Mueller Industries Building From A Surprisingly Solid Base

You might not think that a supplier of copper plumbing tubes, fittings, and similar products would have a particularly impressive track record, but Mueller Industries (NYSE:MLI) is a different sort of beast. Although the company is highly leveraged to the residential and non-residential construction markets, the shares basically tracked the S&P 500 lower during the housing collapse/recession and then notably outperformed from about mid-2010 on. What's more, not only was the company able to generate positive free cash flow throughout the last decade, the company's ROICs have been consistently pretty good.

Mueller still has some merit as a play on the ongoing expansion of non-residential construction and the still-modest recovery in residential construction, but that's not the interesting part to me. I like how this company has chosen to leverage its low-cost position in copper products and its good cash flow into new markets (largely through M&A) like valves and assemblies for HVAC, refrigeration, and industrial markets - business that offer higher gross margins and meaningfully better operating margins.

Mueller doesn't look all that cheap right now, but that is true for a wide range of stocks. Although I don't see a need to rush into this one, I like the company's efforts to leverage its established businesses into new, higher-margin opportunities and this would be a name I'd monitor for a chance to reconsider on pullbacks.

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Mueller Industries Building From A Surprisingly Solid Base