As Precision Castparts (PCP) keeps running away from me, I’ve been searching for the “next play” in specialized/engineered metals and materials. In this new age of industrializing the world, specialized materials play a huge role behind the scenes that make this whole process possible. Working with solid materials might almost seem arcane in this digital age, but material technology has been developing at a rapid pace as well, allowing engineers to design materials down to the very molecule structures so a material can do whatever you want. This advance allows us to cut out a lot of mechanical systems in certain applications. For instance, some materials can absorb shock, thus removing the need to build a spring into a system - eliminating the hassle of installing the string, quality control of the string, and wear and tear in the connections. Today’s extreme tech all need these space-age materials. Nuclear plants need metals with unnatural properties to withstand the abuse inside. Cell phones now use antennas of just a piece of metal with all the communications properties built into the metal. In my search, I looked at Brush Engineered Materials (BW), which is okay. However, Precision Castparts is still best of breed as it’s portfolio of businesses is in all the right trends from aerospace to nuclear power with international exposure. Here’s the skinny on why I don’t like Brush Engineered Materials as much.
Simply looking at Brush’s revenue by markets in 2006, they have 42% in telecom and computers, 12% in data storage (I’d also consider that computers), 10% aerospace and defense, 10% automotive electronics, 9% industrial components, 6% appliance, and 11% other. Thus, Brush is more of a tech components play (54% of revenues) which, although tech is the go-to kid for this market right now, I still consider tech more fickle than industrial growth, which Brush only gets 19% revenues from (aerospace and industrials). As for automotive electronics, I’ve written about this before, always go with Honeywell (HON) or Johnson Controls (JCI).
Digging just below the surface you’ll find Brush’s products are not big fanblades or turbines that Precision Castparts makes but small, sometimes disposable, components. Looking at it’s significant tech business, the company often showcases it’s developments in the data storage business. Their data storage business makes hard drive assembly arms (sort of like the needle on old record players used to play the records…yeah remember those? some call it “turntables” now…) With talks of laptops ditching these old hard drives and going to the flash disks like on mp3 players, products like these will be obsolete for Brush really soon.
