“You Can Do Anything You Put Your Mind To.”

“You Can Do Anything You Put Your Mind To.”

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Note: I’ve worked on this post off and on for more than two months since reading The Brain That Changes Itself in September.

Between the move across country and getting settled down in Tampa there’s been a lot of breaks.   But this concept is so important I knew I had to finish it, even if it took a long time.

I hope you enjoy the final article below and find the concept of neuroplasticity as useful, life changing, and necessary as I have.

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Not often in life do you come across something having the power to change your life for the better.  It’s even less often that you realize it as you’re reading.

For me it takes weeks, months, or sometimes years for lessons to sink in and become something that has the potential to change my life.

But as I read The Brain That Changes Itself in September I knew I was on to something life changing.

The premise of The Brain That Changes Itself is the brain changes every time we do anything.

Anytime we read, listen, watch TV, slug around the house, learn something new, or practice anything.  When we do things neurons in our brains improve the connections with whatever it is we’re doing.

The more you do something the easier it is.  And the more you’ll understand how to improve things.  But the inverse is also true.  The longer we continue bad habits the harder they are to break.

This brings to mind the following quote from Warren Buffett:

If you’ve ever tried to break a bad habit and change it to  a better one you know this process is difficult.  If you want any chance of success you need to put full focus into the new habit you’re trying to form.  Or the old habit will stay in place

For more information on the Power of Habit go to this post.

But before we go further we need to go back…

I came across neuroplasticity some time ago.  I’m not sure when.  But I do remember thinking its potential was great enough to change the world and fortunes of millions of people if they knew about it.

Have you ever heard someone you care about – or maybe even your own inner hater – saying I’m not smart or good enough to do something?  We all have.   And it pains me to hear people say this.

I’ve always thought if people are passionate enough they can change their lives.  Even if they have learning disabilities, they can change if they worked hard enough and spent enough time improving and learning.

Why did I think this?

  • Reason #1:  Because my parents raised me saying “You can do anything you put your mind too.”  How literal this has turned out to be over time.
  • And Reason #2: Because I’m proof it can happen.

My Extreme Dizziness

A couple years after my dizziness started I was at my worst physically.

I could do nothing but lay around watching TV because every time I moved my head even a tiny bit I felt terrible.  Just the act of getting up and going to the fridge for something to eat made me so dizzy and nauseous that I couldn’t do anything the rest of the day.

This lasted for three years or so…

No doctor I went to ever found anything on the dozens of tests run.  And most doctors were dismissive, treating me like I was faking.

At this point I had zero hope of getting better.  I was resigned to feeling terrible all day, every day, for the rest of my life…  And I was only 22 years old.

This didn’t change until my mom found an Occupational Therapist (OT) in Wyoming who gave me Vestibular Rehabilitation Exercises to do.  These helped start retraining my brain to get rid of the dizziness.

Even though the OT flat out told me “You’re never going to be able to do all the things you did before,” this visit gave me hope for the first time in years.  Hope that someday – in spite of her telling me I wouldn’t – that maybe I would get better.

Why?  Because I’m a stubborn and persistent person who doesn’t like to being told they can’t do anything.

This visit and the exercises she gave me were my first introduction to neuroplasticity and the possibility of retraining the brain.

What Is Neuroplasticity?

Below is the definition of this life altering concept from Wikipedia.

Also known as brain plasticity, is an umbrella term that encompasses both synaptic plasticity and non-synaptic plasticity—it refers to changes in neural pathways and synapses due to changes in behavior, environment, neural processes, thinking, and emotions – as well as to changes resulting from bodily injury.

So what does that mean?

Neuroplasticity is concept that the brain changes a little every time we read, write, listen, talk, or feel anything.  The more we repeat things in a dedicated fashion the easier they will become.  And the more we will know and understand what we’re doing.

The Science of Neuroplasticity

The wording in the video is important: “Repeated and Directed Change”.

This doesn’t mean multi tasking…  Reading a book while watching TV.  Or reading and searching the internet on your phone at the same time… Something my generation does a lot.

