Thursday, June 4, 2009

Friedman Industries, Inc. (FRD)

Friedman Industries, Inc. (FRD) is a microcap value stock engaged in steel and pipe processing and distribution. The company divides its products into two main groups: coil and tubular products. Friedman Industries, Inc (FRD) sells coil products primarily to steel distributors and customers fabricating steel products, such as storage tanks, steel buildings, farm machinery and equipment, construction equipment or transportation equipment, located primarily in the midwestern, southwestern and southeastern sections of the United States. The company's principal customers for tubular products are steel and pipe distributors, piling contractors and U.S. Steel Tubular Products, Inc. (USS).

The company comes with a great set of fundamentals, trading at a P/E of 2.5 and a price/book of 0.7 with a current ratio of 3.9 and very little debt. The company has been steadily growing earnings and sales over the past few years, and has paid a dividend for the past 10 years (currently 3.5% yield).

Despite the current economic slow down, I am confident that a company of the strength of Friedman Industries will be among the survivors, particularly as the manufacturing and construction industries begin to pick up in the coming quarters.
Friedman Industries boasts a return on equity of close to 30% and a 5-year historical EPS growth rate of 31.7%. These are the kind of numbers that small cap value investors love to see. The stock price has already made a significant move upwards from its 52 week low of $3.82 in March, and has in fact just broken through its 200 day moving average, but I believe that plenty of upside still remains to be seen. I would be looking for a 12-month price target of around $12-13 as the economic outlook begins to improve.

Disclosure: At the time of writing the author held shares in Friedman Industries, Inc. (FRD).

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