Writing about Carpenter Technology (CRS) in early February, I said that this manufacturer of specialty alloys offered both recovery trade potential and a lot of risk and volatility as the aerospace cycle and short-cycle recoveries played out. Both were on display, with the shares heading well into the $40s at one point before entering this recent downtrend.
I’m more bullish now given that Carpenter has likely seen the bottom of the cycle, but investors shouldn’t lose sight of the fact that this is a cyclically volatile commodity company that has never generated attractive cash flow on a sustained basis. I like the opportunity here to play the coming aerospace ramp, ongoing short-cycle industrial recoveries, and future opportunities like electric motors; just don’t make the mistake of falling in love with this one when business really gets going – it won’t be different that time.
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