Stocks Under $10 With David Peltier
Salvaging a New Name
Metalico (MEA:Amex) is a scrap-metal recycler that's experienced a new renaissance of late, after demand and metal pricing had languished over several previous quarters.The company is returning to profitability and fixing its balance sheet and we believe this Stealth Stock is undervalued at current levels. With that in mind, we're going to buy 750 shares of Metalico after you receive this Alert. Shares were recently trading at $3.86.
This initial purchase will account for a 2.5% stake of our model portfolio as we look to diversify our metals holdings in the model portfolio, using some of the profits we recently booked in our Yamana Gold (AUY:NYSE) holding. As with any new name, we're leaving room to buy another 250 shares of Metalico should the stock pull back in the near term.
In the meantime, what attracts us to the company is that it's carrying strong operating momentum into 2010. Earlier this month, Metalico announced better-than-expected third- quarter results. The company earned 12 cents a share, which was 11 cents ahead of expectations. Revenue grew 47% sequentially to $91.5 million, also exceeding the consensus analyst estimate by $15.3 million. The upside this quarter was driven by both higher demand and better metals pricing.
Metalico operates about 25 facilities in the eastern U.S. where it produces usable scrap iron and steel, in addition to lead products. On the conference call, management said that demand for non-ferrous and platinum group metals -- which account for half of the company's total sales -- have remained strong into the fourth quarter.
Moreover, although prices are nowhere near the peak levels seen in 2008, management has spent the last several quarters cutting costs. Metalico has also cut its debt by about $70 million year to date, bringing the figure down to about $116 million at the end of the third quarter.
This debt had been accumulated through several acquisitions that the company made in recent years, including eight since 2007 alone. On the latest conference call, however, management said that it will likely pull away from further purchases, especially given the current financing environment.
Ultimately, Metalico will have to see an increase in industrial demand in order for the recent margin improvements to become sustainable. But, when this does happen, it appears the company will have considerable operating leverage.
With that in mind, we believe the stock can trade up toward the mid-single digits over the coming quarters.
Regards,
David Peltier & the TSC Research Team
David welcomes your questions on Stocks Under $10. Please
email David with your questions at
Recent Actions
We'll be listening for comments on the performance of individual product lines during this company's conference call.
12/03/09 - 10:05 AM ESTMore consumers are preparing food at home these days, which is driving growth at this model portfolio holding.
12/02/09 - 09:58 AM ESTAdding to our stake in one name that is lagging today's broad market rebound. Also, updating another holding.
11/30/09 - 11:17 AM ESTWeekly Roundups
In a week that ended with a positive jobs number, we continued to research potential new names for the model portfolio.
12/04/09 - 04:36 PM ESTPlease note that any trading ideas suggested in the Product prior to June 9, 2009 were recommended by Mr. Frank Curzio.
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TheStreet.com Stocks Under $10 portfolio is a model portfolio of stocks chosen by the authors in accordance with their stated investment strategy. Your actual results may differ from results reported for the model portfolio for many reasons, including, without limitation: (i) performance results for the model portfolio do not reflect actual trading commissions that you may incur; (ii) performance results for the model portfolio do not account for the impact, if any, of certain market factors, such as lack of liquidity, that may affect your results; (iii) the stocks chosen for the model portfolio may be volatile, and although the "purchase" or "sale" of a security in the model portfolio will not be effected in the model portfolio until confirmation that the email alert has been sent to all subscribers, delivery delays and other factors may cause the price you obtain to differ substantially from the price at the time the alert was sent; and (iv) the prices of stocks in the model portfolio at the point in time you begin subscribing to TheStreet.com Stocks Under $10 may be higher than such prices at the time such stocks were chosen for inclusion in the model portfolio.
Past results are not necessarily indicative of future performance.| Dow Jones | S&P 500 | NASDAQ | 10-Year Note | |
|---|---|---|---|---|
| 10,388.90 | 1,105.98 | 2,194.35 | 34.83 |
Oil *
77.74
|
|
UP
22.75
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UP
6.06
|
UP
21.21
|
UP
1.03
|
10 Yr
3.48%
SPDR Gold
113.75
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|
+0.22%
|
+0.55%
|
+0.98%
|
+3.05%
|
Data delayed 20 minutes |
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