In the case of Ternium, that point is approaching. For proof, look no further than Citigroup's announcement today that Ternium is a BUY.
Now?
Really?
If anyone has access to the report, please pass it along. Can't wait to see the reasoning. Do you think they discussed (or even know) that only 15% of Ternium shares float? I doubt it.
Ternium's November 4th earnings release was probably the catalyst (excuse). It was an eye-opener for the uninitiated. Without getting lost in the minutia, TX has nearly $2 billion in cash and $2.4 billion in debt. In 9 months, the company has generated $900 million in free cash flow and another $666 million from it's forced sale of Sidor to Venezuela. Ternium used $1 billion of this cash flow to pay down debt. Not bad for a company with a $6 billion market cap.
Hey, Citi... the market cap was $1.5 billion when you downgraded the stock! You really can't make this stuff up. Sorry, I digress.
The Sidor expropriation is a gift that keeps on giving. Chavez picked a bad time to "steal" Sidor from Ternium. The company expects to receive another $1.3 billion in payments from Venezuela over the next year (another $287 million was received this month). That cash will ensure that Ternium has ZERO net debt by this time next year. Actually net debt will probably be negative.
So Citi is finally catching on. Normally I'd be thrilled, but let's recap Citi's recent history with Ternium. On Novermber 7, 2008, the Citigroup analyst downgraded the company from a BUY to a HOLD.
So one year ago, with TX shares trading at $7 a share, Ternium was a HOLD. Today, at $29 to $30 a share, it's a BUY?
I'm bullish on Ternium for all the reasons discussed above and elsewhere on my blog in recent months. But this Citigroup call gives me pause. I must be alone. Investors (obviously impressed with Citi's astute observations) pushed TX shares to a 52 week high above $31 a share today. They have short memories.
For now the fundamentals discussed above will keep me in Ternium. Besides, we still have Goldman. They cut Ternium to Neutral on October 9, 2008 when the shares traded at $9.98 a share. Ternium will probably go to $40 before they finally come around.
When that upgrade comes along, there will be no debate. SELL.
Where is that darn resume anyway?!?
Disclosure: The author STILL owns shares of Ternium.
Henry W. Schacht
[www.lonelyvalue.com]
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Henry W. Schacht, CFA is the founder of Schacht Value Investors, an investment management firm serving individuals and institutions. He currently serves as President and Chief Investment Officer. He earned his MBA at the University Of Chicago Graduate School of Business and a BBA in finance from the University of Notre Dame. Mr. Schacht is a member of the Association for Investment Management & Research (AIMR), the Investment Analysts Society of Chicago (IASC), and the National Association of Corporate Directors (NACD).
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