One Stock I Just Should Have Bought
Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Tell me if this sounds familiar. You spent hours and maybe even days researching a company. You like their long term growth prospects, the valuation is compelling and so it makes sense (and hopefully more than cents) to add the company to your portfolio. However, being of the value sort (ok, let's admit it, you're a cheapskate) you’ve decided to wait for an even better price. Maybe you put in a limit order or wrote puts, but bottom line is that the company didn’t make it into your portfolio when the big news hit. That news, be it a positive earnings report or a buyout sent the stock flying higher and you missed it.
If that scenario was at all familiar then maybe you can relate with me. After spending more hours than I care to count I decided that it was “time to buy this future high flyer” in my virtual “No Drip, No Mess” Portfolio. Yet, I didn’t actually buy the shares; instead I used options to generate some income while I waited for shares to get a little bit cheaper. Then the news hit and the company’s shares flew away without me.
In this instance that news was a merger and the company was Titanium Metals (UNKNOWN: TIE.DL). The details for those who might have been like me and away on vacation the past few weeks are as follows. On Friday Nov. 9 after markets closed a press release announced that Precision Castparts (NYSE: PCP) was buying Timet for $16.50 in cash by way of a tender offer. This represented a 44% premium to Timet’s closing price.
For long investors that represents a pretty nice premium. For me it represented one very big missed opportunity. While I did net out 6.2% worth of virtual options income for the trade in my virtual portfolio it is a far cry from what could have been. Further, even though that virtual income will come in handy, I did lock myself out of the trade and never personally made it in my own portfolio. Se la vie.
The question you might be wondering is where do investors in Timet take their knowledge and their money now? You could reinvest those proceeds into another major Titanium player such as RTI International (NYSE: RTI) or Allegheny Technologies (NYSE: ATI). Another option is to go up the value chain and invest in a major titanium consumer like Boeing (NYSE: BA). Finally, you could put your money into the acquirer, Precision Castparts.
Looking at RTI and Allegheny it would appear that Allegheny is both cheaper and better positioned as far as Titanium players go. With a market cap under a billion dollars and at more than 40 times earnings and no dividend, RTI doesn’t really appeal to me. Meanwhile, Allegheny is nearly three times their size while trading at under 20 times earnings and a near 3% dividend. That’s enough to pique my interest for future research.
Boeing is a behemoth as it’s valued at more than $50 billion while trading at just 13 times earnings. With a 2.5% dividend and decades worth of growth ahead of them, Boeing is worth a deeper look as well. The real question is whether their defense exposure is going to be a drag as we head into the future.
Finally, the company that’s driving this discussion, Precision Castparts seems to be trading at a reasonable valuation giving their projected 17% annual growth rate over the next few years. Their dividend is hardly worth mentioning at just a tenth of a percent and as seen with the Timet buy, they do use acquisitions to grow. They have an interesting story and are also worth a second look.
I plan on digging a bit deeper into all three companies over the coming month as I look to replace my virtual exposure of the growth in the aerospace industry. It’s frustrating to be right on the stock but wrong on the strategy. If nothing else the lessons learned should still prove profitable down the road.
latimerburned has no positions in the stocks mentioned above. The Motley Fool owns shares of Precision Castparts and Titanium Metals. Motley Fool newsletter services recommend Precision Castparts and Titanium Metals. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.