General Cable: Poised for a Good Run

Oil has had an incredible run, and it is by no means over. So why not buy now? First off, it is long overdue for a pullback. Oil has skyrocketed, but is overbought by far. I do see oil moving to $140 or $150, but not before a pullback to $125 or so. Second, there is nothing wrong with walking away with what you have already made. If you own oil stocks, I would recommend getting out. If you are in them, you have already likely made a healthy profit. Other stocks have been beaten down by oil. This has presented the perfect buying opportunity.

One company that I have recently been watching is General Cable (BGC). General Cable works with the development, design, manufacture, marketing and distribution of copper, aluminum and fiber optic wire and cable products for the energy, industrial, specialty and communications markets. The company offers competitive strengths in such areas as breadth of product line, brand recognition, distribution and logistics, sales and service, and operating efficiency. It is an international company that has expanded from North America to Europe and North Africa.

The company hasn't missed earnings estimates in the past 12 quarters and has a Price to Earnings ratio that is comparable to its peers. The company also has a Return on Equity of around 36%, better than most of its peers. It makes products for infrastructure such as bridges, telecommunications, and electric grids. Not only has it seen steady growth in the last three years, but its earnings are projected to continue to grow well in the future. The CEO has both public and private experience, but more importantly has been with the company since 1994. At around $70, the stock is oversold and poised for a good run.

Even if you do not want to get your feet wet in specific stocks, I would at least get in the market. Buying opportunities like the correction we have seen in the last few months only come once in a while. Buying into an index fund such as SPY or another mutual fund that follows an index such as Vanguards 500 Index Fund [VFINX] will not leave you unhappy in a couple of years, not to mention five or six.

Disclosure: I own VFINX.

Comments

[Everyday Fi...:]

I used to own BGC, good stock; it was just crushed earlier in the year and I got out. Here's an old post with plenty of extra background in interested. I think they're strong on leadership, execution; I may eventually get back in:

seekingalpha.com/artic...

2008 May 22 08:21 AM

[BxCapricorn:]

Why not have a buy target of $55, on this current pullback? It seems obvious. I've watched this stock for two years, and it channels fairly predictably. I'll check it again in August to see if it hit $55.

2008 May 22 08:39 AM

[User 148301:]

They are also a good play in Wind generation. Low voltage cable are in high demand, and this part of their business is exploding.

2008 May 23 09:06 AM

[Stuart Scha...:]

Another 5x5 Article Brought to You By Today’s Value Investor

General Cable – BGC
Pros
1. Net Profit Margins have been increasing nicely over last 7 years or so…more efficient?
2. Sales have more than tripled since 2002.
3. Very impressive ROE since 1998 – has averaged 23.9 over those 10 years!
4. Competitive industry but BGC has outlasted many competitors.
5. Good long-term management has led to several key acquisitions over the last few years.

Cons
1. Long-Term Debt has doubled since 2002.
2. Since 2003 shares have appreciated by more than 2000%
3. Shares outstanding has increased by more than 50% since 2000
4. No dividend since 2002.
5. Leader in optic wire and cable products for communications industry…how much do we need? And is this a commodity type business? You bet! Margins will eventually deteriorate.

According to our proprietary valuation method, BGC is roughly 18% overvalued by the market. We really don’t see much of an upside with BGC over the next year it is in a commodity type business and a glut of optic wire and cable products about to hit the market in the near future.

For more information, please visit Today's Value Investor
todaysvalueinvestor.bl...

2008 May 25 09:02 AM

[lance sjogren:]

Expanding and rehabilitating the electrical grid I believe is going to be a huge growth area.

However, I seem to have pretty much talked myself out of trying to invest to participate in this coming boom.

1). As someone on another post commented- commodity business. Do these guys have any unique capabilities? Or can a lot of cable companies make the same stuff?

2). Those companies that DO have some sort of unique position in these new technologies I suspect tend to already be pretty pricey. Those are the kind of stocks that Jim Cramer likes.


On the other hand, as a value investor, a company like these guys is not a bad buy just on value basis.

On the other hand, the fact is that even though the oil boom may be due for a correction, the notion that the petro stocks are booming is just plain wrong. Yes some natural gas stocks and oil infrastructure stocks have seen huge runups, but stocks of the integrated oil companies have sat there like beached whales during this oil boom.

Because oil stocks are so dirt cheap and I am a value investor, I am hanging on to mine, namely Conoco and Petro Canada. Did you know that Petro Canada has a projected PE ratio of 5?

Not to mention the oil refining stocks which have been plummeting during this oil boom. I picked up some Valero in the hope that they will see some recovery.

2008 Jul 16 04:09 PM