(MP#496) - Dividend Investors, Buy This Undiscovered Debt-Free Company With The High Insider Ownership For Your Income Portfolio (NYSE, Industrial Sector) - Seeking Alpha

2/16/24, 1:04 AM (MP#496) _ Dividend Investors, Buy This Undiscovered Debt-Free Company With The High Insider Ownership
wnership For Your Income Portfolio (NY…
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by Value Digger
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14.39K Followers
(MP#496): Dividend Investors, Buy This

Undiscovered Debt-Free Company With The
High Insider Ownership For Your Income
Portfolio (NYSE, Industrial Sector)
Jun. 29, 2023 9:14 AM ET | 5 Comments
Dear Valued Subscribers,
Today's pick is our 2nd long idea for June 2023.
Our first long idea for June 2023 is in MP#495 here.
Today's pick is from the industrial sector (office services and supplies).
As a friendly reminder, "Value Investor's Stock Club" (VISC) is an "One-Stop" shop

research, because our picks cover the investment needs for different types of investors.
Specifically, our long and short ideas are coming from 10 sectors, as shown on the
Spreadsheet. Our long ideas are value stocks for large capital gains and high-yield
dividend stocks for income. In other words, no matter what type of investor you are (i.e.
value investor for capital gains, dividend investor for income, short seller), you will find in
our research what you are looking for.
Today's pick is another undiscovered company, because there are only two Seeking
Alpha articles about it since 2021.
Our loyal subscribers know that we are looking off the beaten path and dig up
underfollowed or overlooked stocks boasting strong fundamentals and cheap valuations,
among other positives.
https://seekingalpha.com/mp/946-value-investors-stock-club/articles/5896621-mp-496-dividend-investors-buy-this-undiscovered-debt-free-company-with-the-high-… 1/21
2/16/24, 1:04 AM (MP#496) _ Dividend Investors, Buy This Undiscovered Debt-Free Company With The High Insider Ownership For Your Income Portfolio (NY…
In other words, we invest in stocks that fly under the radar with little to no analyst
coverage and we do not invest in popular mid-cap stocks, large-cap stocks and mega-
cap stocks with many analysts covering them.
Our decades-long experience has showed us that you can't beat the market when you
are part of the herd by investing in popular large-cap or mid-cap stocks along with
millions of other investors and many analysts covering them. You have to do
something noticeably different from the other investors, if you want to stand out
from the crowd and beat the market. And this is what Fidelity legend Peter Lynch was
doing until 1990, when he retired. Peter Lynch invested in underfollowed small-cap
stocks with strong fundamentals and low valuation, so he managed to beat the market
for many years and retired at just 46 years old.
On that front, we highly recommend reading the recent MP#452 here, where we talk
about the present and future performance of the large-cap stocks and small-cap stocks.
Our long idea today is NL Industries, Inc. (NL).
NL closed at $5.48 per share yesterday (06/28/2023) and the recommended maximum
buy price is $5.50 per share.
Based on the recommended maximum buy price and quarterly dividend of $0.07 per
share (annual dividend of $0.28 per share), the annual yield is 5%.
Moreover, we believe that the stock has moderate upside potential from the
recommended maximum buy price, so the total return can be much higher than 5%,
based on a 12-month investment horizon.
Key Points
1) Daily volume: The average daily volume for NL in the last twelve months is
approximately 25,000 shares.
As always, we recommend that you place today a GTC (Good-Till-Cancelled) or GTD

