By their very nature, scrap metal recyclers are adept at extracting value from every last ounce of opportunity. As export demand for both ferrous (think: steel and iron) and non-ferrous (copper, aluminum, etc.) scrap metals continues to gather steam, these consummate scrimpers are deftly shaking pennies out of the scrap heap.
With the noteworthy exception of Schnitzer Steel
Unfortunately, even Schnitzer Steel's knock-out 177% increase in income from continuing operations for the company's fiscal first quarter of 2011 came in beneath analysts' expectations. Shares tumbled 7% Friday after Schnitzer's income of $0.64 per share missed the consensus by $0.07. However, the company expects price increases for these products to maintain their upward trend, and with the potential for ferrous prices to "increase significantly," scrimping Fools may wish to hunt for value in the scrapyard.
Meanwhile, both Schnitzer Steel and competitor Commercial Metals
The big picture for scrap demand may just be bullish enough to offset weakness in those fabrication segments. As equipment manufacturer Joy Global
During the fiscal first quarter, Schnitzer enjoyed a solid 21% operating margin within its auto parts segment, in part because scrap prices rose more quickly than the prices it paid for junked autos. Strong retail demand for parts also played a role, perhaps corroborating my 2009 forecast for a "shift to thrift" in the United States -- offering a boon to auto recyclers like Schnitzer.
Although I am personally underweight the domestic industrial sector at large, I have taken a shining to Schnitzer Steel on the basis of a business model that extracts value at every step in the supply chain. I look forward to hearing your thoughts on the company in the comments section below.
Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns no shares in the companies mentioned. Nucor is a Motley Fool Stock Advisor pick. The Fool owns shares of Nucor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a scrappy disclosure policy.