StoneMor Partners L.P. (NYSE:STON)

This is a much-misunderstood stock and that certainly has a negative impact on the valuation. There is an excellent article in Forbes which explains some of the complexities, here are some quotations:

"Kate Stalter: Tell us about a few of these equities that you are putting your clients into, Paul.

Paul Maher: I want to disclose that I am long these positions on behalf of my clients, and the other is I’m not making a recommendation to anybody else.

I have a lot of favor in a position called Stonemar Partners (STON). It is a recession-proof industry. It is in the mortuary and cemetery business. They are again a limited partnership.

They have an awkward relationship with the IRS. The rules for the IRS make their fundamentals—if you’re not looking them as a partnership, limited partnership with a distribution characteristic, it’s hard to read that this company can afford to pay its dividend.

But when you do the proper research, you find out that this position has a great deal of assets that can’t get shown, because they have to wait at least a year for a certain percentage of them to be allowed on the books, even though they’ve already collected the money. And then they have to wait until the product is used when the client dies, or when they make up a selection for a specific whatever.

Kate Stalter: Interesting business model.

Paul Maher: Yeah, it very much is. The nature of their business allows them to leverage against assets that can’t be shown on their 10Ks and their 10Qs, because IRS rules don’t allow it.

They are growing so fast that it looks like they’re outreaching sort of their logistical line. Their ability to supply their growth is accomplished on the debt side, but it’s very carefully collateralized against assets that aren’t allowed yet to be shown as assets.

A limited partnership that’s not growing…this process would catch up with itself, and it would look OK on the books. But when a company like this particular company, Stonemar, grows as fast as it does, it’s harder to see it. It’s a bit underappreciated.

It goes through a little more volatility than I tend to like, but I’m there for my clients to earn a distribution, and that’s what we’re doing."