First good idea
 

Krishan and I think we have found our first juicy stock idea since we have been working together. Very leveraged company, so not for the faint of heart...but we think its at least a double.

I am not posting any details yet. I am simply giving the forum a heads up so people can understand the background when/if we decide to talk about it more...we believe they will put up a pretty bad first quarter. Difficult call is whether to buy before or after this event...current conclusion is I have about 20% of my position on now, rest will happen post Q1 call in a couple weeks.

I strongly am considering making this equivalent to my largest current position or larger. We may visit the company in the next couple months.

Jump in, Krishan, if you think there is anything else to say now.

Re: First good idea
 

I guess this could be a good thread but you leave something to be desired here. Maybe you could talk about how you found the company, why you like it, why you decided to buy 20% now....anything?

I'm not really sure what anyone else can add to this besides "hope to hear more" kind of things.

Re: First good idea
 

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I guess this could be a good thread but you leave something to be desired here. Maybe you could talk about how you found the company, why you like it, why you decided to buy 20% now....anything?

I'm not really sure what anyone else can add to this besides "hope to hear more" kind of things.

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This was meant as more of a preview. I am not going to talk about the stock yet because I have a lot still to buy and it is not super liquid (although not wildly illiquid like some of the ideas I have seen here which literally don't trade).

My main goal was to get it out there now, explain that we actually think a miss is coming, explain our strategy going into the call...I do this to avoid looking like a Monday morning qback later.

The 20% worked like this...a friend suggested this idea...I bot a modest position as a starter because it sounded interesting...then we got worried because the short term read sorta ugly and upon further investigating with my friend's primary source, realized that even that guy thought the stock was not a buy ahead of the Q. So I was pissed I even bot the starter. We then spent over an hour with CFO on the phone and both came away saying this is the one.

BUT Q1 sounded ugly. They have signalled this to some extent, but it is very difficult to guage the market's reaction to the actual release. On the one hand, it is hard to imagine the stock going up on this bad a release. ON the other hand, it is possible that people who understand the situation well are taking the same approach I am and we could be surprised by the reaction.

In addition, the amount of stock I want to buy is not trivial compared to the average daily volume of this stock. Actually, as I write this and look at the daily volume I am seriously considering buying more before the earnings, even though I don't expect them to be good, because there are many days where my appetite would equate ot 5x the daily volume. This is a very tough call from a trading standpoint.

That said, anticipating Desert Cat's commentary, this should be a good idea whether I handle the trading well or not. It's just one aspect of trying to maximize the profitability of the investment.

Re: First good idea
 

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I do this to avoid looking like a Monday morning qback later.

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I know that. I'm just saying there's not much here now other than you saying you're buying a stock. Okay, cool.

Re: First good idea
 

What percentage of your investments is going to go into this stock?

Is Q1 just historically a bad quarter for this company? If not, why are you confident that this bad quarter isn't going to negatively affect the company, is it a short-term trade off for long term profit kind of thing?

Re: First good idea
 

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What percentage of your investments is going to go into this stock?

Is Q1 just historically a bad quarter for this company? If not, why are you confident that this bad quarter isn't going to negatively affect the company, is it a short-term trade off for long term profit kind of thing?

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I am considering around 10% of the $s I control for this investment....that is large for me, as I run with about 30 stocks (which is too many, but that is a different discussion).

Q1 is seasonally weak, but it is bad even taking out that effect. There are some specific macro reason that the Q is poor...but we believe there are specific, controllable opportunities for the company to create value - both in operations and in the capital structure.

It is a fairly steady business with macro exposure to public works, commercial and industrial capital spending. I am not 100% sure what you are asking, but its not really a tradeoff, just a bad Q for some idiosyncratic reasons that do not seem to be relevant to a two year view of the company's future (or even a 6 month view).

Re: First good idea
 

Any updates?

Re: First good idea
 

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Any updates?

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Yes. The company reported its first Q, it was not quite as bad as I thought it would be. I bought aggressively that day and took the stock up 5%, but still was not close to being full on my position. With what I bought ahead of the Q and on the Q I now have a little over half of the position on and have eased off to see if the stock comes in a little. It has just a little, but its not trading big volume. I think it will take me another 2 weeks or so to get the rest, but its unpredictable.

