The Business of Value Investing.pdf

More Than One Way to Find Value 213

• Discount rate of 12 percent is acceptable now that Venezuela
  risk is nearly nonexistent.

As you can see from the reduced fi gures, Ternium is still an

undervalued business at the original purchase price of $ 30. And even

though the intrinsic value declined in this analysis, Ternium ’ s stock

price is still below intrinsic value. In 2009, steel companies are

bracing themselves for one of the worst business environments in

decades, but they are responding with quick and decisive capac-

ity cuts. Such moves should offer some price stability in the short

term; in the long term, as China and other nations begin to use

up their excess inventory and start buying steel again, the cycle

should reward low - cost producers like Ternium. Comparing both

discounted cash fl ow analyses verifi es one very important tenet of

value investing: When the stock price of a fundamentally sound

business declines, the investment becomes a better bargain and is

less risky than it was before. Figure 10.2 is the stock price chart for

Figure 10.2 Ternium Steel: Waterfalls Lead to Rainbows

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