Repeated and directed change means intense and repeated focus on whatever it is you want to learn or do.  For an extended period of time.

One of the examples in The Brain That Changes Itself talks about how after severe strokes some people lose the ability to talk,  pick things up with one arm, or even move an arm altogether.

To retrain their brains some of these patients went through intense eight to ten hour days of forcible use of these abilities.  Even going so far as practicing picking things up over and over again for eight to ten hours a day three days a week.

Progress was slow but over time patients who went through these brain retraining programs spoke better.  They had better motor skills.  And they could use their affected limbs again better than the others who didn’t do the training.

This happened even after many were told by doctors they would never talk or use their affected limbs again.

But I thought the brain was fixed like a machine and didn’t change?  How is this possible?

The Brain Isn’t A Machine

I’m only 28 and even when I was going through school kids were separated by IQ tests that “proved” how smart someone was going to be their entire life.  Kids with low IQ’s and learning disabilities went to special classes to “help” them.

The curse of low expectations – and the vicious cycle of getting called dumb all the time – led many of these kids to hate school.  Some even dropped out.

The curse of high expectations went the other way too.  Getting called smart all the time led many of the kids with high IQ’s to slack off and rely on their “gifts.  Many didn’t work as hard as the “challenged” kids leading many of the “gifted” kids to not reach their potential.

Kids in the middle of the IQ range weren’t pushed to learn as much as possible.  And were often an afterthought.

Hell, I even get told a version of this on a regular basis by people who email me…

An email I get on a semi regular basis goes something like this.  “Even though I want to learn I’m not smart or young enough to learn about finance and investing.”

Well I’m here to prove to you today this isn’t true.

No matter what your IQ is.  No matter if you’ve been told you’re dumb or slow.  No matter how old you are.   You can learn anything you want…  If you’re willing to put enough time into it.

Even if you have only half a brain…

The Girl With Half A Brain

The Brain That Changes Itself wrote about a woman who was born with only half her brain.   I couldn’t find the original video of her.  I did find this article detailing here story here… But the video above shows similar results from the work of neuroplasticity.

Newer studies have confirmed that kids’ brains are more plastic – changing more and faster – than adults.  Yet if adults work hard, concentrate, and practice a lot using deliberate practice methods, adult brains can change a lot too.

Just take a look at the two videos below for more proof.

“They Don’t Dare To Dream”

The Woman With Multiple Learning Disabilities Changes Her Brain

For more information on Barbara Arrowsmith-Young go to her website here.

I got chills watching this video.

While at my worst I wasn’t as bad off as the woman in this video.  I still couldn’t do much for the last ten years without feeling terribly dizzy.  And when I was at my worst I did fall.

Why Do We Fall?

I wish I could have seen this before my dizziness came… Because when I fell I didn’t even try to get back up for several years.

This story is outside the scope of this article.  But my dizziness did get bad enough where I fell.

I was dumb enough to continue to work 20+ hours a week while going to school half the day during my senior year.  And still run track as well.  Like I told you, I’m stubborn and persistent.

Some people may even call what I was doing dumb – I was a moron then – because I harmed myself even more by pushing so hard.

I finally gave up and didn’t do anything for almost three years in my late teens and early 20s. That is until my mom found out about the occupational therapist mentioned before.

Over the last decade I saw dozens of doctors. They ran hundreds of tests.   And did many other things that helped further retrain my brain and balance centers that put me on the path towards full recovery.

I finally completed this after 10 long years in May 2014 when I found a new neurologist who gave me medication that allows me to do almost everything I want, outside of running, working out hard, and working myself to exhaustion.

So yes, while the occupational therapist was technically right in saying I wouldn’t ever be “normal” again, I can do almost everything I want.  And most important to me is I can now function as a working adult for my wife and daughters  And play with them as they grow.

This is neuroplasticity in action…  Although I didn’t even know what this was until about a year ago.

Without the brains potential to change and retrain itself I wouldn’t be doing anything I’m doing today.  And I may well have completed the dark thoughts I  talked about in 17 Things That Changed My Life – Some Saved It.

