Case Study: Martin Jetpack vs Fletcher Building

I often get asked, what do I avoid when investing in a company. My answer goes something like, I avoid dogs and lemons. Which brings me to these two companies, Martin Jetpack and Fletcher Building. They're both New Zealand businesses, the former being listed on the Australian Securities Exchange (ASX MJP), while the latter is listed on both the ASX and NZX (ASX FBU).

First things first, Martin Jetpack is not a jet. It's a contraption which one pilot flies while strapped into. The product can best be described as hype. An early version of the contraption flew at Oshkosh in 2008 and I'm informed the reaction from onlookers there was a wide yawn. They'd seen this before with the SoloTrek XFV which flew back in 2001 some seven years earlier.

The inventor wanted everyone to believe he'd worked on his flying thing for 30 years from his garage in the suburbs of Christchurch, but this assertion was never independently verified. It is truly incredible to think that shareholder money went into this thing. It has yet to enter commercial production and I'm not even sure if anyone outside the company has flown it (put under independent scrutiny). My bet is it will never enter commercial production and if it does the company will promptly go bust as it is a silly proposition with little or no practical use.

Then we have Fletcher Building. This is a large business which carries out wide scale construction projects, and it is NZ's only locally based manufacturer of cement. When the Christchurch earthquakes hit, the only company capable of a rebuild that big was Fletcher Building.

You know Formica, everyone knows what Formica is, well Fletcher own it, and Laminex as well. Get the idea? Fletcher has fingers in many pies. Having said this though, Fletcher does tend to underperform and that's why I own no part of it, but that could change, and here's why: its share price fell 10% in one day on Monday and continues to fall. This is because of a profit downgrade due to cost overruns on two large projects. Construction is a risky business and they've been burned. But heck, 10% off the value in one day?

That's right, completely silly businesses like Martin Jetpack, which has never made anything useful and likely never will, ride up to $1.25 highs then plunge to 14 cents today. Then a solid company like Fletcher is punished harshly for business as usual.

What I'm saying is the market overreacts. It panics on bad news and gets all excited about hype. All commonsense seems to fly out the window. Fletcher Building are a solid buy, Martin Jetpack a joke.