There are no sellers. It's always hard to be confident in the stock market, but I will be very surprised if this not up at least 50% in 9 months.

When I am done, Krishan and I will figure out how to communicate it here. I don't want to be accused of trying to get others to follow me. It's easier if I don't have people following me...

I am strongly considering visiting the company (In a non exciting midwest town). This would probably happen in early June and also give me a chance to meet Krishan in person and thank him for his good work.

Re: First good idea
 

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Any updates?

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Yes. The company reported its first Q, it was not quite as bad as I thought it would be.

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Heh, I think we blew it. We knew the first quarter was going to be bad from a revenue perspective but didn't take into account how much of the bad news the models had already incorporated. The 10% stock price drop we were hoping for never materialized making it much harder for SM to fill his position. I took a 15% position right away. (small portfolio).

If we had read Q1 correctly I think buying half the position in advance of the release would have been better. The week preceeding the release was much more liquid than recent days. That said, the market has not caught on to the strength of the first quarter. Stock is up modestly. I think though top line was weak as expected, progress on gross margins in a seasonally weak quarter was exceptional. This corroborates our story which we will give in detail eventually.

Krishan

Re: First good idea
 

It's so hard to predict price action. I found a nice company trading at a low valuation, but before I put any money in I did some clever research using housing starts data that told me they were going to tank their quarter. I didn't care, it's really just short term bad news and I like the companies longer term prospects. But I didn't want to pay the then current trading price of $7.50 a share, so I thought I'd be clever and buy after the earnings release and get a nice discount.

They released two weeks ago. Earnings were down substantially, caused by the exact same effect I had predicted. Stock shot up to $9 that day and has worked it's way all the way to $11 per share now. Clever me.

Re: First good idea
 

DFC?

Re: First good idea
 

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DFC?

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Nope, but I didn't buy as much DFC as I would have liked. I might still consider buying more if I wasn't fully invested elsewhere.

Re: First good idea
 

Is it a residential construction stock? We had this conversation a while ago and everyone seemed to think the housing market was too unpredictable and in for more correction.

Re: First good idea
 

SM,

I remember reading Buffetology years ago, and she explains
some of the reasons why it is very important to know about
the company and what they do, yet what I don't remember is
exactly what one would look for when visiting a company.

Could you give me an idea of what you guys will be looking for when visiting this company and why it is important to
actually visit the company to find these things out?

Thanks much.

Re: First good idea
 

Wiseheart:

You certainly can invest without visiting a company (in fact that is the significant majority of my portfolio). Visiting a company gives a number of benefits in practice -- depending on the situation it may yield any of the following (not in any order):

1) Better relationship with management going forward - quicker returns of phone calls and deeper disclosure (can be subtle) on sensitive issues

2) Proverbial "looking management in the eye". I have taken courses by former CIA spooks in detecting deception and half of what you are looking for is physical in nature. I can detect deception (very important in the stock business) significantly more effectively in person.

3) Visiting the main operations of a company can give you some feel for how tightly its run, whether people are there late on a Friday, how new or old the plant and equipment is, etc. Some people hate to invest in company's where the CEO has built himself a shrine of an HQ for instance.

4) You get a deeper exposure to management...whereas on a phone call with management I feel its rude to go significantly past an hour, you can get mutliple meetings that last longer than this (CFO, CEO, IR, head of sales) depending on the situation.

Re: First good idea
 

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2) Proverbial "looking management in the eye". I have taken courses by former CIA spooks in detecting deception and half of what you are looking for is physical in nature. I can detect deception (very important in the stock business) significantly more effectively in person.


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jeebus.

more on this please!!!

note to self: do not play HU poker w/ SM.

Barron

Re: First good idea
 

hey scorpion, wanna do a quick thread on what to look for in terms of body language and stuff?

Re: First good idea
 

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hey scorpion, wanna do a quick thread on what to look for in terms of body language and stuff?

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Re: First good idea
 

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hey scorpion, wanna do a quick thread on what to look for in terms of body language and stuff?

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oy...i am so pathetic to spend time explaining this stuff. I would consider doing a VERY brief discussion. But really its not much of a discussion...it would be me regurgitating what I learned.

