That’s the Way it is
It used to be Walter Cronkite was the Word. He'd go on CBS and tell America what to think about the News. At his height, Cronkite spent time in 15% of US living rooms each night. In France, Roger Gicquel piped into two out of every three homes. Time declared that Rog "out Cronkites Cronkite." French television actually came to America to steal Walter. OK, they didn't "steal" him, but they studied Walt deliberately and molded Rog in his image. And it worked.
Since Walt and Rog, the role of distilling the news has been diluted into millions of blogs and niche publications. AI reversed that trend. Investor Gavin Baker makes that case. News comes out. People ask Claude what to think about it. Claude gives everyone more or less the same answer. Everyone comes to the same conclusion. This applies to market-related things too. Everything in financial trades on the same conclusion.
OK, this overstates the monoculture, but it’s sometimes a useful approximation.
What would Rog or Claude or even Walt make of a relic of the industrial revolution that's produced a lot of shareholder suffering? Probably not much. Sometimes that consensus conclusion misses when things change.
Clogged pipes
Here's French pipe roller, Vallourec. It traces its public debut back to 1899. The last time it was the Next Big Thing radio waves first made it from France across the Channel to England.
The company's on the frontier of pipes. That frontier isn't as exciting as the frontier of AI, but it’s more appealing than what the business used to be. The market mostly thinks about that business. That business, supplying fossil fuel drillers, has been through some stuff.
Rolling steel is as heavy-industry as it gets. High fixed costs, high variable costs, just high costs. Businesses like that have a long history of cropping up in old world economies that end up becoming high-cost places to produce. Vallourec — based in France -- operated plants in Germany dating back to 1800s. Neither of those markets is known for its cheap labor or low operating costs. It financed those plants using debt, typical for businesses with heavy asset bases.
It's spent most of the last six years pivoting out of this quagmire. It restructured its debt in 2021. It now runs a net cash balance. It finished closing its German plants in 2024, ones that lost money. Now, its pipes mostly come from Brazil and the US, new where most of its customers are. Its financial restructuring partner, Apollo, sold of its 27% stake in the company to strategic steelman ArcelorMittal in 2024.
In addition to shedding the things that held it back, it's also been crafting a more stable future. In Brazil, it owns its own mine. This insulates it from commodity price swings. It operates a forestry operation there too, further protecting it.
Management refocused strategy too. It's shifted from maximizing volume to maximizing profit per ton. It’s done this while keeping a lid on large scale investments. The result is a more stable, more profitable, more resilient operation.
Most recently, the outfit rolled out some pipes and a long-term contract to supply Fervo, an enhanced geothermal operator. Geothermal offers a new market for Vallourec, one that could be more profitable and less risky.
Go with the flow
Walter and Roger would recognize the market's verdict on Vallourec: a heavy industry outfit serving a cyclical end market that lives and dies on commodity prices. Its stock price still carries all that baggage. That's the opportunity for investors. Vallourec's taken financial and operating risks out of the business. It’s built-in more profitability. For investors, that’s an to pick up shares at a bargain.
Disclaimer: None of this is investment advice. It's meant to illustrate ways LCM thinks about investing. Things that LCM decides are good investments for LCM and its clients are based on many criteria, not all of which are covered here. Some or all of LCM's ideas may not be suitable for other investors. LCM does not recommend investing either long or short any position mentioned. LCM may own positions in some of the companies mentioned. Some of its ideas will lose money — investing entails risk. See full disclaimer here.