Timing is everything in the stock market, and those who read my analysis of Metal Management
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
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.