If I can become what I have so far with all the disadvantages I have, imagine what you can do with your college degrees.  Not to mention the time advantages you’ll have of not losing 10 years of your life.

You too can change your brain – and life – with the knowledge of neuroplasticity.  For further reading please read the information below.  And definitely read The Brain That Changed Itself linked throughout this article.

It turns out that my parents were right all along: “You really can become and do whatever you put your mind to.”  Even with only half a brain. So what’s your excuse to not work towards your goals now?

More In Depth Information

If you’d like more information on the power to change your brain go to the following places.

And last up are some Tweets I sent about The Brain That Changes Itself…

Jason Rivera ‏@Jmriv1986 Sep 7

From the book The Brain That Changes Itself #Neuroplasticity#ThePowerofHabit

Embedded image permalink

Jason Rivera ‏@Jmriv1986 Sep 6

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“The brain isn’t an inanimate vessel that we fill rather it’s more like a living creature with an appetite. One that can grow and (1/2)

Jason Rivera ‏@Jmriv1986 Sep 6

change itself with proper nourishment and exercise.” Michael Mezenich from The Brain That Changes Itself #Neuroplasticity (2/2)

Do you have any experience with the power of neuroplasticity?  If so please let me know in the comments below.

Until next time…  Keep Improving.

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The Next Warren Buffett’s, Being Great At Anything, Beating The Show Offs, Bruce Bekowitz, and A Value Investors Journey

 The Next Warren Buffett’s

Are These The New Warren Buffett’s? Is an article from Fortune in October of 1989 where they profile 12 investors who they expect to do well in the future.  It is amazing how right they were as the list is comprised of current value investing heavyweights.

Being Great At Anything

Six Keys To Being Great At Anything is an article from Harvard Business Review on deliberate practice.  The article also lists some books at the end of the article about the subject.

Harvard Business Review wordmark
Harvard Business Review wordmark (Photo credit: Wikipedia)

Beating The Show Offs

Beating The Show-offs is an article from the Reformed Broker where he gives reasons why showing off when investing and/or managing other people’s money is bad, and how to beat the show-offs.

Bruce Berkowitz says Fairholme can produce 20% CAGR returns going forward

Bruce Berkowitz: Fairholme Can Produce 20% CAGR Returns is from ValueWalk which has an interview with Bruce Berkowitz and has his thoughts on many things investing related, including some of his funds holdings.

The McValue Portfolio Newsletters

The McValue Portfolio Newsletters are precursor quarterly newsletters from a fellow value investor before he decided to open his own investment fund GreensKeeper Asset Management.

The second link has his newsletters since opening his own fund.  Opening a hedge fund/partnership is exactly what I plan to do when my health gets better.  So I liked to see the progression of his newsletters and thought processes.

 

New Blog, National Western Life Analysis, Stretching Yourself To Learn New Things, Notes From Meeting Value Investor Mohnish Pabrai, And CSInvesting News

After yesterdays detour and the help from your comments in the comments section, I will now get back to posting links.  A big thanks to all readers who helped out yesterday clarifying the situation, I really appreciate it.

The Red Corner Blog.  For those of you who might not know, Red has been very helpful to me in the past on Whopper Investments blog, and more recently on this site as well.  I recently found that he has his own blog where he analyzes and values companies.  His work is exceptional and I highly recommend that everyone visit his site, especially if you need help with the more technical aspect of evaluating companies, which is an area where I currently struggle.  He also answers a lot of questions from readers as well so make sure to read the comments on his writings as well.

Student of Value has come up with another great analysis piece, this time on National Western Life, as always highly recommended.

Stretching Yourself To Learn New Things is another great write up from Farnam Street.

Notes From Value Investor Mohnish Pabrai is from Perfect Research that contains Mr. Pabrai’s thoughts on a wide range of topics in investing.

