In one of those paradoxical twists that make investing a never-ending amusement, most of the "green shoots" that have arisen in recent weeks as evidence of an improving business climate are about as far from the green economy as you can get.
Most of the revival has centered on the dirtiest industries, which are basic materials and energy, and the most wasteful, which is retail. Would you like your New Economy in paper or plastic?
Policymakers are happy to have the economy show any signs of life, be they bright green or sludgy brown. But any prayers that Americans would emerge from the financial crisis chastened and ready to meet the young century with vigorous attention to mending our resource-depleting, pollution-producing ways appear to have been lost in a scramble to create jobs.
Glimmers of hope, meet your guiding light: the blast furnace.
Industrial fire sale
What makes this so surprising is that you would never know that shares of steel, aluminum, chemical and forestry companies are storming higher, because all of the attention lately has focused on banks and a potential pandemic. In retrospect, the financial media may claim that they were referring to mine flues, not swine flu, but for now private investors are on their own if they wish to catch the fever for big industries that have recently entranced value-focused institutions.In many cases, value is way too mild a word for the heavy industrials. A lot of major companies that produce things that give shape and power to the world's infrastructure -- not to mention provide the paperwork for government stimulus legislation -- are going for once-in-a-generation prices. And that's even after they've moved up by 100% or more. They may look like microcap stocks, but it's only because prices have been pounded to ridiculously low prices by fears that a year of weak business is likely to extend infinitely into the future. Reality check: Not gonna happen.
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In some cases, to be sure, that may be true, as many industrial concerns have adapted too slowly to the global recession and may not recover. But now that the most serious phase of the financial crisis is fading and the smoke is clearing, investors are finally willing to listen closely to earnings conference calls and differentiate between potential winners and losers.
A few weeks ago, I wrote about two likely tech survivors whose shares had slipped below a buck -- Quantum (QTM, news, msgs) and Unisys (UIS, news, msgs) -- and both last week emerged from first-quarter earnings releases without being punked back into the pennies.
Now I'd like to take you to the great Northwest for a look at Boise (BZ, news, msgs), a major papermaker based in Idaho. Its one-year trip from $10 a share to $1, with a brief stop in March at 22 cents, is emblematic of a lot of heavy industrials that are now on a quiet recovery path. Here's the story:
Around 10 years ago, 90-year-old forestry products specialist Boise Cascade purchased one of its customers, OfficeMax. That entity then took the OfficeMax name and sold its timber, paper and packaging business, in a deal packed with debt, to Madison Dearborn Partners. Last year, Madison Dearborn sold the paper and packaging unit for $1.65 billion to a publicly traded special-acquisition firm, Aldabra 2, which changed its own name to Boise.
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It only feels like everything you buy today is from China. Here are bicycles, appliances, clothes and other products made by companies committed to US labor and materials.
The new company spent about 10 minutes at $10 in February 2008 and then probably augured straight into the ground as it was hammered on the cost side of its balance sheet by $145-a-barrel oil and $13-per-million-BTU natural gas, and on the revenue side by customers such as newspapers cutting orders in the face of the recession. Earnings collapsed, short-sellers had a field day, and by the time October came around, shares had fallen below a buck, then below 50 cents and finally to a slim quarter.
I guess investors don't care much for a company with less than $100 million in market cap having $1 billion in long-term debt. Makes it look like a forestry hedge fund, leveraged 10-to-1.
Continued: In peril, still profitable
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