General Cable (NYSE:BGC) goes down in my book as one of those investments that passed right under my nose until it came back and smacked me in the face. The stock has returned over 120% year over year, yet gets virtually no press. The reason this one is especially ironic is that I was face to face with a company leader and didn't research the company's prospects myself and pull the trigger following this encounter. About a year ago, a senior executive from this company was a guest speaker in one of my MBA classes. I recall being thoroughly impressed with his charisma, experience and leadership style. He was ex-British military and delivered a story of his company's recent tactics and execution that left quite an impression on me. He had taken us through a case study in a new strategy his company pursued in diversifying their business into energy and telecom and the payday that had ensued as a result of their execution and focus on customer service. Had I gone back and done my homework following this encounter, I would have found that from the prior year period (July 2005-Jul 2006), the stock had rallied over 140%! I could have then enjoyed a further 120% to date with more likely to follow.
The name is as generic as it gets. What does General Cable do?
General Cable derives its revenues from a broad array of products and services, which helps it mitigate risk in various industry down-cycles and react to rapid changes in commodity prices. It offers copper, aluminum, and fiber optic wire and cable products worldwide. It services various industries from electric utilities to telecom and networkers. With the boom in energy prices, it has benefited from high margins in its refining, natural gas and oil extraction sales. It services these customers with a premium quality/priced product and very strong focus on customer service metrics, which is their differentiating factor. They benefited from the destruction of oil rigs following Katrina, the rapid expansion in oil exploration worldwide, the international construction boom, and the continual upgrading and return visits from satisfied customers in the various industries, including the highly regulated nuclear industry. Although it sounds like a bit of a commodities business, they invest heavily in Research and Development and include their customers in the development of their pipeline and pricing models to optimally focus on high profit margin product cycles. Think of them as the best in breed of this surprisingly important sector.
The fundamentals - Where from here?
The stock reached another all-time high today and has no signs of abatement. Worldwide demand continues to be strong and barring a global recession, or some sort of accounting irregularity, the stock's fundamentals are strong. The barrier to entry in this business are high due to the intellectual property and recurring business model. Additionally, General Cable has been an acquirer of competing firms in China and Canada of late. Their leadership is unlikely to be supplanted any time soon. Best in class service in concert with high customer satisfaction in an industry with constrained supply equals pricing power.
Following their prior earnings announcement in May, the stock rallied 12%. The details are listed below: