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Minerals Technologies: Plenty of Room to Fall
The Oxford Short Alert
Friday, September 30, 2005
By Alexander Green and Louis Basenese
#273
** Minerals Technologies: Plenty of Room to Fall
When we first recommended shorting Minerals Technologies, Inc. (NYSE: MTX) – a resource and technology-based company that develops specialty minerals for the paper, steel and polymer industries – we noted a downturn was forthcoming.
The reasoning was simple. Despite a first quarter in which sales, net income and operating profit climbed by double-digit margins, the company was facing some serious headwinds.
Raw materials and energy costs (two factors that significantly impact the firm’s profitability) were quickly climbing. And there were no indications the up-tick in costs would abate anytime soon.
Even worse, on top of these industry-wide pressures, Minerals Technologies was facing a set of unique problems. Start-up costs were spinning out of control at two new facilities in China. A labor dispute at its Finland manufacturing facilities was both distracting and a drain on productivity. And demand was quickly fading in two of the company’s key markets.
All things considered, it’s not surprising we’re sitting on a 9% gain since our entry in June. In comparison, the S&P 500 is barely positive (up 1.5%) over the same time period.
But expect Minerals Technologies’ slide to continue. Here’s why…
In a press release yesterday, the company conceded that things are far from improving. “Start-up issues” at its new China plants continue to hinder production. Raw material and energy costs keep soaring, pressuring margins even more. The recent hurricanes tripped up customer operations. And the company’s experiencing weakness in its largest markets, which account for roughly 50% of its profits.
As a result, management lowered profit guidance for the year by more than 5%, or 15 cents a share. But interestingly, in light of all these conditions, management somehow expects improvement in the fourth quarter. But they failed to mention their rationale.
In sum, Minerals Technologies, Inc. is still a good short.
Just like we know higher gas prices aren’t going away anytime soon, either are the company’s high raw materials and energy costs. And it’s unlikely the host of other problems plaguing the company can be resolved in a single quarter either. So while management may be optimistic about the next quarter, the fundamentals all suggest results will be far from impressive.
And when the company reports full-year results, don’t be surprised if its profits (and in turn its share price) slip much more than the 15 cents management currently anticipates.
Good investing,
Louis Basenese
If you have any questions, feel free to call one of our VIP Trading Services representatives at 888.570.9830 (toll-free) or e-mail: viptrader@oxfordclub.com , or contact Pillar One Advisor Greg Galloway or Rick Pfiefer at 800.438.3040 or 407.667.4729.
Stock
Symbol
Current Price
Comments
New York Times
NYSE: NYT
$29.80
Sell short. Buy stop is $38.
Take-Two
Nasdaq: TTWO
$22.07
Sell short. Buy stop is $27.
Blockbuster
NYSE: BBI
$4.57
Sell short. Buy stop is $6.
Synopsys, Inc.
Nasdaq: SNPS
$18.63
Sell short. Buy stop is $20.
Minerals Tech.
NYSE: MTX
$57.74
Sell short. Buy stop is $65.
UST, Inc.
NYSE: UST
$40.91
Sell short. Buy stop is $50.
Ethan Allen
NYSE: ETH
$31.30
Hold. Buy stop is $34.
Bio: Alexander Green is the Investment Director of The Oxford Club. A Wall Street veteran, he has over 16 years experience as a research analyst, investment advisor, and professional portfolio manager. Mr. Green is also considered one of the most talented financial writers in the business. He’s been featured on “The O’Reilly Factor,” profiled by Forbes and Marketwatch.com, and has written for Louis Rukeyser and several other leading financial publications. He currently writes and directs The Oxford Club Communiqué, the Oxford Insight e-letter, and four elite trading services: one focused on momentum stocks, another focused on companies with significant insider buying, another dedicated to international growth stocks and another focused on short-selling fundamentally flawed companies. Mr. Green is also a top-rated speaker at financial conferences around the country.
Copyright – 2005 The Oxford Club, LLC. The Oxford Club does not act as an investment advisor or advocate the purchase or sale of any security or investment. The Oxford Club expressly forbids its writers from having a financial interest in any security recommended to its readers. All of our employees and agents must wait 24 hours after an Internet publication prior to following an initial recommendation. And for hard-copy-only publications, 72 hours after the publication is mailed. Investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. The Oxford Club provides its members with unique opportunities to build and protect wealth, globally, under all market conditions. The executive staff, research department and editors who contribute to The Club’s recommendations are proud of the reputation The Oxford Club has built since its inception in 1984. We believe the advice presented to its members in our published resources and at our meetings and seminars is the best and most useful available to global investors today. The recommendations and analysis presented to members is for the exclusive use of members. Copying or disseminating any information published by The Oxford Club, electronic or otherwise is strictly prohibited. Members should be aware that investment markets have inherent risks and there can be no guarantee of future profits. Likewise, past performance does not assure future results. Recommendations are subject to change at any time.
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