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By Erik Kobayashi-Solomon | 03-17-2010 12:24 PM

A Bearish Take on This Toolmaker

Several expenses are going to creep back into Kennametal's cost structure, says Morningstar analyst David Manger.

Erik Kobayashi-Solomon: Hi, I'm Erik Kobayashi-Solomon, co-editor of Morningstar's OptionInvestor. And today it's my great pleasure to welcome David Manger, who is a stock analyst here at Morningstar covering industrials. Hi, Dave.

David Manger: Thanks for having me Erik.

Kobayashi-Solomon: Thanks for coming. A couple of weeks ago I wrote this piece about Kennametal, a company that you cover. And it's a bearish piece, taking a bearish position using options. I don't think a lot of investors are familiar with this company. Can you tell us a little bit about it?

Manger: Kennametal is a small supplier of metal cutting and wear-resistant tools used in industrial activities, usually you would see in end markets such as aerospace, automotive, and mining.

Kobayashi-Solomon: So this is really kind of industrial-use products?

Manger: Yes. Exactly, and they're highly commoditized products. Even though Kennametal is usually the first- or second-largest player in their markets, it really struggles getting pricing power given the customers they're selling to.

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