(Good-Till-Date) limit buy order at or below the recommended maximum buy price of
$5.50 per share and wait.
We believe that your order will be executed sooner or later, given also that the market
will remain highly volatile in the next quarters.
If your order isn't executed, don't chase NL higher than the recommended maximum buy
price of $5.50 for two reasons.
First, when it comes to investing, the buy price does matter regardless a company's
market cap (large-caps, mid-caps, small-caps). And the buy price matters, because
investors always need to have downside protection and minimize their downside risk, if
things go unexpectedly wrong for some period of time.
Second, you will have many new choices in the next months.
Specifically, in addition to the upcoming short ideas, we will publish approximately 24

new select long ideas from July 2023 to June 2024 that meet a combination of strict
investment criteria such as rock-solid balance sheet with zero leverage, profitability,
positive OCF, positive FCF, low key metrics, high insider ownership and growth potential.
We emphasize the combination of these investment criteria for our long ideas because,
statistically speaking, this combination offers the highest upside potential with the lowest
investment risk.
Unfortunately, millions of investors have lost billions by buying unprofitable companies

with high debt (high leverage) and/or cash burn and/or high key metrics, because the
stock markets are merciless and punish these companies sooner or later. If you do
not believe us, please see numerous such companies that have crashed since 2021 in
MP#462 here.
Our 24 new select long ideas that will be posted from July 2023 to June 2024 are high-
yield dividend stocks for income and value stocks for large capital gains, based on a 12-
month investment horizon.
Our 24 new select long ideas will come from a variety of sectors (i.e. industrial,
consumer staples, consumer discretionary, healthcare, gold & silver, energy, technology,
utilities etc.), so we will continue to help you diversify your holdings.
We emphasize the sector diversification, because investing only in 1-3 sectors (i.e.
real estate including REITs, financials including BDCs, materials including gold & silver,
industrials including shipping, etc.) is the definition of poor capital allocation that
translates into very high concentration and very high portfolio risk. Given also that the
stock market will remain volatile, the recovery from Coronavirus will be uneven and
market rotation is a sure thing, investing only in 1-3 sectors will result in very low or
negative returns in 2023-2024.
2) Website: The company's website is here.
3) Business overview, as quoted from the latest annual report:
"NL Industries, Inc. is a diversified holding company. NL conducts its component

products operations through its majority-owned subsidiary (87%), CompX International,
Inc. (CIX), which is engaged in component products (security products and recreational
marine components).
CompX International is a leading manufacturer of security products for a wide range of

industries, including recreational transportation, postal, office and institutional furniture,
cabinetry, tool storage, healthcare, gas stations, and vending equipment. CompX also
manufactures stainless steel exhaust systems, gauges, throttle controls, wake
enhancement systems, and trim tabs for the recreational marine industry.
NL also owns a significant interest (31%) in Kronos Worldwide, Inc. (KRO), a global
producer and marketer of value-added titanium dioxide pigments.
Additionally, Valhi (VHI) owns 83% of NL Industries, and Contran Corporation owns 92%
of Valhi.
Our principal executive offices are located at Three Lincoln Center, 5430 LBJ Freeway,
Suite 1700, Dallas, TX 75240."
4) Revenue breakdown by business segment and by geographic region in 2022 and

