I have sold CDT yesterday and bought some OVTI. Analyses:
CDT is still cheap on PSR basis, however, it is unclear whether even the combined Belden-CDT can raise prices enough to have a high return in the future (recent ROE was ~3-5%). The merger eliminates one competitor, but there are others. CDT-Belden production is located mostly in US, which implies high costs. Customers bought a lot of product last quarter before the merger, so next quarter may be low. CDT-Belden also benefited from weak US dollar. Both companies are conservatively managed, they paid off a bunch of debt even in the tough 2000-2003 years, so they may fare well. Option rewards to Belden executives are quite high and comprise over 25% (!) of all options awarded. I don't like this.
At the current price CDT-Belden is probably a weak hold if one expects the pricing environment to improve. I would discount a recent speculation that the combined company will be taken over by a larger company once the merger clears. I see no substance to this speculation.
OVTI is cheap if the current sales, margins and ROE (19% last year, 27% last Q) can be sustained. However, there is no obvious barrier of entry for competitors and if the market does not grow fast enough, the margins will be squeezed. There is some possibility that they still have lead over their competitors. Furthermore, they are likely to be speculative and high volatility play, so short term investors may find an exit point even if the long-term future is unclear. It is rather risky play, so I would not suggest more than a small dabble ("double" :)))) investment.
Jurgis |
