This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Understanding the Stock Market: Tecumseh, Office Depot

My base case valuation for this stock, at $30 per share, is based on the company achieving one-half of the margin improvement targeted by management. The stock recently traded at $13.74, down from a 52-week high of $36 per share. Investors in this stock will not have to wait long to see a rebound in operations. Numerous internal initiatives, such as expansion of higher-margin private-label offerings and sourcing of product to China, are already well under way.

Mueller Water Products (MWA.B): There are a number of facets to this story that are certain or near certain: that Mueller Water is the No. 1 or No. 2 player in most of the water infrastructure markets in which it participates, that there are high barriers to entry in most of its end markets, and that the company has a huge installed base that drives recurring revenue (i.e, replacement parts).

The good news for investors in this stock is that the company's subnormal operating performance is almost entirely due to external factors -- about one-third of sales are linked to new residential construction. The value of this company is at least double the current stock quote. It recently traded at $8.80 per share. My model suggests a value of $22 to $24 in a couple of years.

It's worth noting that the American Society of Civil Engineers assigned a grade of D-minus to current water infrastructure. With leakage rates running as high in 20% in some areas, studies indicate that $180 billion needs to be spent over the next 20 years to fix our water infrastructure. Since I can't predict when an impetus to fix our water infrastructure will develop, I've excluded such a scenario from my valuation calculation. I mention it only because it represents significant upside to my estimates.

Note that there are two classes of stock, A and B, for Mueller Water Products. While the B series has superior voting rights, I expect the classes to merge into one class in a couple of years. A tax issue related to the spinoff from Walter Industries (WLT) prevents changing the stock structure for a few more quarters.

This column was originally published on RealMoney on May 19, 2008 at 1:00 p.m. EDT. For more information about subscribing to RealMoney, please click here.

At time of publication, Alsin and/or ACM was long TECUA, ODP and MWA.B, although holdings can change at any time.

Arne Alsin is the founder and principal of Alsin Capital Management, an California-based investment advisor. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Alsin appreciates your feedback; click here to send him an email.

3 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
TECUA $6.11 1.66%
ODP $9.31 0.00%
AAPL $132.54 0.00%
FB $80.54 0.00%
GOOG $540.11 0.00%

Markets

DOW 18,232.02 -53.72 -0.29%
S&P 500 2,126.06 -4.76 -0.22%
NASDAQ 5,089.3620 -1.4320 -0.03%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs