Commercial Metals Company (CMC)

wax (93.15) Submitted: 9/10/07 7:00 AM : Start Price: $28.38 CMC Score: 29.10

Well here goes.

I realize that I am probably pretty early to the party on this one compared to the rest of the markets, but one of the things a value investor does is search for and then buy, value....hence the name....value investor?

The problem is that more often than not, the market for a particular value find hasn't finished punishing the stock. As a result, value investors usually end up buying a falling stock, which is the reason you read so much about dollar cost averaging when it comes to value investing.

At any rate, I'm going to go long on Commercial Metals Company, Inc. (NYSE: CMC).

Admittedly I have been watching this company off and on for the past four or five years, and have become a bit of a fan of management, which is one of the reasons I'm adding the stock to my portfolio now, instead of waiting to see what the rest of the markets are going to do.

The company was incorporated in 1946 and is in the steel business, operating in five business segments.

Domestic mills operations, which operate mini-mills in Texas, Alabama, South Carolina and Arkansas.

International Mills (Poland). This mill handles ferrous scrap metals, remanufacturing this scrap into reinforcing rods and other metal components on a project by project basis.

Domestic Fabrication operations include a network of steel plants that bend, cut, weld, and fabricate steel, with the finished products being reinforcing bar (rebar), bar joists, and metal fencing components.

The Recycling segment operates 39 scrap metal processing facilities not including the 10 scrap metal recycling facilities operated as part of its domestic mills segment, recycling almost 3.5 million tons of ferrous and non-ferrous scrap last year.

The Marketing and Distribution business sold about 2.9 million tons of steel products last year world wide through its offices in rving, Texas; Fort Lee, New Jersey; Arcadia, California; Mexico City, Mexico; Sydney, Perth, Melbourne, Brisbane and Adelaide, Australia; Singapore; Zug, Switzerland; Sandbach, United Kingdom; Kohl, Germany, and Hong Kong, Beijing, Guangzhou and Shanghai China and through its representatives in Moscow.

The company is listed in the Metals and Mining Industry, which is often the reason the ticker doesn’t pop-up when screening the Iron and Steel industry.

I carry the stock on my watch list with a reasonable value estimate of about $80, with an entry target of $40, a first sell target of $79 and a closing target of $85.

This stock is going to be a 3% position for me, meaning that the stock is going to make-up 3% of the value of my portfolio. But since I believe that the price of the stock is going to get pulled down by the rest of the market, I’m going to average into the stock over time, adding to my initial position on pricing pullbacks.

As I said at the start, I realize that I’m probably pretty early to the party on this one. The stock closed on Friday (09.07.07) at $28.54, down almost 18% over the last 3 months. Looking at the trading activity, the stock has first resistance at $30.48, second resistance at $31.22, and support at $18.40, giving the stock an upside from current pricing of a little more than 9%, and a downside from current pricing of almost 36%.

I believe that over the longer term, this will become a very profitable holding for me, and while I have my party hat and new clip on tie, I’m just not certain I’m going to enjoy playing all of the party games while I wait for the ice cream to be served.

Wax

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