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Special situations, contrarian, hedge fund manager
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Yes, I know I just wrote about Ash Grove Cement (OTCPK:ASHG) the other day. It was more of a technical discussion, short-term article, but I did make reference to believing in the strong fundamental position of Ash Grove Cement. I am going to touch on some of those fundamentals right now.

Sometimes, a winner is just looking you right in the face and it is just painfully obvious what is going on. I am not talking about finding the stock that is going to double in two days – sure, that would be nice, but not a good investment approach. I am talking about the obviousness of the long-term success and merits of a company’s business model.

ASHG has made it well publicized that they are building a monster cement plant in Southern Nevada. By chance, I happen to be in Las Vegas while I am writing this article. I was actually hoping to have the chance to visit the site of the plant, which is only a handful of months away from going online. Currently, it is being built. I called ASHG and wanted to ask if I could visit the site just to check it out. My call went unreturned, but likely for the best – I mean, I had plenty to do while I was here.

While I was here, I was looking at the view from a house in Henderson, NV – the town right next store to Las Vegas. The view of the mountains was fantastic, but paled in comparison to the view of the strip from the elevated, unobstructed by anything patio. What do I see? I see a 6 mile gap between the South Point Hotel and the Mandalay Bay, which is the first/last hotel on the strip for those not familiar with the landscape of Las Vegas.

From discussions with the locals and other information about the real estate in the area, I quickly learned that plans are well in motion to continue to build the strip out. Basically, in several years, that 6 mile gap will be filled and South Point will be the first/last hotel on the strip. The gap will be filled with huge resorts and residential sky rises. The resorts that are slated to be built are momentously huge – and there is an outside chance (though very small) that the tallest building in the world will be built in the vicinity. My point is, the growth in this area is not done – and with new casinos, many being backed by the large, established organizations, we are looking at many new jobs to support the new resorts. My thought – it is going to take lots, lots, and lots of cement.

It is abundantly clear that the demand for the cement in this area is going to be huge and the $200 million ASHG is spending on building the place is no small change, especially for a family owned/operated company that happens to have a handful of shares floating around. Sure, we know we need more cement and concrete – that is no secret. However, the sheer magnitude it is going to take to build these monster buildings in the strip’s gap is almost overwhelming. I do not have any specific numbers on what it is going to take to build these new resorts and the surrounding areas – nor do I know how much cement will be needed. All I know is that ASHG will be more than well positioned to take advantage of the impending boom and return on investment is likely sooner than anyone is giving them credit for.

In summary, sometimes choosing what company to invest in for the long-term is painfully obvious in terms of the success that will be enjoyed by the business model. It does not take an economic scholar nor expert fund manager to easily see what is happening here in Las Vegas and what is to come. Short and simple – 6 miles of empty space, plans for new casinos and resorts, lots and lots of concrete – buy ASHG.

Seaboard Corporation – Aren’t They a Dry Bulk Shipper?

This is more of an alert rather than rhetoric, so it will be brief. In the past few trading days, SEB has declined under $2,200/share. The bigger news is that during this time, marine transport and dry bulk-shippers were going through the roof. SEB did not take part in the rally. Why? Perhaps since SEB is diversified with a multitude of cash producing businesses, I guess they are not a bulk shipper. Who knew, right?

SEB continues to see growth in their marine shipping business, is buying new ships (a big chunk of capital expenditures slates for 2007 and see June 14, 2007 announcement on www.seaboardmarine.com), and is one of the largest operators (perhaps the biggest?) in the Caribbean. I still like how SEB retains the huge majority of their free cash flow to reinvest in the business, rather than paying out huge dividends like some of these other shippers.

Short and simple – they are a bulk shipper, they are huge, they are expanding their fleet, they are keeping most of their money (helping to reduce taxes and allow for growth). I think that the high dividend payouts of many of the other bulk shippers will be their downfall over the long-term. Not investing more in their respective fleets and not saving cash for a rainy day could be troublesome, especially with how leveraged some of these shippers are. SEB, fortunately, is not highly leveraged. Well, I digressed a little bit – best of luck to the other bulk shippers. Of course, I wish I bought a handful of them a year ago when I started researching the shipping industry, but you cannot win them all.

SEB is not nearly as obvious as ASHG’s position in Nevada, but when a strong company shows weakness when the rest of the sector is showing strength, especially during the short term, one should take notice, particularly if there have been no material changes in the company’s financial status. I am not going to say buy more here – I will leave that up to you and timing the market. SEB can certainly drop further than it has in the past couple of weeks. Regardless, I think the future of SEB – and subsequently their stock price is obvious. And it really does not take a genius to see it – it is merely simple business principles. What am I doing with SEB, you ask? Well, that should be obvious, too.

Disclosure: Author is long SEB and ASHG.PK

Source: Ash Grove Cement and Seaboard: Obvious Winners