Back in early November I wrote a post on Horsehead Holdings Corp.(ZINC) . Horsehead is the largest zinc producer in the United States and the leading manufacturer of value-added zinc products including zinc oxide and zinc powder. Zinc has many uses such as a protective coating to various fabricated products, it is found in tire and rubber products, chemicals, ceramics, plastics, paints, lubricating oils, and pharmaceuticals it is also used in brake linings for automobiles.
Since my last post on Horsehead, I noticed that Mohnish Pabrai alias The Dhandho Investor has taken a stake in ZINC. Pabrai has made a name for himself over the last few years returning Warren Buffett SIZE returns. Pabrai by the way is a former IT guy turned money manager. Pabrai usually has 10 to 15 stocks at a time in the portfolio. I thought it was interesting that Pabrai bought into one of the stocks I followed, usually its me following the Gurus. However I'm sure Pabrai saw the same things that I did in this company. First off the company has $80mil in cash which equates to $2.28 a share. They have virtually no debt with a debt-to-equity ratio of "0". Their also trading at nearly 50% book value, which is currently at $7.93 a share. It also looks like 125,000 plus investors over at the Motley Fool have picked up on this one as well. The company looks as if its staying ahead of the economic downturn by running a rather tight ship. In December Horsehead announced that it is taking aggressive steps to reduce operating costs including idling its recycling facilities for the last week of 2008 , reducing its salaried workforce, and revising the construction strategy for its new South Carolina facility. Horsehead expects that these reductions will result in annualized savings of approximately $2 million. A few more points I would like to mention that this is a cyclical stock, and with the current economic conditions it could stay depressed for a while. Also forward looking earnings (2009) are projected at an average loss of 62 cents a share. So while the short term outlook does not look rosy valueinvestors and pabrai himself are looking for the low-risk, high-uncertainty businesses.
"Low risk and high uncertainty is a wonderful combination. It leads to severely depressed prices for businesses - especially in the pari-mutuel system- based stock market. Dhandho entrepreneurs first focus on minimizing downside risk. Low-risk situations, by definition, have low downsides. The high uncertainty can be dealt with by conservatively handicapping the range of possible outcomes. You end with the classic Dhandho tag line: Heads, I win tails, I don't loose much!" -Mohnish Pabrai.
The 52 week week high was $18.31 and the 52 week low was $2.26, which as I mentioned earlier is the cash it has on hand. Currently ZINC is trading at $4.25 with a NCAV of $4.45.
*Author is neither long nor short.
The Graham & Dodders (Forbes)