Michael,
>QNTM, which is getting absolutely massacred for no reason,
>now at about 24. It has the world supply on the next gen
>MR head componentry, has a potent product in its DLT line,
>and is now at a PE under 10, with a high amount of its
>expenses in R&D. ROE about 30%.
Maybe I looked at the DD industry for too long,
but the current picture is far from pretty. The industry
is commodity cyclical, and we are in the down cycle.
It's not clear how long the down cycle will last.
Assuming persisting overcapacity, and price war, some
companies may even go out of business. That is the worst
case. The best case is a quick rebound. I do not see
a way to check whether a bottom has been reached and
whether the cycle is going to turn soon. As you realize,
PE for cyclical companies at the beginning of a down cycle
is meaningless. One might argue that low PSRs indicate
value, but it's far from obvious.
Regarding QNTM, the only reasonable suggestion
that I saw, was to value its DLT business as separate
entity and to subtract the foreseeable losses in DD
business. That might give an indication of "bottom"
value.
Anyway, I am always leery to invest in
commodities. You know the disadvantages...
And it's always difficult to figure out the
strongest of the pack. Having said that,
I am gambling a bit on WFR - another cyclical
commodity company. WFR trades at book and
looks like its closer to the upturn in the cycle.
The negative is that all competitors are foreign - no
info available. Also WFR has quite a bit of leverage.
Do your own research.
Good luck
Raimondas |
