Why I Bought Walter Industries

Includes: MWA, WLT
by: John Bethel

I bought stock in Walter Industries (NYSE:WLT) on Tuesday. The shares closed the day at $43.21.

I’ve been mulling buying Walter Industries for some time. In fact, you might remember that when I purchased Mueller Water Products (NYSE:MWA) in July a reader commented that Walter was a better buy. I replied that I’d been looking at the company and might eventually add it.

And now I have.

Walter Industries' market capitalization is more than $1.9 billion, of which over $1.2 billion is Walter’s stake in Mueller Water Products. That leaves Walter’s coal and home building businesses valued by the market at just $673 million -- ridiculously low.

Walter Industries pays a small dividend and its price-sales ratio is 0.59. The company plans on spinning off its remaining Mueller shares later this year, and may eventually spin off its home building and financing segments as well.

Walter’s traded as high as $70 back in April. The shares have fallen back to the low-to-mid $40s after hedge funds began dumping the stock when the coal business failed to perform up to expectations this year. Hedge funds are largely “fast money” outfits and I take a longer view.

The company’s coal business not performing as well as thought is a short-term negative. One causing the shares to decline and thereby giving long-term investors the opportunity to buy a fine company that’s undeniably cheap on a sum-of-the-parts basis.

If you’re a regular reader of value investing sites, you’re probably familiar with the Walter Industries story. I’ve decided to jump in and become a shareholder (I probably should have been one for a while now, but there you go). Just be sure to do your own research before doing any buying of your own.

WLT 1-yr chart:

WLT 1-yr chart

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