Prudent investing during these turbulent times can guard and grow your wealth. Chris Mayer from the Rude Awakening shows you two “asset-rich conglomerates” that stand out during hard times.

This from Chris:

With each new trading day, the nation seems to be inching ever closer towards the sequel no one wants to see: Great Depression II. But there’s always a sunny side…

At least that’s the way Phil Carret looked at things. Born in 1896, Carret (rhymes with “hurray”) was one of the more inspiring and successful investors of the 20th century. He played through all the great booms and busts of the 20th century. In fact, in the pit of the Great Depression — 1932 — Carret decided to start his own mutual fund.

Yes, a quarter of the work force was out of work. But that left three-quarters working. And the Dow did lose 52.7% of its value in the prior year, but that meant that 47.3% remained.

Carret’s Pioneer Fund went on to compound shareholder capital at a rate of 13% annually for 50 years, despite slogging through losses in the early going. After he sold it, Carret managed his own money and private accounts. He was the great endurance man of the investing world, its Lou Gehrig or Cal Ripken.

Even at the age of 100, he put in a normal work week. He was a Wall Street marvel. Old Carret was a cool hand to the end, always looking for the bright side. He turned very bearish on stocks in 1997. The Dow was 7,000. Asked if he was selling stocks, Carret said: “I’m not going to do anything about it in my own portfolio. If stocks go down, they go down. I’m 100 years old and due to conk out any minute. If I conk out at the bottom of a bear market, it would save a lot of estate taxes.”

Always looking for the bright side, indeed…

Carret died in 1998 at the age of 101. Most of the above material comes from a chapter in John Rothchild’s The Bear Book: Survive and Profit in Ferocious Markets. If you’re interested in reading a little more, there is also a nice tribute to Carret here.

American Home Products was another Depression-era success story – not by looking on the bright side, but by prudently capitalizing on the gloomy side of things. Started in 1926 by a group of businessman long since forgotten, AHP was a maker of household products. It started small and grew quickly through acquisitions. Nothing so unusual about the tale so far. After all, the second great merger boom in American business took place in the 1920s.

But AHP was unusual in two respects. First, it continued its acquisition spree through the Great Depression when everyone else was battening down the hatches. It could do this because its finances were top-notch and its earnings power robust. Ben Graham, that great old investment writer from long ago, gave AHP a mention in his 1940 edition of Security Analysis. He gives us an appendix with the stock prices, earnings and dividends of AHP from 1929-1939.

AHP was not immune to the Great Depression, but the stock never came close to reporting a loss. Peak earnings of $5.49 per share in 1929 fell to $3.93 in the depths of 1932. It recovered by ‘39, turning in $5.23 per share.

Investors who held it through the Great Depression did all right. The stock price bounced all over the place, as you would expect. It hit a high of $86 in 1929 and a low of $25 in 1932. But by the late 1930s, it was still humming along in the $50s and would hit $60 per share in 1939.

All the while, it paid its investors nice dividends — a total of $34.35 over the decade. Considering what happened to the rest of market, and keeping in mind the dollar held its value better then, you would’ve been happy to park some money in AHP that decade.

There is a second trait that marks AHP as an anomaly: It bought businesses in unrelated industries. It owned firms in floor wax, coffee, oil, cheese products, insecticides and much more. It was the early model of a conglomerate. In this, AHP defied the wisdom of the times, which consolidated related business. The company’s diverse platform helped it weather the Depression better than if it had only a floor wax business.

So here we have a model of survival in the worst of times. AHP was a well-financed business that did more than one thing. It was an opportunistic business in the best sense of the term. It bought firms when and where they were cheap, without regard to the lines that divide industries.

Well, maybe the conglomerates of today will also fare better in today’s harsh climate. Over the last few months, I’ve recommended a number of financially strong conglomerates to the subscribers of Capital & Crisis. Seaboard (SEB: Amex) and PICO Holdings (PICO: Nasdaq) are two that come to mind.

Seaboard (SEB:amex) is a diversified international agribusiness and transportation company that processes pork products and ships cargo. The company also merchandises commodities, mills flour and feed, farms produce and sugar, and generate electric power. For example, Seaboard operates floating power generators off the coast of the Dominican Republic. And importantly, the company’s finances are strong.

PICO Holdings (PICO: nasdaq) is another compelling conglomerate. PICO’s stock is trading for only $25 a share, but the company owns water rights, land and a portfolio of cash and investments that are worth about $60 a share. As recently as last September, the stock was trading above $47. So the current quote represents a VERY steep discount to the company’s net asset value.

Both Seaboard and PICO seem like strong candidates to continue the legacy of American Home Products – asset-rich conglomerates that can excel in the midst of economic adversity.

Source: Carret, Rhymes with Hurray!