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CBI: Scam or Super Bargain?

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July 25, 2014 – Comments (6) | RELATED TICKERS: CBI

What so my fellow Fools think about this whole Chicago Bridge & Iron (CBI) situation?  I went long CBI after the initial Prescient Point short report knocked them down.  I didn't buy into their arguments then and nothing changed after the release of the company's Q2 earnings.  The report looked excellent.

I can sort of understand a major company like CBI not wanting to justify an attack by a short seller by responding to it.  I'm fine with that, but the company could still respond to direction questions about the accounting issues on the conference call when they're presented by "legitimate" analysts.  Even them not addressing the issues directly wouldn't have bothered me that much.  What did really rub me the wrong way is the fact that the company's CFO was "sick" and unable to attend the quarterly conference call?  Sick?  I've been sick from work once in 18 years and that's when I caught a crippling case of Lyme's Disease.  He had better be on death's door not to be able to pick up a telephone and participate in a conference call when the integrity of his work and that of a multi-billion dollar company are being questioned.

I'm not a forensic accountant, but CBI's numbers look fine to me.  I don't see how uber-smart investors like Warren Buffett and Denali Investors could be fooled by them.

Something else that really annoys me is the taunting of the company by Prescient Point on Twitter.  Here's their quote:

"The deceptions continue, but the charade is over...Conference call leaves investors with more questions than answers. story has more holes than a brick of swiss cheese."

This seems like a very unprofessional, immature response to me.  What are they a teenager sitting in their parent's basement tossing out insults on Twitter?  For their sake they had better be right otherwise they're toast.  No one will ever take them seriously again.  I guess that they seem to have remained anonymous throughout this whole fiasco anyhow so they could always pill the plug on Prescient Point and hang up a new shingle under a different name to continue their short attacks.  Bill Ackmann came across looking like a pompous moror for his sensational attacks on Herbalift (HLF) *, but at least he was man enough to attach his real name to it rather than cowardly hiding and shorting.

Anyone out there have any thoughts on the CBI situation?  I personally am considering the weakness in the stock to buy again.

Jason

* I personally think that Herbalife's products are complete junk and that multi-level marketing companies are garbage as well, but... say what you want about MLM it is technically legal so I do not think that Ackman has a chance of winning his battle agains the company.  They're going to keep buying back stock until his options expire worthless.  Having said this, I wouldn't be surprised if over time HLF does gradually decline in value.

6 Comments – Post Your Own

#1) On July 25, 2014 at 2:44 PM, boozalex (30.92) wrote:

Nice post.  I already have exposure thru options.  I think the underlying business is sound.  

Denali and Buffett being there was enough for me. 

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#2) On July 25, 2014 at 3:10 PM, TMFDeej (99.28) wrote:

Thanks Boozalex.  Here's a link to yesterday's conference call for anyone who's interested.  Here's the relevant parts.

Chicago Bridge & Iron's (CBI) CEO on Q2 2014 Results - Earnings Call Transcript: 

"Philip Asherman - President and Chief Executive Officer

Good afternoon, and thank you for joining us as we report Chicago Bridge & Iron’s results for the second quarter of 2014. We’ve got a little change this afternoon, Ron Ballschmiede who I don’t believe has ever missed an earnings call since he has been with the company got ill this morning and we sent him out to get checked, but it’s great opportunity to reintroduce someone that you met at our investor day and during the course of business is our Corporate Treasurer, Luciano Reyes.

Luciano has been with the company since 1998 and has been the Corporate Treasurer since the same week that I got my job and I think certainly well versed in our finances and he is going to provide the financial results for the quarter following a brief summary of the overall performance of the company from me."

and

"Will Gabrielski - Stephens Inc.

I appreciate that. Thank you. I know the Qs are now out, but I am sure it will have some color in there that will enable us to at least analyze what the non-cash earnings impact was from the Shaw acquisition which will get a lot of airplay once for all disconnected from this call, so if there is any color you want to add around that for the quarter for the rest of the year?

Philip Asherman - President and Chief Executive Officer

State your question again.

Will Gabrielski - Stephens

The non-cash earnings impact that resulted from the fair market value adjustments that you made through the purchase price allocation process for the Shaw deal, I was just wondering if there was any – I mean this was like an opportunity for you guys to address that publicly so I just wanted to know.

Philip Asherman - President and Chief Executive Officer

Well, thank you Will and what I will say publicly is we always standby by certainly the higher prices and our judgment is made on that and the validity of our financial statements and our earlier statement that we made when that report which we deemed was misleading and inaccurate came out we feel we have been very responsive to all the inquires we have had and certainly there has been some comprehensive reports published by analysts such as you and others that we feel have been very thorough and again comprehensive and I think that’s been good.

I think we can move on. But certainly and I think if you look in the 10-Q that we provided even greater detail on the acquisition accounting. So look at that if you have any detailed questions after reading that and the other reports that you would like to source, we will be more than happy to go through that with you again.

Will Gabrielski - Stephens Inc.

Fair enough. Thank you very much.

Philip Asherman - President and Chief Executive Officer

Okay, Will."

 

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#3) On July 25, 2014 at 6:37 PM, Teacherman1 (48.82) wrote:

This is a prime example of why you should "Buy and Hold".

I bought CBI in April of 2009 for $7.01,and sold them in December of 2009 for $18.18, for what then seemed like a fantastic 159% profit.

If I had kep them, I would have almost an 800% profit today.

Of course, things were a lot "more worriesome" back then.

A great company and a great future ahead, but too rich for my blood at this level.

JMO and worth exactly what I am charging for it.

Good luck.  

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#4) On July 28, 2014 at 11:52 AM, Gordogato (83.77) wrote:

I've seen so many of these anonymous short-selling "analysts" attacking companies in the past year or two that I now assume nefarious motives with nothing behind the curtain. They blow a lot of smoke and try to convince you that there's a fire behind it. If you're looking for a scam, I think you're looking in the wrong direction. 

I know how Berkshire Hathaway invests. I know the level of research they put into it.  I trust Buffett/Combs/Weschler's judgement and reputation a lot more than an anonymous Twitter account. 

CBI was already a top-20 holding at Berkshire Hathaway,with over 9.5 million shares. Berkshire bought their CBI shares over the course of Q1 and Q2 2013, and has not bought more since then. We will find out in their next 13F in a few weeks (probably the 2nd week of August) if Berkshire sold their shares, held tight, or bought more.  

(I don't own CBI, but I do own BRK.)

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#5) On July 28, 2014 at 9:50 PM, TMFDeej (99.28) wrote:

Thanks for sharing your thoughts fatcat (great name BTW).  I agree with you. The only thing that gives me any pause at all is he mysterious absence if te CFO. I am definitely holding my CBI shares and may eventually add to it.  It will definitely be interesting to see if BRK buys more shares or starts pat.

Jason 

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#6) On July 30, 2014 at 10:26 PM, DrGoldin (99.67) wrote:

Silly me!  I got interested in CBI when it dropped to 70, but inexplicably I thought I'd wait and try to catch a better price.  Whew.  Now that it's down to 60, I'm starting to wonder whether the market knows something that I don't, because I have yet to understand what is supposedly wrong with their accounting.  There's also chatter about cash-flow problems, but seriously, this is getting too cheap to ignore.  The problem is that technically, if it drops below 60, look out below, because there's no evident support until 40 or lower (!).  It's an extremely ugly chart.

 

So for me, the upshot is: buy if it turns around and gains steam from here, but hold off if it keeps dropping.  Kinda unscientific, but I'm not at all confident that this is the bottom.

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