Mueller Industries Riding High On Hot Housing And Copper Prices

 

Mueller Industries (MLI) may be a case-in-point as to how difficult it can be for investors to make money from long-term investments in commodity or commodity-like businesses. Management here has done a lot of good things, including a relentless drive to lower production costs, and that has led to better margins and pretty attractive returns on assets and invested capital… and yet, the long-term annualized return from the shares is around 7% to 8%, well below that of the S&P 500.

There are a lot of things that make Mueller a difficult call today. I think the U.S. housing market can stay fairly strong for a while, but I’m not so sure about copper prices, and this is historically a stock where you want to buy after a 25%-plus sell-off, not as the shares reach new all-time highs. I can argue for upside toward $50 and investors with more bullish outlooks on copper prices may want to consider the name, but for GARP or value investors, this is a name to consider at the next multiyear low.

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Mueller Industries Riding High On Hot Housing And Copper Prices

Mueller Industries Building From A Surprisingly Solid Base

You might not think that a supplier of copper plumbing tubes, fittings, and similar products would have a particularly impressive track record, but Mueller Industries (NYSE:MLI) is a different sort of beast. Although the company is highly leveraged to the residential and non-residential construction markets, the shares basically tracked the S&P 500 lower during the housing collapse/recession and then notably outperformed from about mid-2010 on. What's more, not only was the company able to generate positive free cash flow throughout the last decade, the company's ROICs have been consistently pretty good.

Mueller still has some merit as a play on the ongoing expansion of non-residential construction and the still-modest recovery in residential construction, but that's not the interesting part to me. I like how this company has chosen to leverage its low-cost position in copper products and its good cash flow into new markets (largely through M&A) like valves and assemblies for HVAC, refrigeration, and industrial markets - business that offer higher gross margins and meaningfully better operating margins.

Mueller doesn't look all that cheap right now, but that is true for a wide range of stocks. Although I don't see a need to rush into this one, I like the company's efforts to leverage its established businesses into new, higher-margin opportunities and this would be a name I'd monitor for a chance to reconsider on pullbacks.

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Mueller Industries Building From A Surprisingly Solid Base

Seeking Alpha: Global Brass And Copper Needs Some Polish

The theme of a recovery in U.S. housing demand and construction (as well as non-residential construction) is hardly "new news", but it is still quite relevant to the prospects of Global Brass and Copper (BRSS), the largest converter of copper and brass products in the U.S.. Global Brass has not been public all that long, but the stock has not been able to hold on to initial optimism, as volume growth, capacity utilization and EBITDA generation have all been trending below the bullish predictions of sell-side coverage initiation pieces.

The demand outlook for Global Brass is a little muddled in my view. Large markets like autos and industrial machinery have already largely recovered and while housing/construction may start providing a tailwind, there's a headwind to consider from lower munitions sales. I'm also not terribly impressed with Global Brass's EBITDA margin relative to other fabricator/converter comps. Even so, and even with a discounted multiple, these shares do look undervalued today and could offer some meaningful upside if or when volume and leverage start to materialize.

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Global Brass And Copper Needs Some Polish