Where Do You Find a Company like DEP?

Yesterday and the day before I wrote about DEP, a company that had gone into bankruptcy but emerged – to no fanfare – and managed to make some lucky, patient holders like me a heartening return. It’s not an investing style that’s for everyone, by any means, nor is it a style that always works. Not remotely.

Anyway, I know what you were thinking yesterday and the day before. You were thinking: “Why didn’t you tell us about DEP before it tripled?” And the answer is twofold. First, I’m reluctant to tout stocks I have any meaningful share in – especially little thinly traded stocks like DEP, where what I write could move the price. Second, this stuff is really risky, and I don’t want you to make an investment that turns out to be a clunker.

That said, I do have a stock you might want to look into – Calton Homes (American Stock Exchange symbol CN), understanding that I own a lot of it, purchased years ago, and that it really could fall five-eighths of a point. That doesn’t sound like much of a drop, especially for a American Stock Exchange-traded stock, but in this case, at least as of my writing, it would bring the price to zero. Zero, I need hardly mention, is a price at which it is hard to feel flush no matter how many shares you own and a decline from which, no matter how adroit the court-appointed receiver, it is hard to recover. Zero is not good.

So here’s the deal.

A smart guy with a very expensive faxed newsletter for exclusive clients (and me, as a favor) identified this homebuilder at around $5 a share when, by his calculations, just the undeveloped land it owned was probably worth that much. So you paid a fair price for the land and got the business for free. My kind of stock, but I didn’t buy. For one thing, home building is cyclical (unlike hair gook – no matter how bad times get, people are going to want to run bright blue or red gook through their hair) and I claim no ability for predicting the cycles. For another, you can’t buy every tempting idea that comes along.

But I did follow CN in his newsletter with each subsequent fax … and when I noticed it down at 2½, I couldn’t resist. The land at half price, if his calculations were right; the business for free. In I jumped for 2,000 shares. I bought more at 2 and then at 1¾. Where I really bought boatloads of it, near the end of 1995, was at three-eighths of a dollar. (Then, waiting 31 days, I sold the original shares for a tax loss. You have to wait or the IRS considers it a “wash sale.”) And then again, near the end of 1996, at 25 cents a share. (With a truly hopeless stock everyone is totally disgusted with, as Calton was, November and December can be a good time to buy, as last-minute tax-planners finally just kick it out to get the tax loss.)

Part of this was out of pure stubbornness or self-flagellation or that thing we do (well, I do) when you’re playing Hearts and you know, rationally, you cannot successfully shoot the moon but, well, you just can’t resist trying anyway and … well, what I’m saying is that part of it may have more to do with dreaming-of-the-big-score than doing any sensible thinking. Let alone actual research. (I have never, for example, seen a home built by Calton or visited any of the putatively valuable land.)

But part of it was that the fellow who had founded and built the company from 1981 to 1993 had by now stepped back in from retirement to try to rescue his investment. Owning 11 million or so of the 28 million shares outstanding, he has a strong incentive to try to restore the health of the company.

Will he succeed? Maybe not. Will he be hit by a backhoe on some job site and have his life — and my dreams — dashed? Maybe. (Sure the backhoes beep when they’re backing up, but maybe his hearing isn’t what it used to be.)

But this is the bet. The stock last week was trading between 56 cents and 62 cents, and I really, really, really mean it when I say it’s risky and you could well lose every penny making this bet.