Tuesday, January 1, 2013

Materials Science Could Soon Climb

Materials Science Corp (MASC) is one of those snubbed, abandoned stocks I just fall in love with. They are a deep cyclical being tied heavily to the automotive industry. Their sound deadening and other coatings are what the recession killed, but it's been 5 years now since drivers began making do with their older cars. These cars, with their old car problems, are building up some pent-up demand for new car smell. Total new light vehicle sales for 2012 are up 15% over 2011. That's very non-recessionary like. Investors may soon stop hating MASC so much.

A Seeking Alpha article back in October, 4 Industrial Suppliers Buying Back Shares by Debra Fiakas, featured MASC with the sub-title Unappreciated Materials Science:

 Even if its sales have been stubbornly flat over the past few years, Materials Science Corporation (MASC) consistently delivers strong profits. The company develops and sells acoustical and coated metal products to industrial customers. MASC is valued at multiples well below averages for its peer group. The appearance of slow growth and reduced earnings may be at the foundation of this rebuff by investors. The year-over-year earnings comparison is difficult in the current fiscal year after the company reported a one-time income tax benefit in last year. Only one analyst has published sales or earnings estimates for Materials Sciences, so the company's prospects are getting little scrutiny.
I like the "little scrutiny" part, but I don't like things like one-time tax gyrations in the eps.  That's one reason I place little importance on PE when valuing a company and look at the cash flow from operations history. With MASC, the revenue is flat, the earnings are one-time warped, but the cash flow is really good:
Despite the tax issue, the trend is clearly there toward better results, and the cold shoulder being shown to this stock makes me want to buy it. It started to warm up from the cellar in 2010 along with the better cash flow, but has been stopped by a big resistance level at $9 that I think may be giving way soon:

It has built some nice valuation numbers since being stalled here - price / cash flow is 6.4, price / revenue is 0.7, and the PE is absurdly low at 3.6 with maybe some tax distortion. It has a very strong fractal profile right now suggesting a high energy move either up or down. I would wait until it breaks the ascending triangle formation one way or the other. Right now it looks like that would be up, but a decisive break hasn't happened yet.

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