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Encore Wire Corp. Message Board

  • WPDragon WPDragon Apr 5, 2004 6:58 PM Flag

    A lesson in Copper 101

    Higher copper prices are good for WIRE because it DOES indeed pass on those prices. If you had followed the stock the past six months and took a 5 minute tour of WIRE's website once every week or two you would see that they have been increasing their prices every few weeks.

    This is also a very low volume discussion board. Anyone could spend an hour reading the last 150 posts covering about two months and learn everything they ever wanted to know about why a company like WIRE makes an absolute killing when copper prices exoplode like they've been doing, and you would learn that WIRE has a unique combination of fundamental AND technical strengths that are hard to match.

    Copper lesson: WIRE buys one ton of copper on Feb 1 when it is selling on the commodities markets for 1.10 a pound. They fabricate electrical wires with that copper over the next 6 weeks. On Feb 1, they are selling 1000 feet of size 10 THHN solid copper wire for $91.50.

    Just six weeks later, when that newly fabricated wire is sold to a distributor, it will fetch $108.50, (while copper will be trading on the LME at perhaps 1.33 per pound). Guess who's pocket all that margin goes into?

    Remember, WIRE is raising its prices to their VERY LOYAL customers every two weeks because a) a lot of the cut throat competition is gone because it crashed and burned over the last two years in vicious price wars, so WIRE is basically one of the last, and largest, players in that game now, and b) they have incredible (and I mean incredible) customer service and the most efficient wire plant in the world, bar none.

    They also have an order fill rate of 99.95% and will ship your product anywhere in the continental US for delivery within two days. Customers LOVE them and are willing to pay for the quality, customer service, and unique new products WIRE is introducing.

    My bet? This profit taking was way overdue for this stock, which has become something of a momentum play as it doubled in the 1st Q. WIRE stock will consolidate here, copper prices will stabilize as China continues driving basic steel, copper and all materials prices higher as it continues its vast industrialization, and the stock will report HUGE numbers for the 1st Q and full year.

    Vincent Rego just announced they are growing their plant capacity by 40% this year, from about 260,000 sf to 430,000 sf. I have an opinion on why he's doing that.

    Do YOU want to bet against Vincent Rego?

    Good fortune all longs,

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    • You are right! The following is from Standard and Poors stock report, I got it from Ameritrade stock research site.

      Business Profile 19-FEB-04

      Shipment volume, measured in copper pounds sold, increased 43%, year to year, in the fourth quarter of 2003. Sales prices for wire also rose, due to increases in the price of raw copper and favorable market conditions that allowed for increased margins on wire sold. Encore Wire said its industry has historically seen margins grow when copper prices increase; lately, copper has traded over $1.10 per pound, after reaching a low of $0.60 per pound in November 2001. The company noted it has also seen increased pricing discipline in the marketplace from its competitors, and it hopes that trend continues. Also in February, WIRE announced plans to expand its distribution center at its McKinney, Texas, location by about 162,000 sq. ft. Related expenditures would total about $6.5 million, with the majority to be made in 2004.

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