One of the best things about Michael Burry’s write-ups at Value Investors Club was that he finished his company analysis with a catalyst that could drive the stock price higher. One of the company’s he wrote about was Huttig Building Products. Burry believed that there were a few catalysts that could drive the company’s stock price higher, including a buyout by a strategic buyer, or higher sales due to the recent exit of a competitor. Here’s an excerpt from the write-up:
Sheer value is something of a catalyst here, but there are other key aspects to consider. Rugby Group PLC holds nearly a third of Huttig’s share and is a price-insensitive seller on the market. This introduces price risk but not business risk.
The shares are not liquid, and Seth Klarman is said to have bought up to 20% of Huttig’s shares. If so, consider those shares locked up. Klarman is known as an extremely disciplined deep value investor. Once the Rugby Group shares are on the market, look for a buyout of Huttig.
The buyout could come from inside (management) and a private market valuation based on recent activity places the shares at a worth over $12-15/share. Again, the Chairman is a shareholder steward – Crane investment arm still has an investment in Huttig – and would not let the takeout go through much lower than private market value.
I’m looking for action within the next year. In the meantime, a large distributor of wholesale doors left the business. Huttig is expanding to meet the demand. Because of this, sales may rise over the next year or two even if, as seems probable, the homebuilding market turns south.
Finally, spin-offs often reach a price nadir about one-year after the spin-off date; it takes that long for the knee-jerk sales to stop. By early 2001, the nadir should be behind us.
You can read the entire write-up here:
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