Friedman Industries: An Undiscovered $10 Stock Yielding 5% [View article]
A few other less apparent items: - founder died a few years ago and son resigned from board. This coincided with more substantial return of cash to shareholders including special dividend. No significant majority shareholder if takeover is contemplated. - during the depths of the financial crisis, company burned about $1+mn per year due to highly variable costs (a big positive) at the same time that they lost their biggest customer. - they commissioned a new coil plant just around the time of the financial crisis so no need to pump further capital into this area as there is still new and excess capacity. - at the depth of the crisis, company traded for about the amount of their working capital (which they unwound to cash. Back then there was a significant margin of safety as the w/c paid for your shares and you got the business for free while it was burning minimum cash to keep the lights on.) - My earlier research (admittedly a few years ago) came across a statement in one of their filings which basically said they were not interested in investor comments on how to run the business so this mentality is ingrained in the mindset and probably from the founder. - I purchased during the downturn (not because I am so smart but because of the substantial margin of safety) and still hold most of my position. I do not see this becoming a large growth company but rather a cash generative company willing to return money to shareholders with management willing to base their compensation on the true performance of the company.
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For JEF, (also, coincidentally, a large LUK holding,) CEO Richard Handler and Executive Committee Chairman Brian Friedman did not purchase but were awarded options that would have a value in stock IF EXERCISED of $757,537 and $180,354. They do not appear to have made a purchase on August 15th. You may wish to also check your details for OI as well. ARCP, same issue as MLI.
6 Stocks With Unusually Aggressive Insider Activity [View article]
Only one total purchase of 10,422,859 shares of MLI done by Leucadia National Corp. (LUK) who have been persistent/consistent buyers of MLI. Cummings is Chairman of LUK and Steinberg is a Director and President of LUK and this is why they needed to file a statement of beneficial ownership for Leucadia's purchases as they are also Directors of MLI. These are not 3 separate purchases.
A.M. Castle Teaches a Lesson in Inventory Accounting [View article]
Saj, True, I should have indicated pretax profit or operating income instead of net. Also, the $23mn Lifo impact was all in Q1 2009 (total Lifo impact for all of 2008 was about $8mn).
My point was that these "hidden" assets can also create less obvious but significant impacts on the earnings and cash flows of the business that would need to be considered (they are all part and parcel of the same issue.)
For example, in the A.M. Castle situation the use of the Lifo 'reserve' has caused a significant acceleration of the 'buffering' of earnings in Q1 2009. Reported operating income for Q1 2009 was $2mn ($22mn for Q1 of 2008.) Taking into account the Lifo impact, this would have lowered Q1 2009 operating income by $23mn to a ($21mn) operating loss. Remember, this impact was only $8mn for all of the year 2008. This would also have a big negative cash flow impact if/when this inventory is replaced at current market prices.
I'm just pointing out the hidden dangers on and beyond the balance sheet for this kind of "hidden" asset. I agree with you that these types of situations can present hidden opportunities, but your original premise in your post above is very relevant: that companies make accounting choices which can drastically alter the meaning of its financial data that require more than just a scan.
A.M. Castle Teaches a Lesson in Inventory Accounting [View article]
Saj, a good find but you also have to keep an eye on a possible hidden downside that allows the company to recognize more earnings simply by dipping into their LIFO inventory "surplus" over the past year, the inventory FMV less LIFO reported inventory (the LIFO "surplus" dropped from $134mn to $111mn from March '08 to '09. This would have increased reported earnings by $23mn just due to "inventory management" rather than increased sales.
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Friedman Industries: An Undiscovered $10 Stock Yielding 5% [View article]
- founder died a few years ago and son resigned from board. This coincided with more substantial return of cash to shareholders including special dividend. No significant majority shareholder if takeover is contemplated.
- during the depths of the financial crisis, company burned about $1+mn per year due to highly variable costs (a big positive) at the same time that they lost their biggest customer.
- they commissioned a new coil plant just around the time of the financial crisis so no need to pump further capital into this area as there is still new and excess capacity.
- at the depth of the crisis, company traded for about the amount of their working capital (which they unwound to cash. Back then there was a significant margin of safety as the w/c paid for your shares and you got the business for free while it was burning minimum cash to keep the lights on.)
- My earlier research (admittedly a few years ago) came across a statement in one of their filings which basically said they were not interested in investor comments on how to run the business so this mentality is ingrained in the mindset and probably from the founder.
- I purchased during the downturn (not because I am so smart but because of the substantial margin of safety) and still hold most of my position. I do not see this becoming a large growth company but rather a cash generative company willing to return money to shareholders with management willing to base their compensation on the true performance of the company.
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A.M. Castle Teaches a Lesson in Inventory Accounting [View article]
My point was that these "hidden" assets can also create less obvious but significant impacts on the earnings and cash flows of the business that would need to be considered (they are all part and parcel of the same issue.)
For example, in the A.M. Castle situation the use of the Lifo 'reserve' has caused a significant acceleration of the 'buffering' of earnings in Q1 2009. Reported operating income for Q1 2009 was $2mn ($22mn for Q1 of 2008.) Taking into account the Lifo impact, this would have lowered Q1 2009 operating income by $23mn to a ($21mn) operating loss. Remember, this impact was only $8mn for all of the year 2008. This would also have a big negative cash flow impact if/when this inventory is replaced at current market prices.
I'm just pointing out the hidden dangers on and beyond the balance sheet for this kind of "hidden" asset. I agree with you that these types of situations can present hidden opportunities, but your original premise in your post above is very relevant: that companies make accounting choices which can drastically alter the meaning of its financial data that require more than just a scan.
A.M. Castle Teaches a Lesson in Inventory Accounting [View article]