“Just one word of investment advice … Plastics”

This one comes to us from Dan Ferris, at Stansberry and Associates. It came to me through a reader, who also suggested a solution, so I don’t have the whole email … but the only newsletter Ferris edits is Extreme Value, which runs $1,000 a year.

And yes, it’s about a plastics company … using a few paragraphs to rehash the scene from the Graduate when a young Dustin Hoffman is told to get into plastics.

Add a few paragraphs about how plastic is used in manufacturing almost everything, but no one knows who the plastic makers are. It’s a boring commodity.

But … “at $6 a share, a good commodity company could easily double in a year.”

So what do we know about this company?

“It makes plastic, which is always going to be in demand. It’s incredibly cheap compared to its huge cash flows. And, as you’ll find out below, it’s sitting on a pile of hidden cash.”

It’s all about cash flow for this one, apparently: “This $6 Stock Has $128 Million Hidden in Plain Sight”

Oooh, I LOVE hidden cash. Let’s see if we can find it!

Plastics is a very competitive commodity business in most categories, as Ferris attests. So why does he like this company?

We hear the story of Waldo Semon, who invented a new formulation of vinyl chloride (now known to most of us as PVC), patented it for Goodrich, and made lots of money making raincoats and such.

Then Goodrich spun off its vinyl operations into Geon, which later merged with M.A. Hanna. As you might have guessed by now, that combined company is what we’re talking about with this teaser.

This is when I started to get sleepy … so I’ll just rely on my intrepid reader to tell you that this company is …

PolyOne Corporation (POL).

If you want the full plastics industry snooze, you can read their online timeline here.

The shares are trading right around seven bucks at the moment, so it has risen a bit since the email first went out a couple weeks ago.

They don’t have a particularly large amount of cash on the books, but they do have an operating cash flow of $12o+ million — I guess that’s the secret stash (what a letdown!). They actually have about $500 million in net debt after $50 million or so in cash is taken out, though the price/book is firmly in the value camp at very near 1.

I’m a little surprised, after reviewing their website and their product lineup, that this isn’t a bigger company, the market cap is well under a billion dollars, so I don’t know how they compete against the big chemical companies … but I guess they do OK — at a forward PE of about 11 (trailing PE of 7 must indicate a one time windfall of some kind, I suppose), I can see why Dan Ferris is interested.

And hey, they’ve got enough cash flow … maybe they should buy out Toby Smith’s conductive plastics company to fill out their product line, eh?

Sorry I don’t know more about this one — feel free to chat about it here or in the Gumshoe forum, or to share with us if you’ve ever plunked down a thousand bucks for Dan Ferris or anyone else … and whether that was a good deal or not. Good luck all.


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