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A stock with lots of "stories" that could cause it to soar

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May 06, 2014 – Comments (8) | RELATED TICKERS: GLDD

A stock that I've been following on and off for a long time, Great Lakes Dredge & Dock Corporation (GLDD), is getting absolutely pounded by Mr. Market today after posting yet another quarterly loss. It's interesting, to me GLDD's stock seems to always outperform the company's actual real-world performance.

The 9% hit that it is taking today might be an interesting entry point, IF you believe a few stories that are associated with this stock. Man I love story stocks.

The first is that GLDD is selling off its crummy demolition business. Eliminating the losses from it should reveal the true earning power of its dredging business.

Of course, the results from GLDD's other divisions weren't very good this quarter either. The company is blaming a lot of that underperformance on the weather. I'm always a little skeptical when a company like a retailer blames poor weather for lackluster results, but a company that dredges lankes, rivers and ports with ships I'm more inclined to believe...particularly after living through this past winter ;). Here's the story directly from the company's CEO: "The first two months of the quarter were impacted by severe weather, which both contributed to longer project durations and equipment downtime for maintenance, resulting in reduced gross profit margin...The severe weather delays will result in revenues to be earned in future periods as the work on the underlying projects is completed."

Yet another issue with GLDD's stock was the underutilization of its assets in the Middle East. Again there is a story to explain why this might get better. According to the CEO "The margin contraction also was driven by minimal dredging activity in the Middle East. Our fleet located in the Middle East was essentially idle in the quarter; however, work has begun on a project in Saudi Arabia and the Company is pursuing strong possibilities to put the fleet to work in the second half of the year."

By far potentially the most important catalyst for the stock is that the government is responsible for a tremendous amount of GLDD's business. Huh? One would think that at a time when the government is trying to cut spending that having it as a major customer would be a bad thing. That's not necessarily the case with GLDD...again if you believe the story that the passage of the much talked about (at least in this industry I've been hearing about it for a loooong time now) Water Resources Reform and Development Act will unlock a ton of funds from the Harbor Maintenance Trust Fund that were originally intended to be used for things like port maintenance but have been being siphoned off by the government for other uses. In my research on the subject, it appears as though the passage of the bill is actually very possible. The Water Resources Reform and Development Act has already passed the House 417-3. And supposedly House and Senate negotiators have "since made considerable progress on a final agreement." I've read that a bill might be done potentially by as soon as Memorial Day. We'll see. If it does pass I could certainly see it as being a huge benefit to GLDD.

Great Lakes Reports First Quarter Results

https://finance.yahoo.com/news/great-lakes-reports-first-quarter-120000585.html

Jason

8 Comments – Post Your Own

#1) On May 06, 2014 at 4:48 PM, Mega (99.97) wrote:

Hey Jason, I think Syncora (SYCRF) might be up your alley. They are a tiny bond insurer with a couple of big potential catalysts coming up. One is a lawsuit against Lehman Greenpoint, potentially in the $250M - $400M range. Another is settlement with the city of Detroit which should be coming soon.

Check out my pitch here: http://caps.fool.com/Ticker/SYCRF.aspx

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#2) On May 06, 2014 at 4:54 PM, Mega (99.97) wrote:

As a merger aficianado, have you looked at ATK/ORB or T/DTV?

The arbitrage is interesting since the ATK spinoff value is unknown. Sounds like ATK Sporting is a better business, but Orbital ATK may be cheaper.

http://www.nbcnews.com/science/space/orbital-atk-space-venture-created-5-billion-merger-n93911

I own a fair amount of DTV and added a little more with the news they are in talks with AT&T.

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#3) On May 06, 2014 at 6:31 PM, awallejr (77.67) wrote:

I am on the otherside of that T/DTV deal.  And I do like it.

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#4) On May 06, 2014 at 10:13 PM, TSIF (99.96) wrote:

Thanks for the trading ideas.

GLDD chart looks like a dredge has been working on it.  Expanding out to five years, there are some huge excavating sections.

Very narrow trading range overall.  Looks like a low margin business. Not sure if the potential catalysts are real or if the CFO leaving is part of a management issue. Hope the new CFO knows how to build some retaining walls.

Worth a look, I'd wait a day or two. Good instituional support, but the years of higher stock than performance you alluded to is a red flag that these are more "stories".  If the CEO left...nowthat might be a story.....

 

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#5) On May 07, 2014 at 4:37 PM, TMFDeej (99.24) wrote:

Thanks for the ideas Mega.  I like the SYCRF.  I'd like it even more if I was a lawyer and understood the company's chances of winning better ;).

ATK/ORB is a very interesting one.  I'm working on my propensity to be revolted by stocks that have already increased by 100%+ in the not so distant past.  It's a work in progress, but I have bought a few things that have run that I believe still have a lot of room to go like AER.

It looks like DTV crushed earnings.  I can't stand its television commercials, but it certainly has been a great stock.  I wonder what would happen to it if it lost the rights to the NFL in the next round of bidding.  It could get bought out by then anyhow so it might not make a difference.

Jason

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#6) On May 07, 2014 at 5:05 PM, Mega (99.97) wrote:

Supposedly the NFL contract is so expensive that DTV actually loses money on it. I guess they view it as a loss leader for the rest of the business. The rumor is they may be willing to negotiate a lower price and give up exclusivity.

But if they merge with AT&T, maybe they will take the opposite approach and expand the exclusive contract to cover U-verse too.

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#7) On May 07, 2014 at 5:44 PM, Mega (99.97) wrote:

I'm working on my propensity to be revolted by stocks that have already increased by 100%+ in the not so distant past.

I struggle with the same thing and am still mainly a bottom feeder by nature. SYCRF is a rare exception where I was willing to buy after a big spike, because the spike was in response to a $400M settlement which completely transformed the investment thesis.

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#8) On May 07, 2014 at 9:16 PM, TMFDeej (99.24) wrote:

The NFL contract is definitely really expensive, but just about every single person that I know who has DTV only has it because it's the only way that they can get the NFL package. If they lose the NFL I think that they will lose a ton of subscribers. 

Jason 

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