Q1 2023 is illustrated below:
Years ended December 31,
2020 2021 2022
(In thousands)
Net sales:
Security Products $ 87,863 $ 105,124 $ 114,519
Marine Components 26,674 35,691 52,043
Total $ 114,537 $ 140,815 $ 166,562
and below:
Three months ended
March 31,
2022 2023
(In thousands)
Net sales:
Security Products $ 29,581 $ 27,342
Marine Components 12,469 13,809
Total $ 42,050 $ 41,151
and below:
2020 2021 2022
(In thousands)
Net sales - point of destination:
United States $ 107,712 $ 129,160 $ 153,982
Canada 4,423 8,061 9,227
Mexico 431 589 722
Other 1,971 3,005 2,631
Total $ 114,537 $ 140,815 $ 166,562
5) Revenue and profitability: The company has increased its revenue while remaining
highly profitable over the last years, as shown below (in thousands):
2020 2021 2022
Net sales $ 114,537 $ 140,815 $ 166,562
Cost of sales 81,689 98,066 117,763
Gross margin 32,848 42,749 48,799
Selling, general and administrative expense 21,031 22,223 23,363
Corporate expense 9,460 10,035 11,705
Income from operations 2,357 10,491 13,731
Equity in earnings of Kronos Worldwide, Inc. 19,437 34,323 31,873
Other income (expense):
Interest and dividend income 2,599 1,603 3,797
Marketable equity securities (8,671) 16,229 (8,085)
Other components of net periodic pension and OPEB cost (784) (665) (1,134)
Interest expense (1,350) (1,142) (941)
Income before income taxes 13,588 60,839 39,241
Income tax expense (benefit) (2,515) 7,479 2,785
Net income 16,103 53,360 36,456
Noncontrolling interest in net income of subsidiary 1,423 2,172 2,612
Net income attributable to NL stockholders $ 14,680 $ 51,188 $ 33,844
In Q1 2023, revenue largely stayed flat on a YoY basis and the company recorded a
loss, as shown below (in thousands):
Three months ended
March 31,
2022 2023
(unaudited)
Net sales $ 42,050 $ 41,151
Cost of sales 29,970 28,447
Gross margin 12,080 12,704
Selling, general and administrative expense 5,774 5,664
Corporate expense 2,436 2,843
Income from operations 3,870 4,197
Equity in earnings (losses) of Kronos Worldwide, Inc. 17,533 (4,637)
Other income (expense):
Interest and dividend income 309 1,965
Marketable equity securities 671 (5,498)
Other components of net periodic pension and OPEB cost (223) (346)
Interest expense (246) (199)
Income (loss) before income taxes 21,914 (4,518)
Income tax expense 2,705 1,421
Net income (loss) 19,209 (5,939)
Noncontrolling interest in net income of subsidiary 652 777
Net income (loss) attributable to NL stockholders $ 18,557 $ (6,716)
Specifically, in Q1 2023, NL's income from operations remained positive and the loss at
the bottom line was due to:
A) An unrealized loss of $5.5 million in the first quarter of 2023 related to the change in
value of marketable equity securities compared to an unrealized gain of $.7 million in the
first quarter of 2022.
B) NL recognized equity in losses of Kronos of $4.6 million in the first quarter of 2023
compared to equity in earnings of Kronos of $17.5 million in the first quarter of 2022.
6) Cash flow: The company has generated positive operating cash flow and positive
free cash flow (OCF - CapEx) over the last years and Q1 2023, as illustrated below (in
thousands):
2020 2021 2022
Cash flows from operating activities:
Net income $ 16,103 $ 53,360 $ 36,456
Depreciation and amortization 3,827 3,839 3,977
Deferred income taxes (2,530) 7,453 2,291
Equity in earnings of Kronos Worldwide, Inc. (19,437) (34,323) (31,873)
Dividends received from Kronos Worldwide, Inc. 25,356 25,356 26,766
Marketable equity securities 8,671 (16,229) 8,085
Benefit plan expense greater (less) than cash funding (792) (220) 130
Noncash interest expense 1,321 1,116 908
Other, net 93 (31) (288)
Change in assets and liabilities:
Accounts and other receivables, net 1,121 (4,488) (2,275)
Inventories, net (193) (7,479) (5,832)
