Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Metal Management Crushed

Timing is everything in the stock market, and those who read my analysis of Metal Management (Nasdaq: MTLM  ) know that commodity-based businesses are all about timing. Prices can fluctuate rapidly and without warning. And if your business is beholden to a commodity such as steel, so is its stock price. Of course, if you happen to be holding an oil-based business such as ExxonMobil (NYSE: XOM  ) , BP (NYSE: BP  ) , or ChevronTexaco (NYSE: CVX  ) , you have little to worry about. The geopolitical concerns that have raised oil prices probably won't be going away anytime soon.

But steel is not so resilient. When prices cratered from $400 per ton down to $240 per ton over a single quarter (January through March of 2005), it stood to reason that Metal Management's stock might fall by the same 40%, since the company's revenue stream (and its relative strength) is tied to prices in the market.

This is the real trick to handling a stock like Metal Management. You must stay on top of commodity prices, and that's one of the reasons I learned not to invest in such companies anymore. Commodities markets are fluid and relatively unpredictable, privy to short-term price fluctuations and widely subject to global supply and demand -- which itself is influenced by a host of factors, including geopolitical conditions in prominent markets and expectations on trade relations and compacts. I got stung by both Metal Management and Darling International (NYSE: DAR  ) this past quarter. It occurred to me that if I have to stay on top of commodity prices, then, well, it is a lot like market timing, as opposed to investing.

On the positive side, Metal Management is a different animal from what it was a few years ago, when falling steel prices sent the company into bankruptcy. Now, company executives have wisely used the good times to pay off debt. They are even paying a dividend, although given the more difficult environment they are now in, I'd just as soon see them suspend those payments.

Those looking to invest, therefore, should probably do just that: Stay away from something you have to watch every day. For me, commodity-based businesses are now strictly verboten in my portfolio.

Steel yourself for further Foolishness:

Fool contributor Lawrence Meyers sold his shares of MTLM in April and will never go near a steel factory, or steel stock, again. He owns no other stocks mentioned herein.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 492923, ~/Articles/ArticleHandler.aspx, 10/27/2016 1:28:43 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 4 hours ago Sponsored by:
DOW 18,199.33 30.06 0.17%
S&P 500 2,139.43 -3.73 -0.17%
NASD 5,250.27 -33.13 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/26/2016 4:01 PM
BP $35.85 Down -0.19 -0.53%
BP CAPS Rating: ****
CVX $101.19 Up +0.42 +0.42%
Chevron CAPS Rating: ****
XOM $87.09 Up +0.37 +0.43%
ExxonMobil CAPS Rating: ****