Value Find: MISCOR Group, Ltd.

Not all microcaps have recovered since the August market meltdown, which could spell opportunity for investors who are looking in the right places and are willing to roll the dice.

Case in point is South Bend, Ind.-based MISCOR Group, Ltd. (OTC: MCGL). Shares of the scrappy $40 million market capitalization industrial services provider have been sliced in half since July. Over this time, the only news out of MISCOR has been the release of its fiscal second quarter earnings report. Earnings weren’t great, but they certainly weren’t bad either.

While microcap MISCOR trades on the lowly OTC Bulletin Board, it has been on our radar for the past year, given that it has a very credible major financial backer in hedge fund group Tontine Associates. Headed by Jeffrey Gendell, Tontine has wracked up 35%-plus net returns per year on average. In January, MISCOR shares began a sharp rally upon the announcement that Tontine had invested $12.5 million in the company as part of a recapitalization.

MISCOR shares hit a high of $0.45 in mid-July before beginning a sharp retreat. As of this writing, MISCOR shares are changing hands for just $0.205, almost in line with the $0.20 a share that Tontine paid for the stock in its January private placement. Tontine isn’t infallible (one of its hedge funds has performed poorly this year), but whenever we can buy a stock near the price a smart hedge fund paid for its position, we generally sit up and take notice.  

Founded in 2000 by industry veteran John Martell, MISCOR has grown into a 450 employee company with 13 service centers in five states through a combination of acquisition and organic-driven growth. Ranked on the Inc. 500 list in 2004 and 2005, MISCOR’s goal is to build a national leader in the unglamorous, but underserved and growing industrial services sector. Blue chip clients include names like United States Steel Corporation (NYSE: X), Luxembourg-based ArcelorMittal, Union Pacific Corp. (NYSE: UNP), CSX Corporation (NYSE: CSX), Marathon Oil Corporation (NYSE: MRO) and France-based Alstom S.A. 

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