In May I wrote about K-Tron, a boring niche company that deals with material handling machines and crushing equipment. 3 months later, to my surprise and pleasure, the company has kept chugging along to new highs.
A reader from Seeking Alpha kindly posted a link to a Forbes article regarding K-Tron which I felt was a waste to leave hidden in the comments.
Moving on, I just wanted to point out a few things about K-Tron that I like and what I try to look for in a company.
A Funny Name
The name sounds like the arch nemesis of Optimus Prime from Transformers. This isn’t the type of name that people get excited over such as “China” last year or “solar” this year. Mention “alternative energy” or “solar” at this years Christmas party and you’ll likely draw a big crowd. Mention, K-Tron and people will probably think you are discussing what you bought your kid for Christmas.
The company is a niche player which won’t attract the big names and I’m not a fan of investing in companies swarmed by competitors. I came close to investing in Sandisk with the recent dip but decided against it due to its commodity nature and falling prices of flash memory. K-Tron on the other hand is in the type of business which is boring (feeding and pneumatic conveying equipment) and very boring (crushing stones and coals). You won’t find analysts or big Wall Street headlines detailing the way K-Tron counts the number of pills or how it can chomp on some coal.
Remember, Wall Street is after activity and excitement in order to get everyone else excited to rouse activity and bring in the commissions.
Detached From the Street
Any company that does not offer guidance, host conference calls or boast about its earnings is worthy of deeper inspection. K-Tron fits all three. With no analysts following the company, they have no reason to host conference calls or to give guidance. K-Tron has always just continued on with its business by cutting costs, making smart acquisitions and not having to worry about meeting estimates. Their focus is entirely on the business.
In July, they had the best quarter yet, but even I didn’t know of it until a couple of weeks later.
High Insider Ownership
I can’t think of a better way to determine whether management believes in their company. Any management can talk but it’s a shame too many can’t walk the walk. There are far to many executives that work for a salary rather than a stake in the company. With Ed Cloues owning close to 10% of the company, I immediately know that his interests and my interests are the same.
A fancy way of describing the combination of fries and ketchup; how well things go together. Gillette expanding their business with shaving cream was perfect. Mobil, before it merged with Exxon diworsefied itself by buying Marcor Inc and paying too much for Superior Oil.
K-Tron has been very smart with identifying businesses to acquire and increase the value of the company. Rather than acquiring, regretting and selling, the Forbes article mentions that Cloues is a Buffett type of investor, persistent and unmoving. His initial bid for Penn Crusher was accepted 2 years later.
Business is important but dishonest executives or management can run a good company to the ground. I hate to be a judge of character but for the sake of giving an example, one such executive is Angelo Mozilo of Countrywide who cashed out $138 million of stock options while shareholders were ruined.
This is of a more personal note but another point I like about Ed Cloues after reading the article is that he is a family-priority-oriented man. Of all the men that I admire and look up to in my own life are those that hold family as number 1 and all else second.
The way I see it, you can’t bring your company to ruins and still come out with $138 million and be proud of it if you were an ethical man, but that is a personal issue which I won’t dwell into.
All in all, K-Tron has been kind to my portfolio during this volatile season and I’m ever more excited to see how K-Tron expands its business to create shareholder wealth. Now if only an analyst covered it to make things interesting….
Only long KTII. No positions in other stocks mentioned.
[tags]ktii,k-tron,stock analysis,peter lynch[/tags]
What is Old School Value?
Old School Value is a suite of value investing tools designed to fatten your portfolio by identifying what stocks to buy and sell.
It is a stock grader, value screener, and valuation tools for the busy investor designed to help you pick stocks 4x faster.
Check out the live preview of AMZN, MSFT, BAC, AAPL and FB.