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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Mattyice who wrote (55421)	6/6/2015 10:56:11 AM
From: E_K_S	Read Replies (1) \| Respond to of 78666

Re: Ampco-Pittsburgh Corp. (AP) AP needs to benefit from the slow economic recovery specifically in the U.S.. Like Paul stated, this is not currently a Buffet stock (but may/could be some day) and is exposed to the cyclical ups & downs of the economy. AP has some diversification in it's different two different business segments: Forged and Cast Engineered Products, and Air and Liquid Processing. My premise is that revenues s/d begin to grow again back to some normalized level which could last for several months if not years. Their European sales may be constrained by a strong $US so I do not expect too much there (but EU QE s/d help). Note that their non-US sales make up 47% of their revenues. If Europe does begin to grow and the $US stabilizes, Foreign sales could grow too but just may not contribute to EPS as in earlier years. AP provides metal HVAC and air handling materials/components to the trades so as new homes get built and/or remodeled they s/d see this line of business pick up. They also supply other specialized steel fabricated products like pumps (AIR AND LIQUID PROCESSING SEGMENT) that s/d will contribute to their modest revenue growth. Another positive is that their specialized businesses generate a higher gross profit margin (19.9%). These are the types of companies that Buffet likes so watch the quality of these earnings there. Specifically look for the amount of earnings generated from these unique specialty business/products (Buffalo pumps, AeroFin, and the development of custom cast steel items ). Buffet likes to own the entire vertical in the space as evidenced by his purchase of IMC ( an Israeli tool maker) in May 2013. Berkshire Hathaway to Acquire the Rest of IMC for $2 Billion ISCAR is the largest of the 15 companies comprising the IMC (International Metalworking Companies). Together, they supply a dynamic comprehensive line of precision carbide metalworking tools. These companies produce a wide range of carbide inserts, carbide endmills and cutting tools, covering most metal cutting applications. IMC also provides engineering and manufacturing solutions to major industries throughout the world. Many innovative products, designed specially for customer requirements, have made the IMC a world leader in the major manufacturing industries such as automotive, aerospace and die & mold production. NOTE: AP's specialty companies are not equivalent to Buffet's but may/could have that potential if management can develop/deliver these value added custom products to their customers. So, I will be focused on these companies, their products & services and if they can expand into other 'niche' end-user markets. I see EPS eventually normalizing (reversion to the mean) maybe growing back to $0.50/share after several quarters. It's possible for higher EPS if/when the expand their specialty business and that could happen w/ an accretive acquisition. That may come at the expense of taking on more debt so a stock only deal would be what I would want. They are not covering their dividend (@ $0.72/year) and unless they have several exceptional quarters may have to cut it and/or sell some assets (downsize). Management has shown that they have a long history of paying their dividend (since 1984) so a cut back to $0.40/year would not be unreasonable. The key value metric is their BV of $19.87/share. So watch the next several quarters for growing Revenues and positive growing EPS. A small dividend cut would actually be positive especially if they use the proceeds to pay down debt. My price target is $21-$23. It's still a small position in my portfolio (less than 1% position) and I will probably add a few shares at lower prices to bring up to a 1% portfolio position as long as (1) their U.S. companies are growing revenues and/or (2) new products/services are announced to build their end-user specialty markets, and/or (3) acquisitions and/or new capital investments/JV in new and/or expanding markets are made. EKS