Well mine (the one to which I will admit today) is Anixter (NYSE:AXE) (86.11, $3.2 billion). I have followed that stock closely for quite some time and actually have apologized in the past to the CFO for meeting with him and not buying the stock, clearly having wasted both of our time. Without going too much into the AXE story, I have always been impressed with the industry (specialty and coaxial cable and wire distribution) as well as how well run the company has been. Having gotten to know other distributors very well, such as those in the IT products area or Pharmaceuticals, I have a special appreciation for this industry, as it offers much better dynamics for the middle-man.
I recall the last time I met with the CFO of AXE, he asked me (being that we were in Houston) if I was familiar with a local company, Houston Wire and Cable (NASDAQ:HWCC) (24.83, $520mm). I wasn’t. He indicated to me that they were a fine company, though much smaller than AXE. Six months later, I heard the name again, as the company was conducting its IPO. It was too small to meet the investment criteria at the firm I was employed, so I didn’t really get to know it. Well, now is the time. Though the stock rocketed from 13 to a high of almost 32, it has pulled back sharply lately. I have spent some time over the last day trying to get my hands around the situation, especially as I like a lot of things about this company. From the best I can tell, there are only two things going on that are impacting the price: Nervousness before the 8/1 quarterly earnings release and perhaps some selling by some IPO investors who reached the LT capital gains threshold.
I will skip a full description of the company and instead point to some interesting highlights. For those who would like to quickly get a handle on the firm, their website is a good starting place, particularly their investor presentation. Here is the good stuff:
Stellar Balance Sheet: ($6mm of LT Assets, Total Liabilities of just $34mm) Very Low PE ratio Magic Formula top 100 (not surprisingly – makes my “Magic 500” as well) Rising EPS estimates Closest Peer (AXE) blew away numbers today and rallied Two Directors buying stock recently at slightly higher prices (one comes from Pool Corporation (NASDAQ:POOL), another great distributor) Neuberger Berman recently established a 15% position from scratch Leveraged to Utility and Infrastructure build-outs Covered sparsely by Wall Street (5 guys) Large short-interest Sitting on top of strong support at 23-24
Game plan: Strong company in a great industry at a fantastic price. I think that the stock could trade back to 30 or so, as that represents a multiple of just 15X the 2008 estimate. If you are going to be a distributor, this is the type of business that you should seek: Being in the middle of lots of buyers and sellers (so as not to be subject to getting squeezed by a few big customers or vendors). I will not sit by idly and watch this one keep going up!