I wanted to let everyone know who might be clicking on the CSinvesting links I have, that I got an email from John the other day after noticing that his site is down currently.  He said that he is currently in the process of moving his blog to a self hosted site, while also recovering from surgery.  Get well John, no need to rush back after major surgery.

I am still struggling to find another company to research and hope to find one soon.  I suspect that I am not alone in finding it hard to find companies to research since the market has been going up quite a bit?

Charlie Munger On Wordly Wisdom As It Relates To Business And Management

Over the next several days I will be posting links that I have been learning from over the last several weeks while I was researching and writing my Jack in the Box article that I think contain some insight.

I am also in the process of finishing up Moonwalking With Einstein and searching for another company to research and will update you when I find another company to look into.

This first article from Y Combinator is written by Charlie Munger and contains his thoughts on a wide assortment of things that he relates to his dealings in the business world: Psychology, valuation, how he and Buffett think about some of their investments, sports, math, specialization, and many other things.

I am going to post this article by itself because it is absolutely amazing and contains a myriad of insights and valuable knowledge in my opinion and it is pretty long.  I hope you enjoy.

Core Molding Technologies Valuation and Analysis

Core Molding Technologies Valuation and Analysis

This is the entire article I have been working on which has been posted this morning to Valuefolio.com for his 50 Stocks in 100 Days Valuation series. I hope you enjoy all the new things I have added to my analysis and the amount of research I have done for this company.  Due to what I found out about Core Molding Technologies while researching, valuing, and analyzing them, CMT has become only the third companies stock I have bought in the past year along with Vivendi and Dole.  Let me know what you think about the article.

This is a guest post by Jason Rivera, founder of Value Investing Journey, a value investing blog. The tone of honesty and humility at his blog is refreshing. His quest for great stocks and as a value investor results in unique, authentic, high-quality content. In this article he values Core Molding Technologies as part of our 50 Stocks in 100 Days series. Follow Jason on twitter @JMRiv1986

For those of you who have not viewed my site and other analysis articles, I hope you enjoy my analysis and valuations, if not let me know where I am going wrong and what I could do better.  For those of you who have visited my site and have seen my valuations, I hope you like some of the tweaks I have made in my analysis.  I am now doing even more thorough research than I have been doing and I have incorporated some new things into my write ups as well, I hope you enjoy.

Core Molding Technologies (CMT) is going to be the subject of this article.  Core Molding Technologies is a manufacturer of fiberglass reinforced plastic products.  They supply products to companies in the medium and heavy trucking, automotive, marine, and other commercial industries.  The plastics are used in automobile hoods, air deflectors, air fairings, splash panels, engine covers, fenders, and bulkheads. They have five production facilities in: Columbus, Ohio; Batavia, Ohio; Gaffney, South Carolina; Warsaw, Kentucky; and Matamoros, Mexico.

Core Molding Technologies has about 90% of its current business coming from the medium and heavy trucking industry.  Sales to Paccar and Navistar make up about 75% of current sales as of the most recent quarter.  CMT has been slowly trying to increase sales to other companies, which I think is a good thing in the long term because if its relationship deteriorates with either of the above two companies CMT could be devastated.  CMT states that its current relationship with both Paccar and Navistar are good and that they work closely with both companies to solve any issue, work on research and development, and pricing.

As of this year’s proxy form, Navistar currently has a seat on CMT’s board of directors as it is owns 9.2% of CMT’s stock, so I do not see Navistar ending its relationship with CMT any time soon.  CMT insiders own around 16% of the company’s stock.  Mario Gabelli personally, and through his funds owns 14.1% of CMT’s stock.  Rutabaga Capital owns 9.5% of its stock.  Rutabaga is a private investment firm whose concentration is in “Undervalued, unloved companies.”

I always like to see high insider ownership, and I am happy that CMT is owned by a couple value oriented investment firms.  I was especially happy to see that Mario Gabelli is a big owner of CMT’s stock, especially since he has bought shares in the company with his own money.  I also really like the ownership by Navistar as that could lead to a potential buy out, or at the very least a continued partnership between the two companies.  I am going to be watching very closely to see if and when any of the above start selling CMT’s stock as that could be a sign that there are big problems ahead for the company.

