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Arsuron Papartassee's  Instablog

As a self-taught investor, I began educating myself the methodology of investment through various publications and public domains. I utilize both fundamental and technical analysis to draw my investment decision. My primary focus are on companies whose prestige record of dividend payments set... More
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  • Stock Checkup: Nacco Industries Inc. (NC) 0 comments
    Sep 24, 2009 02:04 PM | about stocks: NC
    Stock Checkup: Nacco Industries Inc. (NC)
    I wrote about Nacco Industries Inc. (NC) back on 2/6/09 and 3/13/09 when the stock was trading between $20 and $40 range. Please note that during the time of the write up, the market went through a major breakdown. March 2009 marked the low in the equity market.
     
    My original article on NC was about its valuation. The company was trading at a ridiculously low valuation based on the book value (asset less liability) of $50. The stock was trading at $37.75 or 25% below book value. The dividend yield was 6%. My concern then were the possibility of dividend cut and large amount of debt. My thesis was also on the inflation which didn't really materialize.
     
    On March 13, the company reported a loss of $51.69 per shares. The headline might scared some people but a close look showed the clearer picture. Nacco was forced to take an impairment charge because of the stock market condition. Here is a statement from the 4Q08 conference call.
    Because the company’s stock price at year-end was significantly below the company’s book value of tangible assets and its book value of equity, accounting rules effectively required that the company take a non-cash write-off of goodwill and certain other intangible assets totaling $436 million or 431.6 million net of taxes of $4.1 million.
    Because at one point Nacco was trading a little more than a quarter of their book value ($14 / $50), accounting rules forced Nacco to write down their asset value. Operations were fine and this was just a accounting "magic".
     
    So where are we?
    Nacco is currently trading around $60 with book value of $44.85 (1.38x book). Dividend for the last four quarters remain unchanged ($0.5175) and is currently yielding 3.4%. With negative earnings, they are paying their dividend ($4.3M/qtr) through existing cash of $178.80M. With large amount of debt and low earning, we will have to see how Nacco navigate this hard times. I expect the dividend to remain unchanged or for the company to raise it by a small margin.
     
    If you purchased this stock based on my writing, I would recommend you taking profit. Risk of dividend cut remains. On the upside if you choose to hold this stock, a possibility of write-up is there. Those non-cash write-down in fourth quarter could be a catalyst for a stock to pop back to $80 or $100. You have to decide for yourself if you are brave enough to hold.
     
    The charts below shows where Nacco was and where it is.
     
    I all my writing, I urged readers to consider technical pattern. In this case, I recommend buying if and when Nacco broke above $41. I didn't act on my own advice because my attention diverted to other companies. We will have to see where Nacco will go. For now, let's take the profit.
    Themes: Mining Stocks: NC
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