Prepaid expenses and other (237) (991) 353
Accounts payable and accrued liabilities (13,163) (9,399) (10,395)
Income taxes (77) 13 (3)
Accounts with affiliates 193 279 (662)
Accrued environmental remediation and related costs (1,092) (476) (582)
Other noncurrent assets and liabilities, net (141) (171) (125)
Net cash provided by operating activities 19,023 17,609 26,931
https://seekingalpha.com/mp/946-value-investors-stock-club/articles/5896621-mp-496-dividend-investors-buy-this-undiscovered-debt-free-company-with-the-high… 10/21
Cash flows from investing activities:
Capital expenditures (1,740) (4,094) (3,695)
Note receivable from affiliate:
Collections 33,428 40,600 29,800
Loans (34,828) (29,800) (24,300)
Purchases of marketable securities — — (69,959)
Other, net — 2 284
Net cash provided by (used in) investing activities (3,140) 6,708 (67,870)
and below (in thousands):
Three months ended
March 31,
2022 2023
(unaudited)
Cash flows from operating activities:
Net income (loss) $ 19,209 $ (5,939)
Depreciation and amortization 961 1,010
Deferred income taxes 2,688 1,362
Equity in (earnings) losses of Kronos Worldwide, Inc. (17,533) 4,637
Dividends received from Kronos Worldwide, Inc. 6,692 6,692
Marketable equity securities (671) 5,498
Noncash interest expense 239 187
Benefit plan expense less than cash funding 306 330
Other, net (73) (808)
Change in assets and liabilities:
Accounts and other receivables, net (2,172) (845)
Inventories, net (2,490) 1,012
Prepaid expenses and other (1,037) 172
Accounts payable and accrued liabilities (2,966) (4,498)
Accounts with affiliates 7 (253)
Accrued environmental remediation and related costs (35) (836)
Other noncurrent assets and liabilities, net (130) (443)
Net cash provided by operating activities 2,995 7,278
Cash flows from investing activities:
Capital expenditures (1,717) (270)
Marketable securities:
Purchases — (32,824)
Proceeds from maturities — 8,000
Note receivable from affiliate:
Collections 7,700 7,800
Loans (7,100) (6,800)
Net cash used in investing activities (1,117) (24,094)
7) Competition for CIX's business is quoted from the latest annual report:
" The markets in which CompX participates are highly competitive. CompX competes
primarily on the basis of product design, including space utilization and aesthetic factors,
product quality and durability, price, on-time delivery, service and technical support.
CompX focuses its efforts on the middle and high-end segments of the market, where
product design, quality, durability and service are valued by the customer. CompX’s
Security Products business competes against a number of domestic and foreign
manufacturers. CompX’s Marine Components business competes with small domestic
manufacturers and is minimally affected by foreign competitors."
8) Competition for KRO's business is quoted from the latest annual report:
" The TiO2 industry is highly competitive. Kronos competes primarily on the basis of
price, product quality, technical service and the availability of high performance pigment
grades. Since TiO2 is not traded through a commodity market, its pricing is largely a
product of negotiation between suppliers and their respective customers. Price and
availability are the most significant competitive factors along with quality and customer
service for the majority of its product grades. Increasingly, Kronos is focused on
providing pigments that are differentiated to meet specific customer requests and
specialty grades that are differentiated from its competitors’ products.
Kronos believes it is the leading seller of TiO2 in several countries, including Germany.
Overall, Kronos is one of the top five producers of TiO2 in the world, with an
estimated 7% share of worldwide TiO2 sales volume in 2022.
Kronos’ principal competitors are The Chemours Company, Tronox Incorporated, LB