Here are some quotes from two of CMT’s biggest buyers about the potential huge catalyst in CMT’s main area of operations, the trucking industry:

  • From Paccar, “Over six million heavy duty trucks operate in North America and Europe, and the average age of North American vehicles is estimated to be seven years. The large vehicle parc and aging industry fleet create excellent demand for parts and service and moderate the cyclicality of truck sales.”
  • From Navistar “For our Truck segment, we expect benefits from further improvements in our “traditional” volumes as the industry continues to increase from the historic lows experienced in 2009 and 2010. According to ACT Research, the average age of the truck fleet was 6.7 years at the beginning of 2011, which is the highest average age since 1979. We anticipate higher sales in 2012 for truck replacement as our customers refresh aging fleets. We also expect demand for trucks to increase as freight volumes and rates continue to improve as the economy recovers. In addition to increased demand, we expect to further benefit from improved revenues and margins associated with the exclusive use of our proprietary engines. We expect to realize benefits from plant optimization actions taken during the trough of the truck cycle. Finally, we anticipate positive contributions from business acquisitions and investments made during this period.”

The above is exceptional news and should serve as a catalyst for CMT.

These valuations were done by me, using my estimates, and are not a recommendation to buy any stock, in any of the companies mentioned.  Do your own homework.

All numbers are in millions of US dollars, except per share information, unless otherwise noted.  Valuations were done using 2011 10K and second quarter 2012 10Q.

Asset Reproduction Valuation

Assets: Book Value: Reproduction Value:
Current Assets
Cash & Cash Equivalents 0 0
Accounts Receivable (Net) 26.3 20
Inventories 12.6 6
Deferred Tax Asset 1.8 0
Other Current Assets 2.8 0
Total Current Assets 43.5 26
PP&E Net 51.9 25
Deferred Tax Asset 1.1 0
Goodwill 1.1 0
Total Assets 97.6 51

 

I am using the companies fully diluted share count of 7.4.

  • 51/7.4=$6.89 per share.

EBIT and Net Cash Valuation

Cash and cash equivalents are 0

Short term investments are 0

Total current liabilities are 27

Cash and cash equivalents + short-term investments – total current liabilities=0+0-27=-27

  • -27/7.4=-$3.65 in net cash per share.

CMT has a trailing twelve month unadjusted EBIT of 16.5.

5X, 8X, 11X, and 14X EBIT + cash and cash equivalents + short-term investments:

  • 5X16.5=82.5
  • 8X16.5=132
  • 11X16.5=181.5
  • 14X16.5=231
  • 5X=82.5/7.4=$11.15 per share.
  • 8X=132/7.4=$17.84 per share.
  • 11X=181.5/7.4=$24.53 per share.
  • 14X=231/7.4=$31.22 per share.

Since CMT has had a record trailing twelve months in terms of EBIT, I have decided to normalize EBIT and taken the 10 year average of 8.2 to determine the more normalized intrinsic value of CMT in case it is not able to keep up the pace of the past year.

  • 5X8.2=41
  • 8X8.2=65.6
  • 11X8.2=90.2
  • 14X8.2=114.8
  • 5X=41/7.4=$5.54 per share.
  • 8X=65.6/7.4=$8.86 per share.
  • 11X=90.2/7.4=$12.19 per share.
  • 14X=114.8/7.4=$15.51 per share.

Revenue and EBIT valuation

I am again using trailing twelve month numbers.

Numbers:
Revenue: 168
Multiplied By:
Average 10 year EBIT %: 6.69%
Equals:
Estimated EBIT of: 11.24
Multiplied By:
Assumed Fair Value Multiple of EBIT:                 8X
Equals:
Estimated Fair Enterprise Value of CMT: 89.92
Plus:
Cash, Cash Equivalents, and Short Term Investments: 0
Minus:
Total Debt: 13
Equals:
Estimated Fair Value of Common Equity: 76.92
Divided By:
Number of Shares: 7.4
Equals: $10.39 per share.