This is the organization:

http://www.biadvisors.com/

Re: First good idea
 

alright, I have permission to post the ticker. We are all full. Ticker is dsup.

Krishan

Re: First good idea
 

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alright, I have permission to post the ticker. We are all full. Ticker is dsup.

Krishan

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what is your average cost per share?

Barron

Re: First good idea
 

Looks like it's up about 33% since this thread started, though you're probably averaged in a bit. How long of a hold is this considered.

Re: First good idea
 

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alright, I have permission to post the ticker. We are all full. Ticker is dsup.

Krishan

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what is your average cost per share?

Barron

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12.42

I think SM has a lower average as he didn't buy after our visit like I recommended.

Krishan

Re: First good idea
 

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Looks like it's up about 33% since this thread started, though you're probably averaged in a bit. How long of a hold is this considered.

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SM has no tax shelters so he really tries to get long term on all of his significant position. Currently I feel good through 2008. I will be covering this stock and will stay on top of results.

I personally think the short term (Q2 reporting) 2 months looks very strong. I took a slightly larger position as a short term trade in a tax deferred account.

Krishan

Re: First good idea
 

No option chain. Booooooo.

Re: First good idea
 

12.42?? It hit that price early June. You waited that long?

Re: First good idea
 

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12.42?? It hit that price early June. You waited that long?

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No I bought at 14.

Re: First good idea
 

Skimming through their financials I don't see much that I really like. Care to delve in at all into what makes this your "First good idead"?

Edited to add: You must really like it for some reason as it's up the 33% since the Q1 call...

Re: First good idea
 

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Skimming through their financials I don't see much that I really like. Care to delve in at all into what makes this your "First good idead"?

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Yeah you can't look at this historically and get much of a feel for whats really happening. It's a turnaround where a lot was broken and a material amount has been fixed. The thesis revolves around GM improvement in the product segment improving dramatically. Management has guided to 1-2% per year but has talked about "smashing" that target. Q1 is seasonally weak (and up against a tough comp yoy) and they showed huge margin improvements.

Krishan

Re: First good idea
 

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12.42?? It hit that price early June. You waited that long?

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My cost is around $11.50 I think (maybe slightly more because, contrary to what Krishan said, I did buy more after we saw them). I bought my first shares around $10.50 and was buying pretty much every day for weeks. The stock was very thinly traded, but has since started to pick up.

Its a pretty simple thesis
1) Balance sheet is being refi'd at attractive rates (down from 11.5%) as I write this.
2) This is a classic example of a "rollup" that was not well run and is now being fixed. Its a good, steady product set (stuff that is consumed in the laying of concrete, primarily). They have only 7-8% residential exposure. Rest is 1/3 each commercial (office buildings), govt infrastructure (hwy and bridges), and institutional (steady biz...hospitals, universities, etc).
3) They have NOLs and should crap cash. We think they have a shot at $2/shr in FCF in 2008.

Sorry couldn't post earlier...couldn't do that until we were totally finished buying.

New CFO and CEO seem very focused and talented. I really don't think there is much downside here. The stock is maybe 5.5x our thoughts on EBITDA for 2008. This is too cheap. Every turn (i.e. multiple point) of ebitda is $5 per share.

Apollo, a buyout shop, owns half of this. For perpective, they did this deal in 2000 and their cost is around $13.50 a share...

Re: First good idea
 

what's been going on with DSUP these last few days? it's down like 1.50

Re: First good idea
 

EW YORK - Standard & Poor's Ratings Services withdrew its ratings on Wednesday for two credit facilities postponed by Dayton Superior Corp., which makes concrete construction products and forming and shoring equipment.

The ratings service said Dayton delayed the planned refinancing due to market conditions.

Dayton shares dropped 50 cents, or 4 percent, to $11.90 in afternoon trading. The stock has traded between $9.90 and $14.49 since the Dayton, Ohio-based company's initial public offering in December.

Standard & Poor's had assigned a "B" rating and "4" recovery rating to the proposed $195 million senior secured first-lien credit facility. It had issued a "CCC+" rating and "6" recovery rating for the proposed $85 million second-lien facility.

