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Otrex (98.90)

A Bull Market for BEARings?

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January 05, 2009 – Comments (4) | RELATED TICKERS: NNBR

Happy New Year to everyone.  I think we're looking at some healthy bounces for the many undervalued companies lying around just begging to be invested in.

 What do you think of when I say "ball bearings"?  Probably not a whole lot, really.  In fact, maybe you're yawning right now?

Let me treat you to a wonderful little stock pick that I have plunked a few dollars down on.  Yes, it's a ball bearing company.  Yes, the little metal things used in machinery.  Pretty exciting, right?  Maybe not.   But after a quick run through, I think you'll see why I've made it a top pick of mine for 2009, though it's super-microcap status prevents me from making it a CAPS pick.

 The company in question is NN Inc (Symbol: NNBR).  Its a company formerly known as NN Ball & Roller Inc.  I suppose someone told them to think of a snappy modern name and they came up with NN over a quick tea break or something.  In any case, the name shouldn't detract from the potential in this investment.

 The stock is just my kind of pick for 2009: beat up due to exterior market forces, then pummelled by a bit of bad news that represents only a tiny speedbump.  It's this kind of price destruction that let's a potential investor acquire shares for pennies on the dollar.   The bad news in this case?  The closing of one of the plants in Ireland along with a charge for dismissal of 70 employees.  It should be noted here that the company employs some 2,200 other workers, meaning the layoff of employees barely dents their production capabilities.

 Yep, that's it.  That's apparantly the reason for the drop from a 2008 high of $17 per share down to the present $2.23 per share. 

 The market cap for the company stands at just over $36M, despite sporting a tangible book value of over $5.10 representing a price to book ratio of less than 0.44.  Pretty nice, right?

 But, consider this:  The company is also profitable.  The 12 trailing month EPS stands at $1.38 for a P/E ratio of just 1.6.   Yes, one-point-six.

There are some things that should be added here.  The company has elected to temporarily suspend the dividend that it has paid since 1994.  For 2008, this was 3 payments of 8 cents per share.  Additionally, the street thinks that EPS for the 4th quarter will fall to 10 cents, meaning a $1.17 EPS for NNBR's 2008 year. 

Are you kidding me?  It's $2.23 for an $1.17 EPS share?   Let's look at the potential downsides here and assume that every quarter of 2009 yields just 10 cents per share profit.  That would still be a P/E ratio of just 5.6! 

Okay, it's not an exciting play.  It's just ball bearings.  With institutional owners holding 96% of the stock, however, it appears that some big investment dollars will be using NNBR to boost their bottom line in 2009.

 Happy Trading!

 DISCLAIMER:  As mentioned in the posting, I DO own shares of NNBR.  I purchased them right after I stopped yawning.

 

 

4 Comments – Post Your Own

#1) On January 06, 2009 at 1:34 AM, DaretothREdux (53.86) wrote:

"It's all about ball bearing these days..." -Fletch

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#2) On January 07, 2009 at 2:04 PM, Otrex (98.90) wrote:

Once again, as with FNXMF.PK, I hope some of you were able to get in on NNBR at my recommendation?  In the 2 days since I wrote that blog, NNBR is up 77 cents or about 35%, including being up today in a sharply down market.

Here's hoping others were able to get in as well.  I don't think we're anywhere near the high end of this share, either.  It's still a great purchase.

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#3) On January 10, 2009 at 11:34 AM, sean89928 (< 20) wrote:

You are kidding me ? Who writes these articles ?

NN makes ball bearings, yes. And that's where the facts in this article stopped.

NN supply 67% of their ball bearings and precision metals to the Automotive industry, mainly the U.S. industry, with some European car makers also.

Therefore this stock is down due to the credit crunch, and the ailing health of the U.S. big 3 whose health is just above that of life support. 

The Irish plant closure was simply an attempt to cut some costs and was probably going to happen without the downturn.

By buying into this company you are essentially putting about 50% of your money in Ford, GM, and Chrysler. Report this comment
#4) On January 10, 2009 at 12:01 PM, Otrex (98.90) wrote:

The results speak for themselves, I'm afraid.   NNBR last traded at $2.98, up 75 cents from where it was recommended, meaning a gain of 33.6% in just one trading week.  And that occurred in a down market, meaning the total outperform was even higher than that.  This is clearly a value play, and I think that point was made in the original blog along with the caution about the potential drop in EPS to 10 cents per quarter due to market slowdown.

The numbers in the blog are taken from the S&P Stock Report and the Reuters ProVestor Plus Report

 

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