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  • Martin Sosnoff

Toot-A-Lamma, Lamma, Any Old Umbrellas For Sale Today?

The old peddler sang out as he plied the Bronx streets, looking for business. Actually, I never saw any business transacted. The market for old clothes was more active. I’d put cyclical stocks in a class with old umbrellas: Worn, shabby, but still intact and usable like U.S. Steel.

Going back 5 years, U.S. Steel’s price chart shows a necklace formation. As high 5 years ago as it is today. Even after the take-out bid from Cleveland Cliffs, a sister steel producer. All such action isn’t exactly lightning in a bottle. Apple didn’t exist in 1901 when X was put together with JP Morgan’s blessing.

When I began my job search on Wall Street, late fifties, X was one of a bunch of starched, white collared managements considered safe, if a touch stodgy. Throw in Union Carbide, Exxon, Dupont and General Electric. IBM’s salesforce was prescribed white shirts by the Watsons. Salesmen clipped their hair short, no real sideburns to speak of.

Jewish boys with degrees were discouraged from submitting job applications (I never forgot this) and never accepted rejection. Years later, when I saw how bankers manned their neat little boxy desks, cleaned of papers, I wondered how I got so lucky to avoid banking and insurance. Still goes. Reserve city banks and insurance underwriters? Nobody cares for them.

Ever after the takeout bid from Cleveland Cliffs, U.S. Steel trades under its high of $31 and change. Obvious action for CLF would be to shred X of its management overhead. No longer any reason for an executive suite with CLF the overseer.

Since the transistor’s development, the entire technology sector grew to more than a 20% weighting in the S&P Index. Even IBM’s starchy management moved into tech with some success until they tried to leash their techies with new layers of control and compliance, a no no for tech. Later on, it took an imported Jew, Lou Gerstner to right IBM, closing down several layers of management.

Meanwhile, the old umbrella man carried on. At least he was out in the fresh air, singing. Consider, umbrellas carry a long serviceable life span. They don’t wear out standing in your closet, but do gather some dust. I inventory umbrellas going back some 50 years. Tired looking and dusty like U.S. Steel and it’s brethren.

I love underdressed stocks trading below $10 a share because of cyclical risks and scary financials. For me, this list was longer couple of years ago. Halliburton, Macy’s, Teva, even Freeport McMoran. Exxon Mobil at times qualifies as a burned out case. Energy Transfer Partners a legit MLP touched down at 3 bucks now near $13 a share.

X’s adjusted earnings in the June quarter came in at nearly $2 a share, but nobody cared much. Consider an $8 a share annualized earner on a stock in the high twenties. Just hit $30 a share on the takeover bid by Cleveland Cliffs. Even I was impressed by X’s strong recovery in its tubular steel division, still operating below capacity at 75% or so.

On approximately $7.5 billion in market capitalization, X remains small potatoes, maybe till the end of time. No Apple or Microsoft. U.S. Steel sells at approximately 4 times earnings while Apple and Microsoft tick over 30 times earnings with mucho free cash flow (I own em both.) Pundits ruminate over Apple not U.S. Steel or even its broad category of cyclical industrials. Candy stores sell at four times earnings like guys with rigid collars.

Old umbrellas gathering dust in the closet should stay there. Exxon, around par is just as boring as a black you know what with a handle. My umbrella man, like all good businessmen broadened his wares to include Singer sewing machines and Underwood typewriters which do last forever and must weigh 50 pounds each. Our family’s Underwood served for 2 generations. I even used it for my master’s degree thesis with good results. Mother’s Singer punctuated the air with its surging, noisy motor.

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