Catalysts ???
Every value manager must make a clear and conscious decision about the importance of catalysts in their investment process.
Many value managers think it is very important to have clear catalysts for all the stocks in their portfolio. Ideas without clear catalysts are viewed as “dead money“, and often get tossed from the portfolio when a new catalyst oriented idea is presented.
I view catalysts with much less importance. They are “nice to have”, but by no means are they necessary. Too often stocks with obvious catalysts sell at slightly elevated valuations. In fact in many cases I might argue:
“The best catalysts are often very subtle, faint, and difficult to observe”
Let’s look at an example.
I started the day trying to find a backup catcher for my fantasy team, but quickly moved on TriMas Corp. - TRS - $31.
Here was my one hour analysis:
TRS was a spin-out of Masco and came public in 1989 with sales of $350 million.
The stock has significantly under-performed over 3, 5, and 10 years
The company is an old fashioned conglomerate with diverse businesses in consumer goods packaging, aerospace parts, and industrial gas cylinders.
TRS has a solid balance sheet and has been making small bolt-on acquisitions
TRS has mainly been reinvesting in their businesses and not buying much stock back.
Even with a market cap over $1 billion only two analysts follow the company. On the last call only one assistant analyst asked a few mundane questions. This lack of coverage is too me a subtle catalyst.
My Sycamore guys own 8%, the growth oriented Wasatch folks own 6%, and a new interesting small cap manager called Champlain Partners owns 7%. A quick review of Champlain showed some very interesting growth/value ideas. These are smart folks hiding in the hills of Vermont. To me the holders are a faint catalyst.
TRS presented at the B of A leveraged finance conference in November right after reporting a very bad quarter in October. I love managements that go on the road to tell their story when times are tough.
TRS is hinting they are seeing good “deal flow” in the type of companies they are trying to acquire. Could Wall Street get more interested if this company started generating more investment banking business? You can bet they will.
Most of TRS’s recent problems seem to be short-term oriented caused by customers building too much inventory.
TRS reports in a few days. This is the CFO’s second year on the job. If I were him I might try to “bury’ all the problems in this 2022 4th quarter, and start out 2023 with a fresh slate.
The TRS CEO sits if the Board of Directors of Ametek. AME is one of the world’s best run industrial conglomerates. I am not sure AME has sold for less than 20x earnings since 2008. AME is clearly what TRS aspires to be. To me the TRS management affiliation with AME is a subtle catalyst.
Maybe TRS can make $2.00 in a “bad” year, and show the path to $2.50 in a good year. The stock is $30 today, if it fell to $25 on another bad quarter, the stock could be mildly interesting.
There are no obvious catalysts that support buying a sleepy stock like TRS, but to me there are some subtle things that make me put this stock on my “watch list”.