Private equity and venture-capital groups are riding high with the proliferation of financing deals and buyouts. Most of them are privately held. One exception is Capital Southwest (CSWC ), which buys stakes in startups and provides early-stage financing. It looks for growth companies "with great management -- and stays with them for years," notes Steven Rogé of investment boutique R.W. Rogé, which owns 2.5% of the narrowly traded stock. Since going public in 1961 at 11 a share, its net asset value has soared from $14.9 million to more than $300 million -- or at a yearly compounded rate of 13.8%, notes Rogé. The stock, now at 89, is undervalued, he says, based on its net asset value of $108.7 a share. Even after allowing for the illiquid value of private firms in its portfolio -- by discounting 10%, the rule of thumb -- it is still worth 98, figures Rogé. Some 36% of its money is invested in publicly traded stocks, including Comcast (CMCSK ), Alltel (AT ), and PETsMART (PETM ). "In essence," says Rogé, "you are buying one of the best private equity funds at a 20% discount."
Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.
By Gene G. Marcial