American Capital, Ltd. (NASDAQ:ACAS)

ACAS, which historically traded at a premium to Net Asset Value, has been hated since it suspended its dividend and currently trades at about half its last-published NAV. This, despite management's recent NAV-increasing performance, solid and growing operating income, strong interest coverage, and ability to reinvest earnings without near-term tax impact due to a loss carryforward facilitated by its current tax status. Recent use of cash has graduated from paying down debt (so that it has no near-term principal obligation) to making 8-digit investments in new portfolio additions and in below-NAV (i.e., immediately accretive) share buybacks.

Public lack of sophistication with respect to ACAS and its operations, business, and prospects contribute to its underpricing. Discussion of ACAS is available at the Jaded Consumer:
http://jadedconsumer.blogspot.com/search/label/Ticker%3AACAS

Management has been growing its fee management income (AGNC, MTGE) nicely, but the real story is in the valuation of ACAS' diverse portfolio of investments, and the improvement of those companies' earnings as the macro-economic environment improves. Just as Buffett has made long-term investments in the macro-economic environment, so may we – and by using ACAS as an internally-diversified and internally-leveraged equity investment, we can use ACAS to obtain results that outstrip those of the S&P (look at the chart from 1Q2009 to the present, to show post-crash results).

Although ACAS is unlikely to pay a dividend for at least a year due to its tax status and the consumption of its loss carry forward (a BDC's dividend-payment requirement is based on taxable income, not quarterly results or SEC-reportable "earnings"), the eventual resumption of the dividend is likely to return ACAS to its historic trading price above NAV (just as its publicly-traded management client AGNC enjoys). Both ACAS' own internal growth and the conversion from NAV discount to NAV premium are independently good reasons to buy: together, it's long-run dynamite.