 

My low estimate of value using a 5X EBIT multiple was $5.84 per share.  My high estimate of value using an 11X EBIT multiple was $14.95 per share.

Price to Book and Tangible Book Valuation

Numbers:
Book Value: 53.13
Minus:
Intangibles: 2.2
Equals:
Tangible Book Value: 50.93
Multiplied By:
Industry P/B: 2.2
Equals:
Industry Multiple Implied Fair Value: 112.05
Multiplied By:
Assumed Multiple as a Percentage of Industry Multiple: 95%
Equals:
Estimated Fair Value of Common Equity: 106.45
Divided By:
Number of Shares: 7.4
Equals: $14.39 per share

 

My low estimate of value using 75% of industry multiple was $11.36 per share.  My high estimate using 125% of industry multiple was $18.93 per share.

Ratios

Ratios
Current Assets to Current Liabilities: 1.59
Total Debt to Equity: 23.60%
Total Debt to Total Assets: 12.30%
ROIC 10 yr avg From Morningstar: 10.62%
Unadjusted ROIC TTM : 24.60%
Normalized ROIC: 12.23%
Cash Conversion Cycle TTM: 54.47
Unadjusted EV/EBIT: 3.93
Normalized EV/EBIT: 8
ROE 10 yr avg: 15.73%
ROETTM: 21.10%
ROA 10 yr avg: 6.56%
ROA TTM: 11.49%
COGS as a % of revenue 10 yr avg: 83.36%
COGS as a % of revenue 2011: 79.16%

My Interpretation of the Ratios:

  • I do not see any current problems with CMT’s debt levels.
  • CMT’s ROIC is incredible, even if they fall back to the more normalized levels of above 10%.  If CMT can keep up the level of the previous year this company is very undervalued.
  • The cash conversion cycle is a measure of how fast a company can turn its inventories into cash.  In CMT’s case it takes them about 54.5 days to make the conversion.  The number is lower than the high of about 73 in 2009, but not back to pre recession levels which were around 42 on average.  I do not see a major problem here but would like to see the number creep down over time.
  • If CMT can keep its current revenue and profit levels going then they appear to be massively undervalued on an EV/EBIT basis.  If they revert back to the 10 year average EBIT then they appear to be about fairly valued on that basis.
  • ROE and ROA appear to be boosted recently in comparison to the 10 year average in part due to Cost of Goods Sold decreasing as a percentage of revenue.  Hopefully they can keep up that pace as well.

Competitors

The competitors that CMT lists in its annual and quarterly reports are as follows: Sigma Industries, Decoma Composites (an owned subsidiary of Magna International), Molded Fiber Glass Companies, and Continental Structural Plastics.  Here are my thoughts on each competitor after doing research on them.

  • Sigma Industries has operations in various industries including the heavy trucking industry, where CMT gets most of its sales from currently.  Sigma’s operations are mainly in Canada currently so it appears not be too much competition for CMT at this time.
  • Magna International (MGA) is one of the largest and most diversified auto parts suppliers in the world.  I was a bit worried about the competition from Magna towards CMT, but the company currently does not make sales in the medium and heavy trucking segment.  Magna’s main operations are in cars and light trucks at this time.  Magna does state in its 10K that they are always looking for opportunities in various arenas including the heavy trucking industry, Magna’s entry into the heavy trucking industry would be something to watch out for. I think that Magna buying out CMT would be a better option because currently CMT has a market cap of around $50 million and Magna’s is $10.4 billion, meaning it would be a very minimal monetary investment and would also save them time from having to learn the processes by themselves.
  • Molded Fiber Glass Companies is a privately held company whose operations appear to be mostly in the automotive and wind energy arena.  The little Molded Fiber Glass does in the trucking industry does not appear to be in direct competition with CMT as its operations are in entirely different states and regions.
  • Continental Structural Plastics is a privately held company who has operations in automotive, heavy truck, agricultural, HVAC, construction, and material sales.  The following is the best information I could find on Continental “Continental Structural Plastics, Inc. manufactures structural plastic components, bumper beam reinforcements, rocker covers, oil pans, stamped steel seat frames, and underbody shields. It also offers composite seat bases, engine oil sumps, and composite sunshade substrates; and moulders of glass-mat thermoplastic composites, as well as long-glass-fibre-reinforced thermoplastic and direct-LFT composites. The company was founded in 1982 and is based in Troy, Michigan with manufacturing plants in Petoskey, Michigan; and Sarepta, Louisiana.”  Again, CSP does not appear to be a direct competitor in to CMT as they appear to make different products.