Group Co. Ltd. and Venator Materials PLC. The top five TiO2 producers (i.e. Kronos and
its four principal competitors) account for approximately 52% of the world’s production
capacity.
The following chart shows Kronos’ estimate of worldwide production capacity in 2022:
Worldwide production capacity – 2022
Chemours 15 %
Tronox 12 %
LB Group Co. Ltd. 11 %
Venator 7 %
Kronos 7 %
Other 48 %
9) Outlook for CIX's business is quoted from the latest annual report:
"The softening demand CompX began seeing in the fourth quarter of 2022 at both its
reporting units continued during the first quarter of 2023. As a result, CompX’s Marine
Components reporting unit largely worked through its backlog in the first quarter,
primarily related to the towboat market, and CompX’s Security Products reporting unit
continued to experience declining order rates. Entering into 2023, labor markets have
become more favorable in each of the regions CompX operates and raw material prices
have generally stabilized. CompX’s supply chains are stable and transportation and
logistical delays are minimal, although it continues to face shortages related to certain
electronic components. CompX has adjusted production rates at its facilities to reflect
the stability of its raw material supplies and near-term demand levels.
Over the remainder of the year, CompX expects gross margins at its Security Products
reporting unit will be challenged as higher cost inventory works its way through cost of
sales and reduced demand may limit its ability to implement further price increases.
CompX is in close contact with its key customers and believes reduced order rates will
continue through the second quarter. As expected, CompX’s Marine Components
reporting unit net sales were strong during the first quarter but it expects net sales
overall will decline as compared to 2022 as marine market demand is challenged by
higher interest rates and several original equipment boat manufacturers, including
certain of its customers, have publicly announced reduced production schedules in 2023
compared to 2022. Overall, CompX expects Marine Components gross margins as a
percentage of net sales for the full year of 2023 to be comparable to 2022 as the
favorable impact of product mix in the first quarter of 2023 is not expected for the
remainder of the year. Based on the softening demand and general economic conditions
in North America, CompX currently expects to report lower net sales and operating
income at both its reporting units during 2023 compared to 2022. CompX is focused on
managing inventory levels to support anticipated lower demand in 2023. With raw
materials and other components more readily available, CompX believes it will be able
to achieve additional operating efficiencies during the year although the extent and
impact of such efficiencies is not yet known."
10) Outlook for KRO's business is quoted from the latest annual report:
"Although Kronos began to see pockets of improving demand in the first quarter of 2023,
overall, Kronos continued to experience general economic weakness as customers
operated at reduced production rates due to softer than expected sales and inventory
right sizing. Kronos expects customer demand will gradually return throughout the
year; however, based on current and expected near-term demand, Kronos will continue
to operate certain of its facilities at reduced production rates during the second quarter
to manage inventory levels. Kronos’ selling prices have remained relatively stable during
the first quarter of 2023, and it expects selling prices will rise throughout the
remainder of 2023, improving margins as demand increases. Because of the sluggish
demand recovery and higher production costs resulting from unfavorable fixed cost
absorption at lowered production rates, Kronos expects to report lower operating results
for the full year of 2023 as compared to 2022.
Kronos will continue to monitor current and anticipated near-term customer demand
levels and align its production and inventories accordingly. Kronos believes the long-
term outlook for its industry remains positive, and is taking steps in the near term which
are intended to preserve its competitive position and future growth."
and below:
"TiO2 is considered a “quality-of-life” product. Demand for TiO2 has generally been driven
by worldwide gross domestic product and has generally increased with rising standards
of living in various regions of the world. According to industry estimates, TiO2
consumption has grown at a compound annual growth rate of approximately 2% since
2000. Per capita consumption of TiO2 in Western Europe and North America far exceeds
that in other areas of the world, and these regions are expected to continue to be the
largest consumers of TiO2 on a per capita basis for the foreseeable future. Kronos
believes that Western Europe and North America currently each account for
approximately 16% of global TiO2 consumption. Markets for TiO2 are generally
increasing in China, the Asia Pacific region, South America and Eastern Europe, and
Kronos believes these are significant markets which will continue to grow as
economies in these regions develop and quality-of-life products, including TiO2,
experience greater demand."
11) Dividend sustainability: Based on the company's news and reports, we project that
annual operating cash flow will reach or exceed $30 million in 2023 and the foreseeable
future.
Annual CapEx has not exceeded $5 million over the last years. So we project that
CapEx in 2023 and the foreseeable future will continue to be less than $5 million.
Therefore, we estimate that annual free cash flow will reach or exceed $25 million in
2023 and the foreseeable future.
Furthermore, annual dividend payment is approximately $13.6 million, based on $0.28

