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This morning one of my colleagues, Joseph Lazzaro, who heavily uses technical analysis, posted an article titled General Cable Corp.: Stopped-Out.I have never used technical analysis to make investment decisions, but I have used charts for general long-term trends examining a stock from a historical perspective. I think in the case of General Cable Corp. (BGC), it may prove untimely to bail out now based on just technical analysis.
There is no problem in my mind with the fact that the stock went down from his May 5, 2009 call, when it was $34.59, but I find the sell now at $28 is bad. I have made many blunders as has every investor but I think that random numbers should not be ones guiding light.
The reason I am commenting at this time is because I have recently sold options (naked puts) in BGC and I happen to agree with Joe's original premise that General Cable, which develops, designs, manufactures, and distributes copper, aluminum, and fiber optic wire and cable products for the communications, energy, and electrical markets, is a good business to be in when our nation is focused on infrastructure projects.
These projects include "smart grids" to be built out across the country and the world in the next few decades. In addition to implementing new technology we are expanding our base of alternative energy sources like wind, solar and nuclear power as well as the need for ever increasing stability in the system with emergency power back-up generators for a growing number of critical facilities.
General Cable currently has a trailing P/E of 4.35, P/CF of 4.46, P/S of 0.15 and a P/B of 1.7. These figures are more than below the market, they are dirt cheap! The return-on equity is 31.56%. The only rub for me is that BGC does not pay a dividend. This seems to good to be true. That is why I ask readers -- what's wrong with this picture? Am I missing something. I brought this up with Marshall Phillips of WellsTrade but all we concluded is the market works in mysterious ways.
Given that BGC is capitalized at a paltry $1.45 billion and the fact that they make products that are industry staples, it would not surprise me if it was bought out by the likes of Emerson Electric, Eaton, or even General Electric. As a matter of fact during the time I have been writing I bought shares myself -- at $28.00!
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of BGC and GE..
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Reader Comments (Page 1 of 1)
2-15-2010 @ 12:35AM
Peersu said...
Thankfully I only inched my way into this (@ 20% of my total position) stock after reading your write-up...down 15% in one day. OUCH!
I understand the cabling business pretty well; and unfortunately we are at a time of decreasing capital spending. I am worried about their OM, but hopefully this dip is a wake-up call to management and they get their act together. In the downturns it is tough to manage costs while keeping capacity for large orders.
2-15-2010 @ 4:36PM
Sheldon L said...
Peersu,
As indicated, I bought in at $28 and was hit with the instant loss too. It does not change my thoughts on the company or the industry -- but it does make me poorer for now.
I did not bet the farm either and I am considering adding to my position. A follow-up story is in the works.
3-09-2010 @ 10:08PM
bpb said...
I would agree BGC is a hold and I would be looking for a $30 to $35 sell range for june,I, like your self I don't rely on technical analysis, I find it measures buyer sentiment more so than a stocks true value. I don't own it but it is worth digging a little deeper, looks good to me