Unexceptional and Exceptional

Sigh… I’ve run out of ideas recently. I need to hit the stock screens again, and see what comes up.

CTB – Cooper Tire and Rubber – I remember this one from Peter Lynch’s Beating the Street. He seemed to like the stock… back in 1990.
The only reason it turned up in my screen was a huge jump on a tax benefit last year. Nothing exceptional here… Tire companies ought to be having a cyclical recovery when auto companies are recovering nicely. But it takes more than that for me to get interested – I need a margin of safety here.


Besides, I like my other auto play – XRIT, way better. Plus, XRIT has the stability of Pantone as a back up.

CASC: Cascade Corporation – This company makes forklift trucks. The trend here is probably hitched to the larger economy  – manufacturing, trucking, shipping, etc. Turned up with a really low P/E. If the recovery is for real… this could have great legs going forward…
With a market cap of 530mm, and a 2011 after-tax income of 63mm, its got a P/E of 530/63 = 8.41,

A Debt/Equity of 1.6%

Profit margin of 11.8%

With Free Cash Flow of 40.8mm, its got a P/FCF of 13 – not crazy compelling, but decent enough.

I like to look at capital expenditures as a percentage of operating cash flow, especially for manufacturers like this. This can tell me two things: 1)whether there are significant expenses to continually update the machinery and equipment, and 2)how much cash is left over for the fun stuff – dividends, buybacks, debt-paydowns, and cash-accumulation.

Over a five-year time period, CASC averages capital expenditures of about 1/3 of cash flow, but it is currently trending lower, with CapEx at 27% of operating cash flow.

Up until now, CASC has been using that extra cash for debt-paydowns. But now that it has such little debt remaining, the money that was going to pay down debt will have to either accumulate, buy back shares, or get paid out. It will likely come in the form of a dividend increase. The company already sports a 2.92% yield, and the excess cash flow last year was about 3 times what they currently pay out in dividends, so I don’t think a double in the dividend yield (to nearly 6% – yowza!) would be unreasonable in the near future.

Let’s look at the fundamental business… Cascade is the biggest lift truck manufacturer in America by a long shot. It’s nearest competitor, Nacco, has got its fingers into several different businesses, and has been losing money for the past three years (on an operating income basis). Compare that to CASC’s ~12% profit margin. I need to do more research on its Italian competitor Bolzoni Auramo, because it seems to be the biggest threat globally.

It is so heavily discounted because of an earnings miss and some flooding at an Australian plant. At this point, it could just be a time-arbitrage case until the Australian factory is restored to full capacity.

All in all, this could be a highly profitable, low-risk stock.


Disclosure: I don’t own shares of any stocks mentioned above. I may buy some CASC in the near future…


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