The Cannibals Were Not In the Estimates
Let’s take a moment to look at the titanium dioxide stocks.
I have been busy looking through 4024 potential racehorses. You do have to be careful where you step.
One horse I am very interested in has a mother named Rutile. Yes, we are running out of cute horse names. Rutile is the raw material that is used to make Titanium Dioxide, or TiO2. TiO2 is a pigment used in paint, but also consumer products like sunblock.
In the 1990 one of the main miners of rutile was Nord Resources. Nord got on the call and said costs had gone up because they now had to bus the miners from the village to the mine. Miners that tried to walk to the mine were occasionally the victims of the local cannibals.
There was a famous Financial Analysts Journal article in the 1970’s called something like “The Caribou Were Not in the Estimates”. When Arco started building the Alaskan Pipeline they did not anticipate that caribou would try to dislodge the pipeline and some parts had to be built on raised platforms. Always beware of cannibals and caribou, or other unexpected things, when making estimates.
Every good value investor should know the TiO2 stocks. Right now all three are too leveraged to really consider. They have Debt/EBITDA of 4x to 5x, which is extra bad given how volatile TiO2 prices can be. There are 3:
Tronox - TROX - $12 - is my favorite, and is owned by the smart guys at First Eagle. TROX owns big rutile mines, so they are vertically integrated. These are the smart guys in a bad industry. They have an old 5 hour investor day presentation that I want to listen to. Yes, I am the most boring person in the world. The leverage is just too scary. In about 2010 there was a woman hedge fund manager that gave a long detailed presentation on this stock, only to see it cut in half. PPG is a big customer, and that stock has been bouncing along the bottom. If you could call the housing turn, you could get rich in TROX.
Kronos Worldwide - KRO - $11 - is controlled by the ghost of the late great value guy Harold Simmons. Harold stared his value empire with one drug store. He tells the story that he was trying to greenmail the old McDermott Co., but he kept glancing at the stock next to McDermott in the Value Line, which was NL Industries.He eventually took over NL, and spun out KRO.
The Chemours Co. CC- $17 is another way to play TiO2. CC has all sorts of problems in the freon business, so TROX is a better way to play the TiO2 cycle. CC is a spinoff of the great Kerr McGee, a favorite Boone Pickens target.
I love variability, but these stocks are just too wild even for me. If you get bored in the pork bellies market, you might try these stocks. But I will put TROX in my top 40 and keep an eye on it until I finish the investor presentation.
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Noxious Nine is 4-1. I should just retire, but let’s try three games:
Colorado State +8.5 vs Colorado - a big grudge match, again think about the under
Southern Miss +12 vs South Florida - go Golden Eagles, I just like anything gold
Florida +4 vs Texas A&M - back on the Gators after the bad loss at Miami