Horsehead Holding: Compelling Idea with Large Potential

Horsehead (ZINC) produces zinc metal and zinc oxide from recycled metal. The company and its predecessors have been around for a long time but emerged in a new restructured form via an IPO priced at around $18 one year ago. After a brief excursion to the mid-20's, the stock has mostly drifted lower since then. Most recently, after second quarter earnings, it got slammed particularly hard to its current level of just under $8. This looks like a severe overreaction based on my understanding of the company. To be sure, I am not a metals analyst, but a generalist. So this analysis will take a look at the financials and try to put some context on the share price.

The main reason for the lower stock price is lower prices for zinc, traded on the LME. While inventories on the LME are low, there seems to be ample supply. And the price of zinc stayed low for most of the 1990's, around 50 to 60 cents/lb, before soaring to over $2.00 in 2006. With the U.S. in recessionary conditions and lots of discussion that global economies are also headed for recession, it is easy to see the sudden emergence of gloom for all commodities.