Today we have a moderately speculative idea.: take shares in the industrial company Mueller Industries (NYSE: MLI), in order to make money on his business.
Growth potential and validity: 18% behind 14 months excluding dividends; 10% per year for 15 years including dividends.
Why stocks can go up: the company looks cheap and may well be bought.
How do we act: we take shares now by 56,60 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.
No guarantees
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.
And what is there with the author's forecasts
Research, like this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would show results better than people, but alas, they work worse.
So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
We love, appreciate,
Investment editorial office
What the company makes money on
MLI is engaged in the production of industrial components from copper, brass, aluminum and plastic. According to the annual report, The company's revenue is divided into three segments.
Pipe systems — 68,97%. These are pipes, fittings and other things. Segment operating margin — 18,7% from its proceeds.
Industrial metals — 18,66%. These are valves, fasteners and more. Segment operating margin — 12,15% from its proceeds.
Climate — 12,37%. These are products for heating and temperature control - refrigerators, air conditioners, pool heating. Segment operating margin — 17,26% from its proceeds.
The scope of the company's products is large: refrigerators, plumbing, air conditioners, equipment manufacturing, construction of houses. Different segments of the MLI intersect in the production of various types of products, so their separation is to some extent a convention.
Geographically, revenue is divided as follows: 74,05% — USA, 8,77% - Great Britain, 12,45% - Canada, 2,20% - Asian countries, 2,53% - Mexico.
Arguments in favor of the company
Where should they go. U.S. manufacturing key figures came in better than expected – and very much on the back of higher new orders. The UK, which is important for MLI, also sees a significant increase in production indicators, though not without problems.. So I would expect, that the situation for the company will continue to improve.
In the long term, the boon for the company will be an almost inevitable increase in investment in infrastructure upgrades in the United States., which I talked about in the idea for Caterpillar.
Very cheap. P / E the company has only 6,6, P / S — 0,82, and capitalization - 3.24 billion. This alone could attract many investors to Mueller shares..
Clean accounting. The company has approximately 472 million debts, of which about 80% must be repaid within a year. She has enough money though., to pay off all debts: 87,924 million in accounts plus 471.859 million in debt. It is very good, because, with monetary policy tightening around the world, especially cautious investors will find heavily indebted stocks repulsive.
Must buy. Considering all of the above, the probability of buying the company by someone larger is very high.
Dividends. The company pays 1 $ per share per year - what gives 1,76% per annum. She spends about 1/8 from her profit, and if Mueller's current income level continues, then we can expect a significant increase in the amount of payments - say, twice.
What can get in the way
Peaks. The company's shares have risen by 73% and are now trading close to all-time highs. And that means, what stocks can shake.
Inflation. Aluminum, copper and other - prices for all these resources, very important for MLI, have grown a lot, and I wouldn't have high hopes, that they will fall soon. So,, this will affect MLI reporting in a bad way. Known events led to disruption of logistics supplies - and this will also affect reporting.
Finally, Rising labor costs in the US also do not bode well for MLI. It remains only to hope, that the company will be able to shift the increase in costs onto its customers without consequences.
London is calling to the wrong place. Available UK manufacturing figures do not take into account the impact of recent events on the economy of the island nation. At the very least, rising raw material prices could negatively affect demand for MLI products in this country.
What's the bottom line?
Shares can be taken now by 56,60 $. And then there are two options:
- wait, when will the shares start to cost 67 $. Think, we will reach this level in the next 14 Months;
- keep shares next 15 years, while the company grows and increases the size of payments.
