3SOF

Instead of weaker earnings like most people expected, AZZ's results (quarter ended in August 31st) for the galvanizing services unit show strong growth from the year ago levels and more importantly for NGA, growth from the previous quarter.

This tells me probably I shouldn't expect $0.72 EPS for the full year (since in the 1st half NGA earned $0.36 per share), but more, because strong growth continues. Probably we're looking at something like $0.8 - $1 EPS in 2007 for NGA.

According to these estimates, at $8 the stock seems to be trading below 10 times earnings. As comparison, AZZ trades at 20 times earnings and isn't growing as fast as NGA.

Technically, at last, NGA is turning from bearish to bullish. The current move should take the stock to more than $14 to correctly reflect the fundamental information, in my view.

I already wrote some comments on why NGA moved so much on Friday. Unfortunately the stock ended up closing below the all important descending resistance, so the chart still isn't completely bullish.

But, from what we can read at AZZ's results, the market can only expect good news from NGA when it reports 3rd quarter earnings in mid November. It should discount the probable good news between now and then.

Today the resistance will stand at $7.78, let's see if there's some follow through from Friday's action and NGA makes a bullish breakout.

I'll keep holding NGA.

Wow this's cool 

In the play $8.50 - $9.10 - $10 very soon ..

Quote from: Garoh on October 01, 2007, 07:59:39 AM
Wow this's cool 

In the play $8.50 - $9.10 - $10 very soon ...

I hope so Garoh, I hope so. NGA goes to show how quickly things can change when the fundamentals warrant it, just a few days ago I was losing 30% plus in NGA and now I'm losing just 2.7%. The chart went from bearish to bullish.

I guess this two days breakout is better than if NGA had closed above the resistance right on the first day after the AZZ news.

I now see $0.9 EPS for the full year of 2007, NGA just needs to trade at 15.5 times earnings to achieve $14 a share. I think this is highly possible, the stock traded at that kind of multiple last May.

I'll keep holding NGA.

I enjoy seeing NGA closing above the midterm descending trendline for the 2nd day in a row. It reinforces the idea of a bullish breakout. Fundamentally NGA is worth more than $14 a share, I'll keep holding NGA.

Bah, retest to the descending trendline, prior resistance, now support. The stock should continue moving higher after this normal retest, fundamentals say it's worth a lot more.

I'll keep holding NGA.

A bullish breakout, a pullback to retest the prior resistance, new support, and then another rally to new highs. The first and second parts of this scenario already happened and the third part seems to be under way ... fundamentals certainly warrant that.

I'll keep holding NGA.

NGA's chart continues to be constructive.

Now I expect something like $0.9 EPS for the full year of 2007, up from $0.39 in 2006 and $0.05 in 2005. So, I expect earnings growth of about 130% and the stock is trading at 9.4 times earnings. Can't be, the stock needs to go up to accurately reflect the fundamentals. Or else I'm seeing everything wrong, but I don't think so, from what we've heard from AZZ's galvanizing services unit .

I'll keep holding NGA.

NGA started the day well, but I guess AZZ's 6% decline (to close an open gap, nothing special) brought some sellers late in the day. So, the consolidation phase continues. I'll keep holding NGA due to the attractiveness of its fundamentals, as explained back in this thread.

NGA is still consolidating the 35% advance it had as a consequence of AZZ's better than expected quarterly earnings. AZZ rose 5.6% yesterday, hopefully this will inspire buyers into NGA too.

Fundamentally the stock is about 40% undervalued, as we've seen, I expect it to reach $14 over the next 12 months and I'll continue holding NGA.

NGA sure had a nasty sell off yesterday. This one was painful, because it broke down below the descending trendline (which took so much effort to break on the upside) and it is almost back to the point like AZZ's fundamental information never happened. AZZ itself is also back below before that news hit the wires ...

Moreover, the market isn't valuing NGA's galvanizing services much, as some analysts say it is a "commodity like" business:

• AZZ Good as It Gets
at Motley Fool (Fri, Sep 28)

«It's important to analyze AZZ's two main lines of business separately, because they have quite different economics.

Producing galvanized steel is a cyclical commodity business, and demand has been very strong in the past two years. Steel is galvanized when it's coated with zinc, making it resistant to corrosion. Galvanized steel is used for some automobile components, metal roofs for industrial buildings, and many other outdoor steel structures. The product accounted for 45% of the company's revenue and 54% of its operating income last quarter. However, zinc prices have risen this year, and operating margin fell to 25% this quarter from 31% a year ago. 

