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Strategies & Market Trends : Value Investing
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To: James Clarke who wrote (6310)3/16/1999 11:15:00 AM
From: Bob Rudd  Read Replies (2) of 78596
 
How bout a biz where everything is going great, product is in short supply..on allocation, they can raise prices at will, twice this year so far and increases drop right to the bottom line. Such a rare bird should command a kingly multiple..well in excess of the the S&P's paltry 28x...right. Picked it up yesterday @ 7x PE.
I'm talkin about USG the Drywall maker.
Check out Mar 15 WSJ for "World-Trade Wallflower, Drywall Is
Rare Example of a Scarce Commodity"
biz.yahoo.com
The negatives [Always a catch, right]:
CB recently sold a chunk @ 56 [47 now]
Risk of peak of cycle [The biggie] They're gonna print money in the next 6 to 9 months, but more capacity will be coming to spoil the party...and slowdown in activity.
Potential positives:
Beat expectations bigtime near term - estimates up only 10% in last 90 days..they've raised prices more than that and leverage may help multiply impact on bottom line.
Maybe some of the "announced' capacity additions are signaling and industry is smart enough not to torpedo it's profitability...some of new capacity is replacement for less efficient.
One "Old timer" poster on Yahoo cited 10 quarter cycle in mid-80's..maybe it's not so peaky...if rates behave...housing numbers are great - starts released today.

If Micron or Intel faced this kind of tight capacity and freedom to price...It would be off to the races [Look at Micron in 95 and recently just on expectation of pricing improvement]

So is this a peak of cycle error...or is 7x a real cheap price to pay for freedom to print earnings , even if it won't last forever?
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