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Leucadia National: Beef, Banking and Buffett

Here's why this conglomerate has drawn comparisons to Berkshire Hathaway.

Leucadia National is a conglomerate that is sometimes compared to Warren Buffett’s Berkshire Hathaway (BRK.A). In fact, Leucadia even has a commercial mortgage joint venture with Berkshire called Berkadia, notes Gavin Graham, contributing editor to Internet Wealth Builder.

The stock has recovered strongly since this time last year, with Leucadia (LUK) rising almost 50% and Loews 20%. This reflects improvements in financial markets, with equities and bond yields rising. This helped Leucadia’s wholly owned mid-market investment bank, Jefferies.

Apart from Jefferies investment bank and Berkadia, Leucadia also owns the second largest beef processor in the U.S., National Beef.

Its portfolio also includes a chain of auto dealerships (Garcadia), Idaho Timber, and stakes in a couple of smaller financial groups (KCG and FXCM).

Leucadia swung from a $229 million loss (-$0.60 per share) to a $281 million profit ($0.76 per share) as Jefferies went from losing $246 million to making $132 million.

National Beef almost tripled its earnings to $57 million. Leucadia’s other financial holdings went from losing $134 million to making $13 million and it booked a $180 million gain on the sale of Conwed Plastic.

While Leucadia’s stake in FXCM was marked down by $133 million, it has almost completely recovered its original cash investment, is receiving repayments on the outstanding loan balance of $123 million, and still owns an equity stake worth $187 million.

Leucadia also announced that Virtu Financial has agreed to buy KCG at $20 per share, which would result in a gain of $98 million on Leucadia’s 24% stake, bringing the total received for the KCG investment since 2012 to $419 million.

The stock pays a small quarterly dividend of $0.0625 per share ($0.25 per year) to yield 1% at the current price. Leucadia remains a Buy for its widely diversified range of non-correlated holdings, successful track record of deal making, and substantial balance sheet (BBB-rated).

Gavin Graham is the president of Graham Investment Strategy Ltd, which was started in 2010 to provide analysis and insight on Canadian and international markets and economies.

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