Kicking the tires -- Sherritt International (S:TSX)

What with the cash piling up in my savings account, it's about time for me to make another RRSP contribution, so I've been doing some digging, looking for a suitable stock to buy into. I'm liking what I see about resource company Sherritt International, (ticker symbol S on the TSX). I see a lot to like about the company, and some things that raise my eyebrows a little, so I thought I'd post a few thoughts here for my clever readership to see and try and get some feedback on my thought process. My apologies if you're numbers-averse.

WHAT I LIKE

• It's a resource story. Sherritt's business basically divides into four units, listed here in order of size, in terms of percentage of sales -- Metals, Oil/Gas, Electricity, and Coal. Outside of a few token trusts and dividend-paying energy companies buried in my dividend ETF (CDZ on the TSX) I don't really have much of a resource presence in my portfolio -- rare for a Canadian investor. I've been underweight for a while, looking for an entry point into the space in general. I know it's impossible to time the market, but what with oil having retreated significantly from its July high of $147, I figure now' s as good a chance as any to jump in. Most commodities have seen a similar decline in value over the last several months, and nickel (66% of which goes into the production of stainless steel) is a major part of Sherritt's business. In the spirit of buying high and selling low, I figure my odds are pretty good at the moment. Whether it's the right firm inside the sector remains to be seen.
  

• It's international, and diversified across several industries. With a number of operations across the country, the Toronto-based company obviously has a strong Canadian presence. But things like power plants in Cuba, offshore oil patches in Spain, gas operations in Pakistan and nickel mines in Madagascar give me a little more international exposure as Canada's economy shows signs of slipping into recession.
  

• A whole bunch of the company's fundamentals look really, really good right now. Consider a few of them. Over the past five years, Sherritt has boosted its profit by an average of 36% per year. Consensus estimates expect further earnings growth in the next two fiscal years. In June, Sherritt was the only company in Canada to earn an A grade both as a value stock and a growth stock by MoneySense magazine. The company pays a dividend (albeit a small one) and it's growing. The company's book value (basically, the floor price that the company would be worth if they sold off all their assets individually) is somewhere between $12-$13, analysts say (sorry I can't link to the reports). Considering Sherritt currently trades at under $9 a share, a price/book value of about 0.75 makes me positively giddy. Of the seven analysts who cover the stock, all rate it a "buy" with target prices ranging from $15.50 to $21 -- not that I put too much faith in analysts who basically get paid to convince clients to buy stocks.
  

WHAT I DON'T LIKE

• The Cuba 'thing'. Sherritt does more business in Cuba than many firms, and I can't decide if that's a good thing or a bad thing. I like that they have the courage to go against the flow, but I have to question the wisdom of a company that basically flips the bird at the U.S., the world's largest economy, and does business in Cuba. Sherritt's had a huge presence on the island for years, and it shows no sign of pulling out any time soon. I suspect Washington's trade embargo can't go on forever, and god knows what will happen when Raul Castro dies and/or steps down. Sherritt could be better-positioned than anyone to hit the ground running on the influx of money that would result. Or not, and maybe Washington will carry a grudge. Even before Cuba opens up, who's to say they wouldn't go back to their more totalitarian tendencies and start seizing assets, Chavez-style. I have no idea, and uncertainty like that is not generally something I like in the companies I own

• The stock has been a ski-hill downward for the last month. Normally, I don't care about things like that unless it's a stock I want to sell, but the scope is quite drastic. Since reporting a 39% dip in profit (largely due to tanking nickel prices) at the end of July, Sherritt stock has gone on to lose more than 50% of its value. A collapse like that hardly seems appropriate just because of a profit blip. What am I missing? I like buying things cheap, but am I trying to catch a falling knife?
  

• Insider trading, going in the wrong direction. This one leaves a real bad taste in my mouth. According to filings, independent company director Daniel Owen owned more than 2,000,000 Sherritt shares in March, worth some $18-million. But Owen dumped more than half of his stake throughout August. And that was after the bad earnings release. Does he know something I don't? Probably...

Anyway, that's the basic picture as I see it today. Nothing imminent, but it's certainly a stock I can't seem to get out of my head. Ironically, I'd be more sold on buying the stock if Mr. Market hadn't just given it a 50% haircut. It's often hard to go against the herd.