expect demographic growth will continue to drive revenue growth for Kable. There will also be some increase in earnings velocity attributable to web design services most recently being offered by Kable. Having access to customer addresses, emails, and phone numbers via the magazine fulfillment service should dovetail well with future internet offerings.
But magazines and fulfillment isn’t what makes AMREP’s stock so exciting to me. No, what I like about AMREP is that this company effectively IS the city of Rio Rancho. The city of Rio Rancho is 65,000 acres of which 20,000 acres is owned by AMREP. That’s right, AXR owns 1/3 of the land of this small city which is in the embryonic stages of hyper growth.
Consider:
• Existing population of Rio Rancho is 74,000 people. Median age is 35 yrs old. 4 year growth rate has been 18.5%. Estimated 2010 population is 125,000.
• Rio Rancho has a top rated school system. Go to Myspace.com and search on all of the kids from Rio Rancho. For the most part they seem to be very bright, interesting and admirable youths. Test scores are well above national/state norms. A 2nd High School is scheduled to be completed in 2009. The University of New Mexico West and New Mexico Highlands University are within the city limits.
• Rio Rancho is in the Northwest quadrant of the Albuquerque Metropolitan area. The only reasonable place left for Albuquerque to grow is West and Northwest.
• In Money Magazine’s America’s Best Places to Live, Rio Rancho scored #83 of 1,321 places studied and received the highest scores on jobs/economy and arts/leisure.
• Home sale prices are rising. Record setting home construction continues.
• Rio Rancho offers a variety of recreational activities including golfing, swimming, and ice skating, with multiple parks and playgrounds. A new 47 million dollar, 6,500 fixed seat event center will open in October 2006. Rio Rancho will be getting a minor league ice hockey team to play there.
• Plans for a new City Centre downtown area, destined to become New Mexico’s premier commercial/retail/dining and entertainment venue, are underway. A new 60,000 sq ft City Hall building is planned for opening in June 2007.
• 1,720 building permits were issued in 2004, vs. 1,224 permits in 2003. Plans for redevelopment projects under way in Rio Rancho call for mixing high-density residential with commercial, retail and public uses such as schools, community centers, parks, open space and trails.
• Only about 25 percent of Rio Rancho's 103 square miles is developed or under development. There is room to grow big…really big.
Rio Rancho's population is growing so fast you can almost see it happening.
"We're getting 25 new people a day, 365 days a year," a resident said. "They're building 275 to 280 new homes a month here."
''There used to be lots of coyotes when we first came out,'' said Fred Schueler, a retired commercial artist from Ohio who moved here with his wife in 1979. ''But now houses are springing up all over, and the development has chased them away. We still like it out here a lot, but I'm glad that we bought when we did.''
Big deal, another southwest America growth story? It wouldn’t mean anything to me unless you remember again that AMREP is sitting on 30% of the land for this expansion. In 2005, AXR completed a large sale of commercial property for the site of a Wal-Mart store. If you don’t think Wal-Mart knows what they are doing before they go into a town, you are smoking crack. Have you ever seen a Wal-Mart store close down? This is right on the heels of a 2004 sale of property at the Northern tip of Rio Rancho to none other than Home Depot (the first one in Rio Rancho). These mega retailers don’t build boxes unless they see growth potential.
Also in 2005 AMREP built a spec 30,000 foot property for its own account which they will be leasing out. Chances are they will grow this end of their business as well.
Ok $$$MR. MARKET$$$, you’ve pitched the growth story. Why is this stock worth more than $49.80/share?
Start with earnings…earnings…earnings. In June, AXR reported net income of $10,389,000, or $1.56 per share, for its fiscal year 2006 fourth quarter ended April 30, 2006 compared to net income of $4,743,000, or $0.72 per share, in the same period of fiscal 2005. Fourth quarter 2006 revenues were $47,846,000 versus $36,152,000 in the fourth quarter of fiscal 2005.
