Another Roundtrip for Lone Star Technologies (LSS)

By Dr. Duru written for One-Twenty

August 9, 2006


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Sometimes the market is trying to tell you something if you only listen. Back on February 28, 2006, I marveled that my stock pick in the (oil) steel industry, Lone Star Technologies (LSS), was far under-performing its competitor, Maverick Tube (MVK). There I was...staring at two distinctly different charts - comparing a languishing chart to a rocket. Almost 6 months later, LSS is another 10% lower. And MVK? Well, in June, a Canadian company named Tenaris (TS) bought out MVK to expand its energy footprint. $46.53 seemed lofty for MVK back then. It was working on what was at that time a new all-time high. It now sits at $64 and change - a cool 40% premium! Now, I cannot even begin saying "could have" or "should have" because the ride to the current buy-out price was very rocky for MVK, and I doubt I could have clinged to any conviction on that stock. Regardless, another strong reminder and lesson is to follow the intuition, especially when it has been back up with some good research.

MVK's good fortune did benefit LSS for a while. On the day TS announced the acquisition, LSS perked up for a 3% gain. That tiny reaction should have been the next signal from the market - basically that MVK's good fortune was a well-deserved pay-off for excellent performance. LSs could only glide with the tailwinds for one month. It peaked with a 21% gain before returning right back to its pre-acquisition price. This is where it sits now!

Is now the time to buy? (See disclaimer) I am no longer in the position, but LSS still looks "cheap." The earnings reported at the end of July were lackluster, and the market greeted them appropriately. Longer-term, LSS is struggling right at price points that mark all-time highs - highs that have remained unsurpassed for NINE years. For 12 months over 2000 and 2001, LSS tried repeatedly to punch through these levels. And for almost a last year, LSS has spun its wheels failing at these highs again. Add to this a declining technical picture - LSS stock is below a declining 50DMA and a flat 200DMA - and a slowing economy, and I am hard-pressed to like doing anything with LSS. I suppose if the stock were to move up again on some very high volume, LSS could make money for the swift. Until then, the stock market lingers on the edge....

Be careful out there!

DrDuru, 2006