As a result of the withdrawal, Dayton's 10.75 percent senior second secured notes due 2008, 13 percent senior subordinated notes due 2009 and $130 million revolving credit facility will remain in place.
Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Re: First good idea
 

Investing Moron Here

Was this foreseen or no? If so I would think this would be a great time because you can get in for a price close to what SM and krishan got in at.

Re: First good idea
 

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EW YORK - Standard & Poor's Ratings Services withdrew its ratings on Wednesday for two credit facilities postponed by Dayton Superior Corp., which makes concrete construction products and forming and shoring equipment.

The ratings service said Dayton delayed the planned refinancing due to market conditions.

Dayton shares dropped 50 cents, or 4 percent, to $11.90 in afternoon trading. The stock has traded between $9.90 and $14.49 since the Dayton, Ohio-based company's initial public offering in December.

Standard & Poor's had assigned a "B" rating and "4" recovery rating to the proposed $195 million senior secured first-lien credit facility. It had issued a "CCC+" rating and "6" recovery rating for the proposed $85 million second-lien facility.

As a result of the withdrawal, Dayton's 10.75 percent senior second secured notes due 2008, 13 percent senior subordinated notes due 2009 and $130 million revolving credit facility will remain in place.
Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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Again I'm a noob at this but doesn't this seem like a good time to buy more? This seems like an entirely temporary setback. I guess by not refinancing now the corporation is losing a bit of money, but I can't see it being enough to justify the drop today.

?

Re: First good idea
 

i'm pretty new at this too, but perhaps since the news that they are delaying refinancing, it would be best to wait and see how low the stock goes and try to buy it at the bottom.

i am considering buying some more at a much cheaper price, especially if SM/Krishan chime in and still like it.

Re: First good idea
 

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Investing Moron Here

Was this foreseen or no? If so I would think this would be a great time because you can get in for a price close to what SM and krishan got in at.

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Well part of why we liked it was we thought they could get a better rate on their debt than was expected by analysts. The credit environment has move against us fast in the past few months.

Analysts were expecting 2-300 bp improvement from 11.8. Judging from the article they walked away from a weighted 9% which is 280 bp. That is the upper range of analyst expectations and they didn't take it.

I think that means they believe they can get a favorable rate (I have not talked with SM about this) but until they actually ink a deal, there is a lot of variability about that aspect of the story. I assume it's possible the credit environment continues to worsen and the are forced to refi at a rate worse than 9%.

I think this is main concern at this point. Whether the drop from 14-12 is justified is harder to figure out. That said, there are other aspects of the company we still feel good about.

Krishan

Re: First good idea
 

Hey guys. Been travelling for past 10 days. I make no commitment to updating DSUP, but I will add some things here.

The key question on the pulled financing is, "Did they do it from weakness or from strength?" I believe, strongly, that it was from strength. They were offered 9% which is at least as good as the street was expecting. They likely walked for technical reasons around covenants (this is a financial flexibility issue) and secondarily because they think they can do even better on the rate. The lenders played a game of chicken and DSUP said F*** you. You dont do that when you are in trouble...you take the $ and run.

This does expose them to some interest rate risk (but that is just risk in the volatility sense...could get better, too).

Second issue is the second quarter results. Two analysts cut numbers in the last few weeks. This, for me, was the bigger issue than the debt being pulled (which does not concern me). Without going into all the reason I might think this..I am really not sure about Q2. The company does not provide guidance. Analysts are all over the place as a result. The business is very seasonal. So...I think business is fine. I think the company is meeting its plan. What I don't know is how their Q2 plan compares to street estimates...i.e. my long term thesis is very intact, I am not a seller (i would be a buyer if i had room, but i dont) but I am not certain whether the right trade is pre or post the quarter. I think the tone on the conf call with be positive and I think the results for the rest of the year will be good. I measure DSUP over 12 months+.

Re: First good idea
 

http://www.paulekman.com/

"The Ekman Group - pioneers in research on emotions and deception - provides training programs that help individuals and groups better understand emotions and become more effective at distinguishing truth and lies."

Re: First good idea
 

After hours celebratory bump

Re: First good idea
 

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After hours celebratory bump

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been drinking, cant go over the earnings report, but good news?