For all of fiscal 2006, the Company reported net income of $26,050,000, or $3.93 per share, compared to net income of $15,525,000, or $2.35 per share, in fiscal 2005. The 2006 results consisted of net income from continuing operations of $22,494,000, or $3.39 per share, and net income from discontinued operations of $3,556,000, or $0.54 per share, versus net income from continuing operations of $15,588,000, or $2.36 per share, and a net loss from discontinued operations of $63,000, or $0.01 per share, in the prior year. Fiscal 2006 revenues were $148,296,000 compared to $134,506,000 in fiscal 2005. The Company's fourth quarter and full year 2006 net income and earnings per share were all records for any quarterly or annual period.
While the earnings are pretty impressive, the real story is in the balance sheet. It’s pretty simple. A call to several Rio Rancho realtors revealed that the average Rio Rancho undeveloped acre was going for $30,000. If you take AMREP’s 20,000 acres and multiply it by $30,000 per acre, you get $600,000,000. If you divide this by the 6.6 MM shares outstanding, you get a share price of $91, just for the land value alone. The $91 figure doesn’t even include the Kable business or the fact that land prices will most certainly be appreciating in Rio Rancho.
I don’t know how AXR is valuing their land holdings, but it isn’t at market prices, that’s for sure. I was going to call the CFO and ask him, but I was too lazy. The rest of the balance sheet is in great shape. AXR has no long term debt and their current assets exceed current liabilities.
On December 7, 2005, the Company's Board of Directors declared a special cash dividend of $3.50 per common share payable on January 9, 2006 to shareholders of record at the close of business on December 19, 2005. The Board indicated that the Company's financial condition, substantial cash position and anticipated cash flow, particularly from its real estate operations, in relation to its current capital requirements were major factors in its determination to reward shareholders with this special cash dividend, which follows a special dividend of $0.55 declared on July 13, 2005, and other special dividends of $0.40 and $0.25 per share that were declared following the close of AMREP's fiscal years ending April 30, 2004 and 2003. The Company said that the Board may consider special dividends from time-to-time in the future in light of conditions then existing, including earnings, financial condition, cash position, and capital requirements and other needs.
The $3.50 payout is about a 7% dividend…not too shabby at all. This ain’t Halloween candy they are handing out. This extra cash is coming from land sales. I expect more, and bigger, in the future. With 20,000 acres, they won’t be running out of land to sell really soon.
Remember the Pink Floyd album, “The Wall”? We don’t need no education. Jim Wall is the man who put the "vision" in the City of Vision. The chairman, president and CEO of AMREP, Wall came to Rio Rancho in 1968. "We started with the bare ground," he recalled, and started building inexpensive houses for retirees from the East Coast and a handful of younger people from Albuquerque looking for affordable housing. But even then, Wall had his eye on the future.
"We realized early on that to be anything more than a bedroom community to Albuquerque, we had to establish our own economic job base," he said. The businesses providing those jobs derive revenue from selling a product or service outside the city in which they are located, and collect new dollars to infuse into the local economy. Those jobs, in turn, foster retail businesses and other services.
"Everyone is concerned about the problems that go along with development," Wall observed. "But those are the good problems to deal with. A shrinking population, a shrinking tax base, those are the hard things to deal with."
The economic development torch has been passed to the Rio Rancho Economic Development Corporation. AMREP Southwest has returned to its roots selling land and no longer builds homes. "The time has now come for other builders to come and take their roles building the city," Wall said. "But we will always be the master developer." The city now is the fourth largest in the state, Wall noted, and predicted to be the second largest by 2020.
"We've called ourselves the City of Vision and obviously, our vision focuses on the future," he said. "I always look forward and I see us on the brink of developing into a major city."
My vision is the kah-ching I’m going to get when I see this stock hit my target. I don’t need no stinking coyotes or roadrunners or Home Depots. Just give me cash. I am HUGE!
Tell me what you think of this pick..and this write up.
$$$MR. MARKET$$$
And Good entry too! 
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