Re: WHX
Just to make a disclosure, I recently bought a small
position, but rather immmediately turned around and sold it upon
further investigation and the release of the 10Q.
I am worried about:
Debt load - the company is actually borrowing the
money to buy back shares, and the debt load is getting
up there. With equity down to 500 million from
over 700 million, the debt/equity is getting up there.
If you include the pension and employee liabilities
and the fact you've got renegotiate in 5 years, I
worry about being too leveraged. All that cash is
great, but it is largely offset now by debt. Is it
getting more than a 9% return on its cash? I'm
confused here.
Business economics - The company may make anywhere
from $1-$2.50/year in the next few years, but the
uncertainty is very high. I am not knowledgeable
enough to know how quickly and how well WHX can
reclaim its old business. My understanding is that
the low-cost producer will do better than others,
but everyone will suffer from industry overcapacity
over the next year or two. Do the employee reductions and
benefit reductions make WHX a very low cost producer?
And does it make sense for WHX to leverage itself
so much going into a cyclical industry that may be
turning down?
I think this stock was a screaming buy down at
$5 1/2 - $7, a good buy at $9-10, and now has
the potential to go up to the $20 range. But I agree
now with Paul that the margin of safety is hard
to see. The book value seems real enough.
I must say that I have been influenced to a large
degree by my recent intense study of Buffett and
Phil Fisher, so the steel business in general
is not appealing to me. I pulled the plug on
several stocks that don't make as much sense to
me now, and WHX is one of them.
Good Investing,
Mike |
