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Mario Gabelli Sells GrafTech International

February 28, 2011 | About:
I remember watching Mario Gabelli on CNBC talking about GrafTech International (GTI) in 2009 and he was very bullish on the name. It appears he's satisfied with the price rise and he sold out of most of his position just recently. Around the time he bought into the company, I was able to dig up this quote from a CNBC blog:

“Every time you make a ton of steel, you have to put one of their consumables, carbon graphite, into the furnace,” he explained. “Three years, four years from now, they’re going to have products and technologies that will allow them to get a 15 multiple on peak earnings. You’re talking about a stock going from $6 to $45.”

Gabelli first bought into GrafTech in the 4th quarter of 2008 and continued to buy in the 1st quarter of 2009. Those purchases were in the $7 range. He got up to a high of 7.3 million shares, which is about 6% of the company. As part of GuruFocus’s premium membership, you can see real-time picks. Click here to learn more.

This is where I found out that Gabelli sold about 5.6 million shares on February 28. The stock isn’t quite to $45, with Gabelli selling out at $20, but it is considerably higher than his purchases price. He still holds about 1.4 million shares. You can view his holding history on the chart below.



In addition to Gabelli, nine other gurus own GrafTech. Most notably, Chuck Royce sold a few shares on January 13, but still holds more than 16 million shares. This is about 13.5% of the outstanding shares. Columbia Wanger also owns just less than 3% of the company. In the past year Steven Cohen, RS Investment Management, and David Dreman have made initial purchases.

For a little more background, GrafTech manufactures carbon and graphite products for industrial applications. They were founded in 1886 and operate out of Parma, OH. Their main product, graphite electrodes, are used to melt scrap metal in electric arc furnaces. As more steel is produced by mini-mill producers like Nucor (NUE), demand rises for GrafTech’s products.

The company most recently announced earnings on February 24 and, while 2010 results were strong, they disappointed investors with their 2011 guidance. For 2011 they forecast EBITDA between $285 million and $315 million. The Street was expecting $356 million. Their full year diluted 2010 EPS was $1.42, putting them in the 15 PE range that Gabelli indicated above.

It appears that the company is relatively fairly valued right now, but steel demand is notoriously difficult to predict. GrafTech closed on two major purchases last year and will be fully integrating them into their operations: Seadrift and St. Mary’s. Management has high expectations and believes they’ll add $90 million of that dreaded word, synergies, in 2011. While steel production is expected to be higher in 2011, electrode prices are expected to be lower. The margin of safety has certainly deteriorated here, and it appears for the most part that Gabelli is moving on to another stock with a bit less risk.

Disclosure: No positions

About the author:

Steven Kiel
Steven Kiel is the president and chief investment officer for Arquitos Capital Management, a Virginia-based investment management firm. He is a graduate of George Mason School of Law and a captain in the Army Reserves. He manages two spoke funds, The Freedom Fund, a value-oriented portfolio, and The Hayek Fund, a portfolio dedicated to free market principles. He can be contacted at steven.kiel@arquitos.com or through the firm's website at www.arquitos.com.

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