Nacco Industries: Strong Financials, Cheap Valuation

Oct. 8.07 | About: NACCO Industries (NC)

I have watch-listed Nacco Industries (NYSE:NC) and plan to buy some if it trades below 100. Nacco is a holding company that operates three unrelated businesses- coal mining, lift trucks and housewares.

Because Nacco doesn’t fit nicely into a single industry group, it has almost no analyst coverage and seems to fall between the cracks. It is usually categorized in the Construction/Machinery Industry since a majority of its revenues comes from the lift truck business. But the profit margins are much higher from its housewares and mining businesses. Here are some year-end figures for 2006:

Revenues (Billion)

Materials Handling 2.5
Housewares 0.7
Coal Mining 0.15

Net Income

Materials Handling 34.6 MM
Housewares 22.2 MM
Coal Mining 39.7 MM

Here are some of the reasons I like Nacco:

1) Cheap valuation: The trailing P/E ratio is around 8 times earnings.

2) Good Sponsorship: As of June 2007, Nacco was owned by Jeff Gendell, Goldman Sachs (NYSE:GS), Fisher Investments, Renaissance Technologies, Franklin Mutual Qualified.

3) Nacco recently cancelled a spin-off of its profitable housewares division (Hamilton Beach/ Proctor Silex) which caused a large drop in the stock price. Management cancelled the spin-off because of “extreme market volatility” in the financial markets. But I believe the spin-off idea will resurface again within the next year or so.

Full Disclosure: I do not currently own Nacco, but plan to buy it in the near future.