With little product differentiation in galvanizing, as demand rises and falls with economic activity, margins will tend to fluctuate around their long-term average. If margins were to stay unusually high for too long, expansion at AZZ and its competitors would quickly drive up supply, sending prices and margins down.

Operating margins eventually should fall toward 20%, where they were in 2005 and 2006. Revenue should also fall eventually, when prices moderate. Investors should remember that most of the growth in the galvanizing segment in the past year has come from price increases, and only 12% is due to organic growth in the volume of production.»

I disagree with this view of the galvanizing services industry, because the author writes like there were no barriers to entry in the business, like there weren't very high investments to make. Moreover, he thinks the economy is perfectly efficient, that just because profit margins are high, automatically other investments would be attracted to the industry, driving profit margins back down again. But, in the real economy, not in text books, the economy is many times inefficient. And if you think of it, do you think there are many people (or any people), or any companies, excited about the galvanizing services industry or planning to open new factories in that old industry? I don't think so ... young people, investors, rush to new industries, not old ones. This is a partial explanation to why so many commodities are booming, because for decades supply didn't increase, but the products are still needed and probably will continue to be needed for centuries to come.

Anyway, getting out of this philosophical talk, the market accepted what the Fools said about the industry and decided to price NGA at 8 times earnings. This isn't the first time I've seen something similar happen (and me making an investment mistake because of it), do you remember PCU? The stock was trading at $50 or so when I bought it and it was valued at 8 times earnings, even though it was growing strongly.

Investors thought, exactly like in NGA's case, "copper is a commodity, if the price stays high for long enough new supply will enter the market and the price will come back down. Copper will eventually fall, no doubt about it. Let's price PCU at 8 times earnings, despite its high growth rate".

I fell for this trap and sold it with a small loss if I remember correctly. And how much is PCU now? It is at $136.52, 173% above my selling price less than a year ago More importantly, the Price Earnings Ratio expanded from 8 to 15, so more than half of the rise was due to multiple expansion. I believe this happened because, with time and growing earnings, investors saw that despite copper being a commodity and despite the price being high, supply didn't rise as it would happen in a perfect market economy, an economy that only exists in theory.

I expect a similar outcome in NGA. But this time I'll reap the reward, instead of selling for a loss.   Got to learn from my previous mistakes to improve. They've cost me money and I'm not willing to pay a second tuition fee.

I'll continue holding NGA for the long term. 

I no longer base my investment decisions on the chart or on what others think about the future value of a company, but on what I think. And my believe is NGA's revenue and earnings will continue to grow and its earnings multiple will expand from the current 8 or so to 16 or so. My believe is the stock will more than double over the next 12 months and I'll continue holding, regardless of what the stock price does over the short term.

We've had the first positive day in 6, let's see if it gets some traction. I'll continue holding NGA for the long term regardless of the short term market action.

Today I've analyzed a stock which has been growing strongly, FSTR, which operates in a field related to NGA's business. It shows there has been heavy investments in infrastructure in the US, and probably that trend is set to continue.

NGA's revenues and profits are growing by leaps and bounds, since 2005 EPS was $0.05, 2006 was $0.36 and I'm expecting something north of $0.8 for 2007 (the company already made $0.36 EPS in the first half of the year).

I believe it may take its time, and it has been taking time, but NGA has all the ingredients, from a fundamental standpoint, to be a big long term winner, so I'll hold the stock throughout all ups and downs, focusing on the long term outcome of this investment.

Nice 3.1% advance day for NGA.

Management doesn't talk much. Probably it is better this way, because when they talked over the 2nd quarter earnings release, they said something they shouldn't, specifically, they blamed the company's spectacular performance on the strength of the US economy when most people were forecasting an economic slowdown:

«Commenting on the results of the second quarter 2007, Ronald J. Evans, president and chief executive officer, said "The strength of the U.S. economy continues to support hot-dip galvanizing demand at above historical levels.»

I hope they're more intelligent when they report 3rd quarter earnings, because a company growing like NGA deserves a lot more than a Price Earnings Ratio of 9.

I'll keep holding NGA for the long term.