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Friedman Industries, Incorporated Message Board

  • agyde0311 agyde0311 Feb 12, 2010 6:27 PM Flag

    Loss of $0.01

    Not as bad as it could have been, but sales are horrific. They are going to fall below $5 a share

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    • Do you think Obama's Nuclear Plants will have any effect on FRD?

    • this stock is a great longer term is a pure PAY-tience PlAY - I plan to just continue adding shares on drops and being PAY-tient because PAY-tience PAYS when you buy value like this - understand why it lost one penny and understand the great job they did with managing costs and understand how lean they are right now and understand that as this economy turns and sales start to ramp back up this stock is going to ROCK-et. I say - BE THERE.....but for now B PAY-tient.

    • That comment is for anyone that wants to make the argument that the US and steel is dead for years to come. I'm not sold that the US won't come out of this recession in the next 6 months to a year.

      The value proposition is there could be gone in an instant if the price goes up. That is why I have a stake now and am willing to hold until my expected return on investment is met.

    • tjcons,

      If FRDs prospects are bleak for years to come, why buy now? Why not wait for a few of those years to pass and generate income with that money you would have invested and sat on?

    • jduade,

      Good post (your first response to me after my post yesterday!

      I see where you were coming from with the tubular profits point. They are running a pretty highly depreciated operation in Lone Star so they don't have the depreciation expense of a new plant which helps. They may also be benefitting from some inventory cost too. And it's all before operating expenses. But your point is valid. Its just at that tonage level there isn't enough net profit to make any measurable difference.

      The "economy pick-up" comment may seem like boilerplate but it isn't. Its a consistent warning that operating profits are not to be expected at these low tonage sales levels.

      Good for you with your educational interests! I have no doubt you will become a much shrewder investor as you age. You aren't doing too bad now.

      FRD is (and has always been) a classic value investment. Its getting nearer the bottom. Rationally, I'd value it at no more than cash per share plus a fraction of the remaining book. That fraction is the tough part because its not clear any of the majors would actually want to own and operate its plants.

      One of the risks here is that a big institutional investor (read DFA here) might decide to divest of a large share of its holdings. Their purchase put a floor under the share price and a sale would remove it.

      A second and maybe larger risk is what sort of economic situation is the country really in? If you study the Great Depression, you'll find the decline was long and increasingly painful both in the markest and the economy. It wasn't even recognized as a Depression until years into it. Is the same thing happening now? Would you be better holding cash than a value stock?

      A corollary to that is the question of what type of economy we will have a couple years into the future. If we are well into peak oil, drilling for gas and oil is going to be limited and expensive. If the consumer economy of America is dead or dying (due to a variety of causes principally related to excess debt), construction may be ending domestically.

      If auto sales are in a permanent decline, FRD's coil facility may never become profitable because it was specifically positioned to take advantage of the southern production of foreign based automakers.

      I think FRD is worth buying but only at a price below its breakup value.

      I have a background and education in finance and accounting.

      I watched FRD surge as the excesses of the economy and markets pushed it up. I bought it back in the 90s and sold it at the peak a few years ago. Most of the investors (or speculators) since have been trying to hype it to repeat that frothy blowout and it just ain't gonna happen.

      I like FRD from my value investor perspective. But...and this is the big one...a stock has to become unloved before its buyable. I don't think that has happened to FRD yet.

    • Jduade, since the market has turned so rapidly I've been having a pretty hard time finding new investments so i've basically just been adding to the ones I already hold which are in sectors which have been left behind...such as the shippers. I also hold, AIRT, SPAN, SPAR, HQS, and recently sold HDNG

    • JD,

      Chicken Little's (Seer) comments aside, the sky is not falling.

      Why is FRD compelling:

      Current assets minus all debt leaves book value at near current price. that means you get all long term assets (land, equipment, building) for free - about a 2.70 value plus future business prospects. The only possible argument against this view is inventory is worth way less that valued.That is the risk you take, but management appears to be conservative and there is no doubt they have handled the downturn beautifully. For this reason, I'm inclined to invest in FRD.

      Now Seer might say the US is tapped out and steel will not come back for years making the investment an unwise one. However, don't count on the US being down for too long with interest rates at zero and not expected to ramp up until the economy improves.

      Also, most other steel companies are trading at at least 1.50 times book (X, AKS, NUE) so your point to FRD selling at 70% of book is a valid one.

      FRD's prospects may be bleak for years to come but as a value investor, I think the positive attributes are far too compelling to ignore.

    • Agyde0311, I will have to take a closer look at ESEA. I've looked at dry bulk shippers and railroads before, but have taken a pass for various reasons. I'm not familiar with ESEA, but I look forward to doing a little bit of investigating. Thanks for the recommendation! What other stocks are you looking at?

    • jduade, we are very similar. A stock that interest you going off of your last post is ESEA, great divy and you're a glutton for punishment like me!

    • Count me in to happily buy more shares if FRD goes below 5.

      • 1 Reply to tjcons123
      • Count me in as well.

        Considering the difficulties that the steel industry has had in the last 9 months, the fact that FRD has only lost .06 in that period of time is saying a lot. The metric that I look at when evaluating companies, particularly FRD, is book value. In the past 3 quarters the book value of FRD has went from 8.25, to 8.14. That's not too bad considering that they've had some of the worst business conditions they've ever experienced, and they've managed to pay out .05 in dividends in that period as well. FRD still has no debt, and a large pile of cash on hand ($20,859,520 or 3.06 per share in cash).

        If there is a pick up in the demand of either tubular or coil, then FRD will certainly reap the benefits of that. Their business is dependent on the success of NUE and X, but, those are the two dominant players in the industry.

        Also, Seer, some of the quotes you are referencing from the FRD SEC filing, are pretty much boiler plate stuff. If you look at their past several quarterly reports they generally use the same language. One thing to note though, is that their tubular division is starting to do better. In the past quarter, the tubular sales nearly doubled. Unfortunately the new plant in Decatur is still hemmoraging money until coil demand picks up.

        All in all, FRD is priced at .70 times book value (Book = 8.14, Share price = 5.70 on 2/12/2010). Profitability looks to be coming back, and with that will be increased dividends, if that does happen, then look for FRD to be priced at close to book value. In the meantime it's just a waiting game.

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