Here is my updated research on body armor supplier Ceradyne (CRDN). This is a long piece that is similar to a sell-side initiation. I discuss the market for body armor as well as the markets for CRDN's other products. I also compare CRDN in terms of margins and valuation to other specialty military suppliers such as AeroVironment (AVAV) and Force Protection (FRPT). For anyone interested in a thorough and comprehensive review of a company I did a lot of digging regarding CRDN.
I started to look at the company when the stock was around $14 because it was on the verge of becoming a net-net. It has run up a lot (along with everything else) since then and is certainly nowhere near as compelling. Due to the uncertainty regarding the timing of orders for the company's new XSAPI body armor from the US military and the dependence on elevated troop levels around the world, it is hard for me to justify buying this stock without a much larger margin of safety. Specifically, I would be much more bullish on the stock if it pulled back to around $10, an event that sure does not seem likely in the near term.
Ceradyne Updated 5-29-09
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“Warren Buffett once wrote that value investing is like an inoculation--it either takes or it doesn’t--and when you explain to somebody what it is and how it works and why it works and show them the returns, either they get it or they don’t.” -Seth Klarman of the Baupost Group
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5 Best Value Investing Quotes
- Seth Klarman: “It turns out that value investing is something that is in your blood. There are people who just don’t have the patience and discipline to do it, and there are people who do. So it leads me to think it’s genetic.”
- Seth Klarman: “It sounds kind of crazy, but in times of turmoil in the market, I’ve felt a sort of serenity in knowing that I’ve checked and re-checked my work, one plus one still equals two regardless of where a stock trades right after I buy it.”
- Howard Marks (Oaktree Capital): “For forty years I’ve seen the manic-depressive cycle of investor psychology swing crazily: between fear and greed – we all know the refrain – but also between optimism and pessimism, and between credulity and skepticism. In general, following the beliefs of the herd – and swinging with the pendulum – will give you average performance in the long run and can get you killed at the extremes.”
- Bruce Greenwald (First Eagle Funds): "There are no bad days in the market. When the market is down, you’ve got bargains, and it’s lovely to think of what you are buying at low prices. When the market is up, the bargains have gone, but you’re rich.”
- Mohnish Pabrai (Pabrai Funds): “Warren Buffett has said many times that people either get value investing in five minutes or they won’t get it in five years. So, there is something in the human brain, that for some of us, makes all the difference in the world right away and the patience it requires is part of the wiring process.”