After looking into CMT’s competitors it appears that it does not have a direct competitor at this time and that it has found a very profitable niche which also might come with some minor competitive advantages.

Pros

  • Undervalued by almost every one of my estimates of intrinsic value.
  • I have not found any major direct competitors in CMT’s main area of operations.
  • The company has found a niche in its industry that has made them very profitable.
  • The company’s margins have been consistently good to great over the last 10 years: ROIC 10% average over that time period for example.
  • Even if CMT is not able to keep up the pace of the previous year in terms of revenue and margins and reverts back to its 10 year averages, the company has been profitable over that time, even during the recent recession.
  • Navistar, who is CMT’s biggest customer, owns about 9% of the company.  CMT insiders, outside value investment firms including Mario Gabelli personally, and through his funds, own over 30% of the company.
  • By my estimation, the company looks like a potential buy out candidate.
  • The company has been becoming more efficient in its operations in recent years.

Cons

  • The vast majority of CMT’s sales are to only two companies, and they would be devastated if its relationship with either of the two companies deteriorates.
  • CMT is a very small company whose market cap is currently only around $50 million.
  • CMT could be hurt if a bigger, better financed, company enters its industry.
  • On a revenue and margins level, CMT has had a record past year which might not continue into the future.
  • If the past holds true, CMT’s results will be hurt quite a bit by any kind of recession or down turn in the economy.
  • CMT has very low average trading volume of around 15,000, so it could experience wild swings in price.

Potential Catalysts

  • The trucking industry currently has the highest average age of trucks since 1979 which should lead to sustained sales and margin growth.  The high age of the current trucking fleet should at least partially protect CMT’s revenues and margins if there is some new recession, as you can only hold off buying a new truck for so many years and many companies held off buying trucks during the recent recession.
  • In my opinion CMT would be a great buyout candidate for someone like Magna who would be interested in entering the medium and heavy trucking industry as that would be less of a money and time investment for any potential buyer.
  • Navistar who already owns more than 9% of the company also could be a potential buyer.

Conclusion

With all of the above stated I will be using my trailing twelve month unadjusted 5X EBIT estimate of intrinsic value of $11.15 per share.  The reason I am using this estimate of value is that by my estimation CMT should be able to at least partially sustain the previous year’s record revenue and margin numbers.  The 5X EBIT estimate is also conservative enough that it leaves a margin of safety if CMT were to revert back to previous year’s revenue and margins.

I actually think that CMT should be valued at one of my higher estimates of value due to the steadiness of its margins over the past decade and some of the other factors listed above, but I chose this estimate of intrinsic value due to the company’s small size and some of the other risks listed above, just to be safe.

The current share price is $7.35 which gets me a margin of safety of about 35%, reaching my minimum threshold of 30%.

Due to the previous, and for the reasons I listed throughout my article, I have decided to buy into CMT, making it only the third company I have bought this year along with Vivendi and Dole.

If you liked this analysis please visit my value investing blog Value Investing Journey and follow me on Twitter @JMRiv1986.  As always your comments, critique, and criticism are welcome.  Let me know what you think I could do better, where I might have gone wrong, and what you liked about the analysis.

Last minute update as I am getting ready to publish.

Navistar’s CEO of 30+ years has stepped down effective immediately.  This situation is something I am going to watch very closely, but with the information that is currently available I still have decided to buy into CMT at this time.  Hopefully this situation will not affect Navistar’s relationship with CMT.