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Metals USA (MLT)

Sept 2003


The core point of Benjamin Graham theory is not to take book value too seriously,
But rather to use Net Current Asset Value (NCAV) to investigate the asset value of a stock.　
The basic idea is to buy when a stock trades below 2/3 NCAV, sell when stock price = NCAV.

NCAV calculation method is to consider only current total asset in balance sheet,
and treat long term asset and other asset value = 0.

A simple formula:
NCAV = total current asset -  total liability.

The main reason to use NCAV rather than book value is that book value is not reliable indication of liquidation value. When a company goes into trouble, its machine tools or equipment (long term asset) are worthless in liquidation.

current asset = cash, inventory, account receivable.  Current asset is much more valuable in liquidation,  they typical worth the value in their balance sheet.

If we do this calculation, MLT NCAV= $9.10,  or current stock price roughly equals to  70% of its NCAV.

MLT stock price right now is slight above Graham standard. If consider MLT is already is profitable, its business is already stable. When economy turns around, steel price will be very likely to turnaround.  Consider the steel price in China is higher than the price in USA, MLT business prospect is very good.

The first target for Metals USA is $9 - $10, maximum target = $18.

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