By:
Michael Robinson, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
• Insteel Industries, Inc. (NYSE:IIIN) manufactures steel wire
reinforcing products for construction applications. Their two segments are
welded wire reinforcement and prestressed concrete strand. The company sells a majority of its products
to the nonresidential construction industry.
• IIIN grew 1st
quarter sales 1.6% over the same quarter last year.
• IIIN was announced that
it would be included in the Russell 3000 on November 10, 2016,
causing a 10% jump in the stock price.
• Since the purchase of
IIIN, the stock has participated in the Trump Rally and increased ~33%.
Key
points: On January 19, Insteel reported their first quarter
earnings. Net sales for the quarter fell 9% from the previous quarter. This is because
construction slows down during the winter months making the first quarter
usually the lowest earning quarter for IIIN. The sales were up 1.6% over the
same quarter last year.
One problem for the
quarter was the increase in sales of 1.6% but the net income drop of 33%. This
was due to an increased cost of goods sold due to a narrower spread between
steel raw material costs and Insteel’s selling prices. At the time, Insteel’s
inventory contained higher than average cost units. As that inventory is sold
off, the company will begin to sell their more recent lower cost purchases.
This drop off of net income does not appear to be a concern for the company
going forward.
Lastly, the company has
very strong cash flows. Insteel ended the quarter with $57 M in cash with no
debt. This puts Insteel in a very flexible position to capitalize on any
opportunities that may come up. Due to the increase in infrastructure spending
expected to come, this is a powerful tool to have at their disposal.
What
has the stock done lately?
Since our purchase of
Insteel on November 8, 2016, Insteel’s stock is up ~33%. This is partially due
to the fact that we bought it at a dip in the market price. One thing to note
is that the stock jumped up in price rapidly as it was announced that it would
be included in the Russell 3000. The stock has also taken advantage of the
Trump Rally and looks to be continuing its uphill trend as it takes advantage
of the infrastructure boom.
Past
Year Performance: Insteel has increased 55.08% in value over
the past year, but the stock is still trending upwards. The stock is the
nation’s largest manufacturer in prestressed strand and welded wire
reinforcement. Through their addition of Ivy Steel and Wire Co. and American
Spring & Wire Co., Insteel has placed themselves in the supreme market
position to benefit greatly from increased spending in the United States
infrastructure system.
Source:
FactSet
My
Takeaway
Infrastructure.
Infrastructure. Infrastructure. This word is driving the stock price to record
levels. Insteel has positioned itself as the market leader and number one
choice for infrastructure deals. The non-residential construction application
company has taken advantage of the 5 year FAST Act passed by Obama. I believe
that in a year or two, Trump will pass his own infrastructure deal to boost
jobs in the US and fix the crumbling roadways and bridges. The AIM Equity Fund
should absolutely continue to hold this stock and wait for the next boom in the
stock price.
