Ray, FOSL's chart has a double top and looks like its going to fill the gap at around 23. Look at this version:
cbs.marketwatch.com
Article on asbestos related stocks in WSJ:
Asbestos-Related Firms
Catch Fire, but Some Are Wary
By GREGORY ZUCKERMAN and DANIEL NASAW
Staff Reporters of THE WALL STREET JOURNAL
December 7, 2004; Page C1
Asbestos is harmful stuff, and worth avoiding.
Tell that to Wall Street.
While the overall stock market has rallied since the presidential election, there has been no bigger group of winners than asbestos-related companies. Companies operating in bankruptcy protection, such as USG Corp., W.R. Grace & Co., Armstrong Holdings Inc. and Owens Corning, have seen their shares and bonds soar since President Bush was re-elected Nov. 2. USG is up 53%, W.R. Grace jumped 28%, Armstrong is up 149% and Owens Corning has leapt -- get this -- 548%.
Behind the rally: a growing view that Congress will take action to keep a lid on the payouts these companies may have to make from continuing litigation, and future lawsuits, tied to past exposure to asbestos.
Of course, shares of companies operating under Chapter 11 bankruptcy protection are extraordinarily volatile and risky propositions. And these asbestos-related shares have soared so far and so fast that even some fans of the companies are getting cautious, worried that froth is forming in the sector. Indeed, shares have run into some trouble in the past few days, amid indications it might be a bit harder than expected for some of these companies to cap their potential liabilities.
"When markets move dramatically it is usually time to take a step back," said David Feinman, a managing director at Havens Advisors, a New York hedge fund that owns some shares and debt of these companies. "There have been a lot of false starts in the past in Congress and people are just presuming that with the Republican majority there is an opportunity for legislative resolution to be quicker than before the election, but it's very unclear."
Asbestos, a chemical substance once widely used as a fire retardant, is known to have caused debilitating and often fatal lung disease to some of those exposed to it. Asbestos began to be widely used in construction and in other areas after World War II. Beginning in the 1970s, trial lawyers began suing manufacturers of asbestos products claiming that their clients suffered injury from asbestos exposure. The number of claims has increased in recent years as more workers have become sick from exposure, and as plaintiffs' lawyers have become more aggressive at seeking out possible claimants. A 2002 study by Rand Corp., a nonprofit think tank, estimates asbestos-related liabilities could exceed $250 billion.
To shield themselves from litigation, more than 70 companies have filed for bankruptcy-court protection under Chapter 11 of the U.S. Bankruptcy Code since 2000, according to the Asbestos Alliance, an industry lobbying group.
But many of the companies facing litigation operate profitable, growing businesses that have great value -- if the asbestos obligations can be contained. USG's building-materials business is booming with the burst of construction, for example. That is why some investors have been watching the sector lately, figuring that if legislation is passed to establish a national fund to compensate asbestos victims, effectively capping the payouts and obligations of these companies, the shares will make out well.
Last year, Senate Republicans proposed legislation to rein in growing asbestos litigation by establishing a victims' compensation fund into which defendant companies would collectively contribute $52 billion over more than 25 years. The fund would establish a predictable, annual charge against earnings, enabling companies to avoid costly lawsuits and allowing investors to focus on the healthier parts of these companies.
The legislation hasn't reached a vote, amid political wrangling over the size of the fund, the medical criteria claimants must show to receive damages and the fate of personal-injury cases already in progress. A solidified Republican congressional majority has some investors hoping new legislation will pass in the new session of Congress that starts in January.
Among the beneficiaries of the rally in these stocks: Warren Buffett's Berkshire Hathaway Inc. The company owned 6.5 million shares of USG as of Sept. 30, according to regulatory filings, making it one of Berkshire's larger holdings. The stock has soared to $33.99 from $22.19 on Nov. 2, rising as high as $36.90 on Dec. 2. Even more significant: Owens Corning has jumped to $3.50 from just 50 cents.
But last week, a federal appeals court rejected a proposed $1.2 billion asbestos-settlement plan for the U.S. division of European construction giant ABB Ltd. The court ruled that the plan unfairly extended liability protection to two ABB units that aren't in bankruptcy protection, and didn't do enough for individuals who in the future might make claims against the company over asbestos-related illnesses.
Although ABB said it expected to resolve the issues that concerned the courts, the decision sent a message to some investors that it might be harder than expected to deal with the asbestos-related problems.
Indeed, a growing group of short-sellers, or investors who profit when shares decline, have been targeting companies with asbestos exposure, figuring they are due for a fall when investors begin to focus on the challenges of reaching a consensus in Congress. These skeptical investors argue that Congress may not act in time to save some of these companies. Short interest, the percentage of shares available that have been sold short and not yet repurchased, rose to almost 9% for W.R. Grace as of early last month, up from 8.5% in October. Short-sellers account for 52% of the publicly traded shares of USG, up from about 48% in October.
If asbestos legislation doesn't happen in the near future, "there's going to be carnage in the group," said Jim Barrett, an analyst with C.L. King & Associates who has a neutral rating on USG and doesn't own any shares of the company.
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