Could This 'Baby Berkshire' Stock Outperform Buffett? - Stocks in the News

Leucadia National Corporation (

) is an American 

that, through its subsidiaries, engages in a diversified portfolio including mining & drilling services, telecommunications, energy products, healthcare services, manufacturing, banking and lending, real estate, and winery business. 

It also operates, through its most recent largest investment, Jefferies & Company, a firm that operates in capital markets, financial advisory, instructional brokerage, securities research, M&A, and other financial services.   As you can see from above, Leucadia is a very diverse holding company that has a market capitalization of $8.83 billion and is often called a “baby Berkshire Hathaway” for its wide array of holdings, but is it still a good choice for investors?

By looking at the numbers above, LUK is obviously a strong company in terms of having a solid fundamental business, but some would say that given the current stock price, it is overvalued with a P/E of 52.87. Total assets increased 412% from December 2012 to December 2013 which could be attributed to its wholly owned subsidiary Jeffries & Company.

Judging from the past week, Leucadia could be considered as an oversold stock by a technical indicator called the RSI (Relative Strength Indicator).  As of three days ago, LUK record an RSI of 29.99 indicating that the stock was being oversold after hitting a low of $23.74 per share. 

By comparison, the current RSI of the S&P 500 ETF (SPY) was 48.1.  An RSI that is above 70 is considered to be overbought and are in position for a pullback.  A stock is considered to be oversold if the RSI reading falls below 30, and this point of entry for investors could be optimal given this recent sell off.

As you can see from the one year chart of LUK, the stock has recently oversold and is hitting the bottom range of its 52 week range of $23.12 – $29.56.  This in accordance to the RSI indicator should be a good time for investors to look into for investing.

After Leucadia bought Jefferies on March 1, 2013 for $3.6 billion, it became LUK's largest investment and is the largest operating company within Leucadia.  Investors must know some risks that are associated with that.  Since Jefferies is an investment bank, high leverage will be used and must be accounted for when discussing risk associated with Jefferies.

Both Jefferies and LUK use long maturity debt as their primary financing implying their conservativeness in interest rate fluctuations.  When investing in investment banks, it is important to look at factors that run outside the balance sheet.  By that I mean looking at the management and their inherent sensitivity to risk and by looking at these factors, investors should have a better understanding to what they are getting themselves into.

Leucadia, being a diversified holdings company similar to Warren Buffett's Berkshire Hathaway, there are similar attributes though there are a few items that make LUK stand out.  Being a public company since 1987, the company has returned about 2,700% having a price range from 81 cents all the way up to around $50 per share. 

With all of its subsidiaries and holdings that the company is partnered with, Leucadia will definitely correlate strongly with the economy and do well during a bullish market though it could be hit hard by a downturn.   With the economy being on a somewhat bullish run (even taking into account the recent slump) and unemployment hitting a low since 2008, the company is poised for strong growth. 

And with their RSI below 30, this should give investors another reason to get in while offering a cheap price that is going against conventional wisdom of their positive correlation with the generally bullish economy.   Investors should be on the watch out for quarterly earnings report on November 5

though rest assured that LUK could remain a strong performer heading into 2015 too.

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