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

To: jeffbas who wrote (3526)	3/17/1998 6:03:00 PM
From: James Clarke	Read Replies (1) \| Respond to of 78655

UCR - Among the list of things you should be looking at, quarterly earnings is precisely last. The graphite electrode business is fantastic. A wonderfully profitable oligopoly. Plus a play on the growth of minimill steel. But maybe too good. The Feds are about to nail them for price fixing. The former CEO didn't "retire", as the news release said, he is probably about to be indicted. And what a tragedy - this man is a brilliant strategist. Without him, I worry about whether this industry will once again be the brutal commodity business it was ten years ago. Expect a very large fine from the governement plus a civil settlement. They have a ton of debt already. Can the balance sheet weather this kind of abuse? Tough question. There is little margin of safety here. Either this scandal blows over (we're talking two years though - its pretty bad) and the stock goes to 50 or 60 based on earnings power, or it files for bankruptcy and you lose everything. For the record, I'd buy it though. I'm just getting the issues on the table here, but it could be a textbook value investment because Wall Street is terrified. If the balance sheet were normal this would be a no-brainer. But there is the possibility of "lights out". Also recognize that this puppy has had three sickening plunges in the last six months as the news got one step worse. At each stage some very smart value investors (and me) thought they were "catching the bottom" The huge bounce today (and the sucker bounce three weeks ago after the second piece of dreadful news) shows that value investors are starving for anything that smells like value. Be careful to understand all the risks, but the potential reward may outweigh the risk in my judgement. Be prepared for the possibility of losing everything though. There is no margin of safety here.