Despite owning very few names, I continue to keep up with many companies monitoring their results, cash levels, commentary on order flow and if the "death of the entire globe" story is a
bit overdone. It's a moot point talking about commodities or financials as they spin in their own universes but a company like
Flowserve (FLS) which has been thrown into the "global growth" garbage pail is one name I am interested in for multiple reasons. (note: unrelenting bitter sarcasm ahead)
We owned this name for a short time and lost a little money despite the company raising guidance last time around (
Jul 31: Flowserve Mighty Impressive Earnings) - right now the market thinks every company with even 1 customer outside the US is apparently lying. To show how ridiculous this market is, at the end of July
Flowserve increased their guidance to $7.20 - $7.50 a share
UP from its previous forcecast of $5.90 to $6.20. Analysts were at $6.31. The reward for this? An absolute demolishment - we
sold at $105 on September 11th. Yesterday it was trading down to $41s. That's what you get for having anything to do with global growth EVEN if you raise guidance. That's a
60%+ loss in 6 weeks for anyone who uses the old arcane arts we call "sense" and "fundamentals". We avoided that 60% drop, but the point is - this market is senseless. Just yesterday alone between early afternoon and late afternoon the stock rallies 17%? Again - senseless casino action. Buy stock, pull lever, ching ching! Buy stock, roll dice - black or red!
But it's still >50% lower than where we sold it even after yesterday's boffo rally, and now they are confirming their guidance that they raised massively 3 months ago and saying they will hit the upper end, despite the US dollar rallying against them. I know, I know - "but next year !! next year the story ends!!" Well they talk about that - not that it will matter because every company is an accused liar nowadays...
I'd really like to start buying up companies like this if I had any belief the market would not turn tail within hours/days and demolish any sucker who sticks a hand out at over 3x earnings. But again with our new casino... err market... mentality that every company will be destroyed next year and instead of growing see their business cut in half, we will assume half of
Flowserve's customers cancel/implode/go back to pumping water by hand and return to life of the 1880s. In this scenario
Flowserve will see its earning drop from say $7.40 in 2008 to $3.70 in 2009 (analysts currently say $8.54 for 2009 but remember the bears insist we price in Apocalypse to try to protect to the downside) So at the Apocalypse earnings of $3.70 x the Apocalypse PE ratio of 3 we see this stock should be $10 - so the bear tells me. If you believe the world will insist on running water even in Great Depression 2.0 than I suppose there is upside from there. But don't tell the bears. Or hedge funds who will be out of business by Dec 31st and have been selling this stock every day.
p.s.
