To start the year, the Philadelphia Fed index, Empire manufacturing and the Richmond Fed index, all have come in weaker than expected. These data points measure the manufacturing activity in the country by region, providing insight every month as to how good-producing companies are performing. Today, the Richmond Fed’s factory index fell to its lowest level in 6-months, and the 2nd lowest since June 2009. It is true that Empire manufacturing was just one month’s data, Philly is generally known to be volatile, and the Richmond index has a high concentration of military contractors. However, they are all pointing the same way. Now, individually, most economists can come up with a variety of reasons and explain why the data points were weak. However, when taken collectively, these are worrying reports that the recent euphoria out of the markets. The Kansas City Fed factory index has also been a negative indicator all through Q4 of 2012.
The bottom line is that the equity markets will continue to grind higher even though the data has been weak as of late. There is way too much excitement and momentum, and the equity markets will appreciate at least for another couple of weeks or until a negative catalyst hits the financial markets. The positive train in the equity markets has been very powerful as of late, ignoring the bad data and praising the good points. Equities have had a great start to 2013, and will continue on for about a couple of weeks, as the market can stay irrational longer than most can stay solvent. The market always overdoes it, both on the up and the downside, and it is expected that indexes will continue to appreciate for the next couple of weeks. I expect many will start going short in the next few days, as traders look at the index charts and see a straight line upwards in January. Regardless of the trading aspect of the market, there are some growth stories out there that will outperform the indexes.
Edgen Group (NYSE: EDG) is a global distributor of specialty products to the energy sector. The company’s main products include engineered steel pipe, valves and related components. The corporation has construction and mining customers from more than 35 global locations spanning the Americas, Europe, Middle East and Asia Pacific. One of the company’s biggest customers is China. With China still well in the expansion phase, the region demands a plethora of parts and materials, and Edgen is there to accommodate. Considering the latest reading of 7.8% GDP and industrial production of 10.3%, consumption in the country will continue at an elevated rate. The company also recently completed a strategic acquisition that is going to help their expansion overseas.
In December of last year, Edgen Murray Europe acquired UK-based HSP Group Limited, to better its actuation offerings and valves to customers around the world. The acquisition will also allow Edgen to take advantage of HSP’s international exposure in the Middle East and the Caspian area. The company has both small and large competitors in the industry. On the smaller-side Compressco Partners (Nasdaq: GSJK); market cap $279mm, Tesco Corp (NASDAQ: TESO); market cap $469mm and Basic Energy Services (NYSE: BAS); market cap $526mm. The larger competition in the industry includes Schlumberger (NYSE: SLB); market cap $102bln, MRC Global (NYSE: MRC); market cap$3.13bln and Key Energy Services (NYSE: KEG); market cap $1.19bln.
The company has a market capitalization of $329mm and has a 1-year consensus target of $12.80. Technically speaking, EDG has been in a nice upward channel since it bottomed at $6.49. The stock has tremendous support at around the $7.25-7.35 level. The 52-week stock low and high is currently $6.31 and $9.45. The stock is currently trading at $7.80 a share, so with any sort of pullback it would be prudent to buy in as there is support less than 50 cents away. That said, with the new acquisition and China growth evident, EDG is expected to have a good 2013.