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Heavy Hitter’s Latest Bet: The Future’s Still in Plastic
By Michael Brush
January 13, 2005
One of the best ways to make money tracking insiders is to watch the heavy
hitters.
Few heavy hitters knock the ball out of the park like Nadar Tavakoli. He
doesn’t come up to the plate much. But when he does he brings a heavy bat,
and he hits big home runs.
Back in late 2003, for example, he plowed $3 million into Darling
International (DAR),
a Texas-based company in the fairly pedestrian business of recycling food
byproducts and selling restaurant grease collection equipment. Tavakoli
bought Darling shares at around $2.70. He turned around and sold them 18
months later at $4.20 -- for a cool $2 million in profits on a 55% gain.
More recently – from July through November of 2004 – Tavakoli plunked down
another $3.1 million in Constar International (CNST),
a company where he is considered a "beneficial owner," an insider because he
owns more than 10% of the shares outstanding. Constar, based in
Philadelphia, makes polyethylene terephthalate (PET) plastic containers for
food and beverages
Our heavy hitter Tavakoli bought shares in the $5 to $6 range, and Constar
recently traded at $7.40. So we’ve missed much of the upside. Then again,
Tavakoli hasn’t sold yet, so my hunch is he sees more gains ahead.
Indeed, Constar trades at the ridiculously cheap level of .12 times sales,
whereas competitor Ball (BLL)
Goes for .88 times sales. I don’t think Constar will ever trade up that high
because Ball is much bigger, so it deserves a premium. But a good part of
that gap could get closed.
What might drive Constar shares up? Sales of PET containers are growing,
thanks in part to the popularity of bottled water. So capacity usage is up.
In a recent Constar earnings conference call, the company stated the market
may grow by 9% a year for four years. Constar has put in a new inventory
management system. It also has the luxury of passing on higher transport and
resin costs to customers.
But here are the real kickers. Constar has proprietary systems for handling
the tricky task of filling PET containers with hot liquids. That’ll continue
to draw business. Next, it has an “oxygen-scavenging technology” called
Oxbar, which consumes virtually all oxygen entering a package through PET,
protecting the contents. This means the company should be able to convert
more refreshment vendors from glass to plastic containers – a Holy Grail in
the PET business. Constar's more economical version of its Oxbar technology
may hit the markets in the second quarter of 2005.
Bottom line: You’re a little late to the game if you buy here, but these
advantages should take the stock higher. So I’d buy shares here and get out
when our heavy hitter Tavakoli starts selling.
Disclaimer
At the time of publication, Michael Brush
did not own or control shares in any of the companies listed in this column.
Mr. Brush is an independent correspondent for this web site.
For more on Insiders Corner disclosure, see About Insiders Corner:
http://www.investorideas.com/insiderscorner/. InvestorIdeas.com
Disclaimer:
www.InvestorIdeas.com/About/Disclaimer.asp. InvestorIdeas is not
affiliated or compensated by the companies mentioned in this article.
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