PHILOSOPHY 101

Ok, last July I bought a share of Schnitzer Steel. The selection was not purely by the numbers, but it was pretty close. Since metals, at that time, were already feeling pricing pressure and there was/is always the expectation that cyclical companies should be bought in a "reverse value" method, I was a little antsy. But here were the reasons I bought the company:
1.) PE under 10
2.) Current Ratio over 1.5
3.) Price to Book under 1.2
4.) Long Term Debt to Equity under 2
5.) Five years of positive earnings
6.) Last 12 months of earnings greater than that of five years ago
7.) Pays a dividend

These criteria are pretty close to Graham's arguments for a Enterprising investment. So, on the one hand, I felt pretty good. Yet, I always have buyer's remorse and this time I thought I had good reason: extension of metals market puts pressure on steel industry; high earnings in steel that will not be sustained.

So what happens. I paid $24.65 for SCHN in July. Since that time, SCHN has risen to a high of $44. However, Monday the bomb was dropped. SCHN missed their number ($.72/share) by 4 cents mostly for the reasons stated above.

So what do we do? We currently have a 55% return in a little over 8 months. Keep in mind this happened at point when the stock should have tanked further. Additionally, we must consider whether or not the quarterly miss was germane to buying/selling/holding. Consider:
1.) PE is still at 8. Forward PE is at 8
2.) Current Ratio is over 1.5
3.) Price to Book is at 1.9 getting high
4.) All debt to Equity is less than .2
5.) Earnings are still positive
6.) Current 12 mos. earnings greater than that five years ago
7.) Dividend is intact.

With the exception of Price/Book, this company is still a buy. Go Figure.

Consider also, that mighty oaks do not become that way overnight. Also, I can't afford to pay heavy transaction costs to get in/out of any trade. So I expected to hold SCHN for a number of years when I purchased.

So, I rate SCHN a HOLD at this point.

Keep in mind that I may be absolutely wrong due to abject ignorance.

Good Luck.

P.S. You know, earnings seasons is generally a really poor time to make a decision to sell since, many companies that disappoint, even slightly, get slammed.