214 The Business of Value InvestingTernium over the past couple of years. The share price perform-
ance looks like a waterfall, but this waterfall likely leads to rainbows.
Academic fi nance will vehemently disagree and point to an
increasing beta — a measure of volatility — and suggest that Ternium
now poses a greater risk. I don ’ t how that can be the case in the face
of the numbers just presented. Even if the numbers continue to be
grossly overstated, Ternium ’ s shares appear still to offer a very strong
margin of safety both from a cash fl ow and a book value perspective.Case Study #3: A Tale of Two Shares
Mueller Water Products
Mueller Water Products was spun out of Walter Industries in- Mueller Water is a supplier of water infrastructure products,
such as water hydrants, valves, and pipes. Mueller is one of those
companies that many people know about but don ’ t know about at
the same time. The company has the number - one or number - two
market share in many of the products it sells. It has the number - one
market position in fi re hydrants throughout the country. Chances
are good that if you live in a major urban area, Mueller is respon-
sible for your fi re hydrant. Mueller ’ s businesses have been operat-
ing for over 100 years, with its oldest division established in 1850.
Businesses with top market shares are very intriguing to value inves-
tors because a dominant market position represents an economic
moat around the business.
Mueller was spun off from Walter Industries, now a coal com-
pany, because Walter was in a strategic process of transforming
itself to a pure - play coal company. While familiarity with Mueller ’ s
businesses and the company ’ s history is a plus, this type of arbitrage
investment was based on a mispricing of two economically identical
assets. In a very elementary way, it was as if two $ 1 dollar bills were
being valued differently.
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