Hello Brad,
It's been tougher slugging than I thought to pick suitable stocks for my small cap portfolio. There have been many suggestions, but few viable candidates. It seems that most stocks under $100 million capitalization can be compared to crap games, where a home run throw of the dice is perhaps a chance of 1 to a 1000.
In any case, on Friday, I bought my 4th stock for the portfolio which I think has a chance of making the target of at least doubling in 2 years time.
The stock is not exactly a micro-cap, but I'm now inclined to look for the slightly larger companies, (say below $500 million) to get away from the start-ups, the tons of no-track record unknowns, and the high probability of losing money if not careful.
Russels Metals RUS/TSE ($4.20) - Wholesaler of steel, pipe and tube distributer, international steel trader.
The stock analysis model I use show reasonable risk/reward indicators for this company:
Past 4Q PE : 7.2
Forward 4Q PE: 4.0
Price to sales: 0.1
Price to cash flow: 3.3
Price to book: 1.0 (book value $4.35)
PEG ratio: 0.05
Capitalization: $214 million
Debt to cap: 120.1%
Shrs o/s : 51 mill
Forward 4Q sales growth 18%
Forward average 3yr eps growth: 85.9%
Cash Value Added : 10.2% (note... this is related to Economic Value Added concept)
ROE: 13.0%
Cash flow to debt: .22
Debt/Equity: 0.9
Liqudity: 1.8
Positives: steel sector at high demand, new management (year old), inventory control reportedly among best in industry, has broad customer base, has buying clout, has operating losses for tax reduction, and stock selling at discount compared to U.S peers in industry.
Negatives: high debt (being addressed by management), chronic underperformer in the past, Asian imports could hurt sales, relatively low operating margin (2.6% net earnings to sales)
Thoughts and comments Brad or anyone on this stock? I'm especially interested in hearing your opinions if you work in the steel industry. I have set a stop loss limit, and if this buy is a mistake I can easily sell without incurring a significant loss.
regards,
d
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