GEO Investing

This past week, Brian McCann, a long time GeoInvesting subscriber, hopped on Avoiding The Crowd, a podcast hosted by Maj Soueiden, co-founder of GeoInvesting, in part to pitch Houston Wire and Cable Company (NASDAQ:HWCC). Today, the company announced that it is to be acquired by Omnicable for $91 million, representing a 39% premium over the previous day’s closing price, and basically the same price at which Brian pitched this investment ($3.80) on the show. This is a great example of how GeoInvesting sources ideas from its members and close knit network of quality contributors. Consider hopping in to Geo to be able to receive deeper insights on potential investment ideas generated on a monthly basis.


McCann’s Houston Wire and Cable Company, HWCC Pitch

I will talk about one that I like…I like lots of stuff…but I’ll talk about this one, it’s called Houston Wire and Cable Company.

I wrote it up on MCC a while ago and I owned it prior to an MCC. HWCC, yeah, I owned it prior to Covid and I sold it.

They’re a distributor they distribute wire and cable. One of their big end markets is oil and gas, so I don’t know if you know people that are familiar with the company Fastenal. Basically, they’re these warehouses and they ship parts to stores that use them or machine shops that use them or factories or plants that need to have this stuff in stock.

So, they ship all the small parts. Houston Wire and Cable Company does mostly wire and electrical components and so I owned it…I like this company, I like these types of companies, distribution companies because they’re a little bit anti-fragile basically, they’re like outsourced inventory management. You don’t want to keep this stuff, all the stuff in your stock room so you know a distributor holds it for you and then they’ll get it to you in 24 hours if you need it and as a result, they have buying power because.

They aggregate all this demand for all these little companies, and the companies get really good service

and they don’t have to hold the product in stock. But when there’s a recession or something, the demand drives up and they release a lot of inventory, so a lot of their working capital goes down, so they reduced their inventory. They had this surge of cash during a recession which is great and then inevitably what you’ll see them do is rationalize their footprint. maybe sell off a building or get out of it and cut some costs.

They have cash to invest and then maybe they’ll go out when things start to turn around, they’ll go out and buy a competitor and they’ll start to expand again so they have these kinds of like anti-fragile characteristics that I like.

And so, I own this but since it was related to oil and gas and I thought oil and gas was going to take a while to come back I sold it right when Covid hit but I’ve just bought it back recently because I think it could do well in the reopening if oil and gas takes off again

The demand will pick up for them but importantly it’s a completely different company than when I owned it before so they followed the playbook – they paid down all their debt, they sold off a couple of divisions so now they have a lot of cash. They have no debt and so they’re in just a much healthier position than they were when I first owned it

They actually sold two assets I believe in the last several months. They’re both smaller holdings for them.

They’ve increased their cash holding since they have like no debt now and they haven’t reported since all this has happened, so none of their current financials show the fact that their debt’s gone. You just have to read the press releases to know that they’ve paid it off.

That’s going to save them an interest expense although I don’t off the top of my head.

And there’s an activist in it there is who owns like 12%, David Nirenberg, and I think he’s been increasing his position if I’m not mistaken. I think [he’s been a shareholder] for at least a year or more, but it pre-dates Covid. I think I think he increased over [the Covid time period].

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