Mohawk Industries, Inc. (NYSE:MHK)

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Added 7/29/10

This account tracks the performance of the investment firm Ruane, Cunniff, and Goldfarb - the investment manager of Sequoia Fund.

With the absolutely insane rally in things related to housing over the past few days, I wanted to find the one stock that has gone up way, way too fast. MHK fits that bill, it is WAY overbought, it's fundamentals are terrible, and while it is a good company within it's industry, it's main customers (homebuilder companies) are buying less and less of it's products. They offered guidance that is way out of line with reality, they lost money last quarter, and even if they reduce their expenses, will it be fast enough to turn a profit over the next 2 quarters? Questionable. And with a 200:1 debt:cash ratio, that isn't looking good either. Granted, they do have generally high revenues, so the potential for profitability is there, but clearly the stock is well overvalued and has run up too far, too fast.

One final piece of data for you to ponder:
EPS (ttm): -21.32

Does that look like a company you want to own?

While the Mohawk brand is one of the most respected brands in the industry and well known for it's supplier confidence the housing/commercial market continues to get hammered and I see no relief till mid to late 2010. Several divisions such as the Dal Tile brand which is number 1 or 2 in the commercial market appear to be heading south rather quickly in 2009 with currently no end in sight. I am farily familiar with the Dal Tile brand(s) and believe the Dal Tile and related branding have done a absolutely horrible job in the market place. Dal Tile being a manufacturer continues to be a competitor rather than a supplier to the industry. The American Olean brand by Dal Tile has fallen off the face of the earth in California and much of the west as their corporate decisions over the last year has disseminated or alienated the majority of American Olean independent distributors. . Dal Tile still struggles in bringing their products to market place as it appears they would rather be a competitor rather then a supplier to the industry. They have designed their own store structure so even their own outlets compete with each other resulting in lower margins in areas with high store concentrations. With only about 220 stores nation wide you would think reworking the distribution network would be a high priority as I would rather see 2000-3000 independent distributors working through distribution centers rather the only around 220 stores to distribute though out the whole United States. If this division ever does figure out an intelligent distribution plan I believe they would blow by the other Mohawk divisions, but from what I see of the mediocre management that wont be happening anytime soon.

not many people are going to have the money to redo their living room, bathroom or laundry room. That means this thing is going to sink.

commercial real estate end market will remain weak. Oil, a major input, will return to higher levels.

Just blindly following Alstry on this one. Let's see what happens.
http://caps.fool.com/Blogs/ViewPost.aspx?bpid=151951&t=01002130057764754273

huge fixed overhead and a lot of goodwill still remaining. Sales will not be trendng up for at least another 1 to 2 years.

Mohawk has great long-term value.
Real Estate will return and capeting and ceramic tile/stone business will pick-up.

Floor coverings hard hit by housing problems

sales of MHK primarily come from US and EU.

carpet and rug represents 60% of the flooring business and in that 60%, 75% of sales come from the residential business.

housing crisis and eroding consumer credit means lower sales= lower profits.

costs are unlikely to be a major factor though.

Good moat, stock is out of favor because of the economic enviorment but the company itself is great. Trading near 52 week low is a good entry point. See this one rebounding.

below net tangible asset value pick, no other research

value

I see a short-term turn around coming. It's been beaten down even when things are finally getting better for the company.

Warren Buffett is invariably referred to as the "god of stocks." When ask about Mohawk stock " Buy Now"....

A Morningstar pick... Mohawk has 45% of the US floor covering market, and has only one major competitor (Shaw). Companies with near monopolies in areas of significant demand = the Warren Buffet way.

Slowdown in US residential earnings will drag on MHK earnings with 7 to 12 month lag behind drop in home builder earnings as builders finish units in progress and cease new building new homes.