Arohan’s investing life

Buffet is buying 60% stake in the Marmon group, currently a Pritzker family holding, with the remaining 40% to be acquired over the next few years at future business valuations. Also a point to note is the before this acquisition is completed, the Marmon group will make significant cash distributions to the selling shareholders. The 60% stake was valued at 4.5 Billion

Buffet is doing what Buffet does best. Buying business that deals in the nuts and bolts of the global economy. Easy to understand (despite Marmon being made up of about 125 different operating businesses), generating significant cashflows, with tremendous tangible assets.

Much has been said about the futility of operating as a conglomerate. Focus on the core competency has become a buzz word within the academia. However, there are companies that do this right, Berkshire Hathaway being one of them, Marmon being the other. It is not surprising to see the allure Buffet found in Marmon

WSI Industries Inc (Nasdaq: WSCI) out of Monticello, MN is my first candidate for an attractive investment in the metal-working industry profiled earlier on this blog. The company is a precision contract metal machining shop currently doing about $19 million in annual sales. This is a micro-cap in all sense of the word and so a careful evaluation is in order.

(A note about investing in micro caps: Since these stocks trade at very low liquidity, deep due-diligence is advised before investing. The investor should also be willing to hold the position for a long period of time in order to realize the best profit out of the investment. Daily stock prices are mostly noise and while it may offer short term profit opportunities, capitalizing on these opportunities is difficult due to low liquidity)

Here is a brief recap of the basic fundamentals of the stock:

Annual Sales (ttm): 18.81 m
Sales Growth (Qtly, yoy): 21%
EPS Growth (Qtly, yoy): 47.1%
ROE: 9.7%

P/E (trailing): 21.73
P/B: 2.16
Market Cap: 15.79 m

Dividend yield: 2.5%

I know what you maybe thinking. A PE of 22, and this is a value stock! How!

To judge whether a stock is undervalued, I believe you should look at what is in store for the company/business in the future. I invite you to read the following stunning press release put out by the company some time ago. The company announced an incremental 10-11 million business for the fiscal year 2008 with backlog stretching into 2009 in the energy sector, which the company just entered. Compare the incremental business to its trailing annual revenue of about 19 m. This is better than 50% increase in sales which should translate in a higher eps increase. This move also diversifies the company’s customer base, that includes, recreational vehicles, bio-sciences, aerospace and defence

The company also runs an excellent balance sheet with Debt/Equity ratio less than 0.5

As a business owner in this sector, this company looks attractive enough to own in its entirety. As a stock investor, if one were to take a position in this company, it would be wise to hold on for few years and let the full potential of the company play out

Industrial Finance Corporation of India has decided it doesn’t want to sell after all

Funny thing is, SLT stock took a hit when it came to be known that they are interested in buying a stake in IFCI. After the deal fell through, the stock is down some more

It was a buying opportunity then, it is a better buying opportunity now.

Disclaimer: The blogger owns stock in SLT

We have previously written about Sterlite Industries as a possible triple play on Indian growth, Commodities and fair valuation. Over the last 2 days the stock has declined, possibly in response to its bid to acquire stake in Industrial Finance Corporation of India in partnership with Morgan Stanley.

This is a curious turn of events for Sterlite and one has to wonder what is behind this move. As with most miners, Sterlite does generate significant amounts of cash flow that has to be put to use somewhere. The story posits that a possibility is for Sterlite to apply for a banking license if the deal consummates. Does the Sterlite board intends to move into new sectors/industries and turn the company into a mini-conglomerate? This remains to be seen. Also unknown is their capabilities in the banking/finance industries (and hence a partnership with Morgan Stanley)

If this is a positive project with a good ROI, I say go for it

WaMu today announced widely anticipated dividend cut, operations restructuring and a convertible preferred share offering to infuse about 2.5B in capital. These are much needed actions to bring WaMu balance sheet to sustainable levels and should help WaMu position itself for the future recovery

Atleast the dividend cut has been widely aniticipated, maybe not 73%, and is mostly priced in

In another news, there are some who believe that the housing market is possibly bottoming now

Looks like a good time to bottom fish