per share annual dividend.
In other words, we project that the annual free cash flow will fully cover the annual
dividend payment in 2023 and the foreseeable future.
On that front, NL has a net cash position of approximately $144 million (as of Q1 2023),
so this cash cushion can be used to cover the gap between free cash flow and annual
dividend payment in 2023 and the foreseeable future, if needed.
After all, we forecast that the dividend is sustainable in the next years, barring
unforeseen events.
12) Valuation: At the recommended maximum buy price of $5.50 per share, market cap
is approximately $268 million.
As of Q1 2023, cash & cash equivalents & marketable securities are approximately $144
million and interest-bearing debt is zero.
This means that NL has negative net debt (net cash position) of approximately $144
million, so the company has zero leverage.
Therefore, the Enterprise Value is approximately $124 million at the recommended

maximum buy price of $5.50 per share.
We project that Revenue and adj. EBITDA in 2023 will be approximately $160 million
and $18 million, respectively.
As a result, EV-to-2023 Revenue and EV-to-2023 adj. EBITDA are estimated to be

about 0.8 times and 7 times, respectively, at the recommended maximum buy price of
$5.50 per share.
13) High insider ownership: Based on the most recent proxy statement, insiders
including individuals associated with the Simmons family own approximately 83%, so
their interests are aligned with shareholders', as illustrated below:
NL Common Stock
Amount and Nature of Percent of
Name of Beneficial Owner Beneficial Ownership Class
5% Shareholders:
Harold C. Simmons Family Trust No. 2 40,387,531 82.7 %
Lisa K. Simmons 40,387,531 82.7 %
Directors and Named Executive Officers
Loretta J. Feehan 26,150 *
John E. Harper 23,150 *
Meredith W. Mendes 19,650 *
Cecil H. Moore, Jr. 34,650 *
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2/16/24, 1:04 AM (MP#496) _ Dividend Investors, Buy This Undiscovered Debt-Free Company With The High Insider Ownership

wnership For Your Income Portfolio (NY…

Value Investor's Stock Club Launch chat

(MP#496): Dividend Investors, Buy This

Dear Valued Subscribers,

Today's pick is our 2nd long idea for June 2023.

Our first long idea for June 2023 is in MP#495 here.

As a friendly reminder, "Value Investor's Stock Club" (VISC) is an "One-Stop" shop

Our long idea today is NL Industries, Inc. (NL).

As always, we recommend that you place today a GTC (Good-Till-Cancelled) or GTD

Specifically, in addition to the upcoming short ideas, we will publish approximately 24

Unfortunately, millions of investors have lost billions by buying unprofitable companies

2) Website: The company's website is here.

3) Business overview, as quoted from the latest annual report:

"NL Industries, Inc. is a diversified holding company. NL conducts its component

CompX International is a leading manufacturer of security products for a wide range of

4) Revenue breakdown by business segment and by geographic region in 2022 and

Years ended December 31,

2020 2021 2022

Security Products $ 87,863 $ 105,124 $ 114,519

Marine Components 26,674 35,691 52,043

Total $ 114,537 $ 140,815 $ 166,562

Three months ended

Security Products $ 29,581 $ 27,342

Marine Components 12,469 13,809

Total $ 42,050 $ 41,151

Years ended December 31,

2020 2021 2022

Net sales - point of destination:

United States $ 107,712 $ 129,160 $ 153,982

Canada 4,423 8,061 9,227

Mexico 431 589 722

Other 1,971 3,005 2,631

Total $ 114,537 $ 140,815 $ 166,562

Years ended December 31,

2020 2021 2022

Net sales $ 114,537 $ 140,815 $ 166,562

Cost of sales 81,689 98,066 117,763

Gross margin 32,848 42,749 48,799

Selling, general and administrative expense 21,031 22,223 23,363

Corporate expense 9,460 10,035 11,705

Income from operations 2,357 10,491 13,731

Equity in earnings of Kronos Worldwide, Inc. 19,437 34,323 31,873

Other income (expense):

Interest and dividend income 2,599 1,603 3,797

Marketable equity securities (8,671) 16,229 (8,085)

Interest expense (1,350) (1,142) (941)

Income before income taxes 13,588 60,839 39,241

Income tax expense (benefit) (2,515) 7,479 2,785

Net income 16,103 53,360 36,456

Noncontrolling interest in net income of subsidiary 1,423 2,172 2,612

Net income attributable to NL stockholders $ 14,680 $ 51,188 $ 33,844

Three months ended

Net sales $ 42,050 $ 41,151

Cost of sales 29,970 28,447

Gross margin 12,080 12,704

Selling, general and administrative expense 5,774 5,664

Corporate expense 2,436 2,843

Income from operations 3,870 4,197

Equity in earnings (losses) of Kronos Worldwide, Inc. 17,533 (4,637)

Other income (expense):

Interest and dividend income 309 1,965