Friday, May 28, 2010

BAGAKOAA May 28 2010 The Rain In Spain


May 28 2010 The Rain In Spain

Well there were some opening jitters, traders headed to the Hamptons for the long weekend (so volume was weak), noise out of Korea, austerity measures in Greece causing more noise, then we had the downgrade of Spain’s Credit rating, and we had consumer spending weaken this morning (Got that one right). If you were lucky enough to be in a position to call your broker or log on, there were some good buying opportunities in the AM.

Tonight I have been doing some back to basics homework. In researching place to put money to work, I scanned Cramer’s portfolio. It is surprising to note that he only holds 100 share of AAPL which equates to about 1% of his portfolio. We pay a fair valued subscription for this info so I can’t say much more than that. I just found it interesting as he does pimp the stock a lot. BTW he is doing well with the 100 shares.

Anyway, he has a position about 3 times that in Accenture (ACN) which operates as a management consulting, technology services, and outsourcing company based in Dublin. They were also one of the first to DUMP the Mike Tyson of golf, Tiger Woods and that tells me they have a brain. In doing the homework on their 1st quarter earning report filed with the SEC, we (yes I do have a mouse in my pocket) were very impressed. Free cash flow is good, first quarter revnues were a bit week, no long term debt, they have a consistent stock buy back program and at 37.50 ish a share it is too good not to start a position. Most of the analysts out there have 2011 earnings pegged at 3 bucks a share giving us a P/E ratio of about 8.5 which is CHEAP CHEAP CHEAP. Do your homework and read the all the information you can. This is not risk free, but I am thinking that this is a 55-59 dollar stock in 12-18 months.

It is important to remember that the price of a stock has very little to do with the past. When you pull the trigger after doing all of your homework you are buying future expectations of financial prosperity. Today we bought MCD, FLS, IBM, INTC, BAC to name a few. Each of those decisions was based up what the COMPANY, not the stock is going to do the rest of 2010 and into 2011. You buy future earnings when you commit to a stock.

With that said, there was a great article in Thursday’s WSJ. Justin Lahart wrote an article called Machinery Shortages Put Businesses In A Bind. The article explains how the trough of the economic slowdown closed a lot of machine shops, migrated labor pools away from the machine tooling industry, and sold off or moth balled a lot of the state of the art machine tool equipment. That is causing a problem now as the economy gears up for the recovery, it is taking forever to get machine tool parts done and delivered. The most notable example of that is the multiple delays on Boeings Dreamliner. Almost all of the delays has had something to do with getting tooled parts.

So in reading the article I am thinking anything in short supply will usually have a premium associated and those firms who get their tooling needs met first should have some positive and aggressive revenue gains beyond their normal business into 2011. So I went hunting for some. After using the great and improved stock screening tool on I got through 182 machine tool companies publicly traded in the US. There were a few, actually 25, that came close to meeting my criteria. (If you follow the blog, you know those criteria, little or no debt, positive earning and top line growth, a reasonable PEG ratio, and good free cash flow). Here were some of the finalists that I did homework on: WTS, AIMC, and KAI. All are with a look. I ended up finding one that really caught my attention. ASTE, Astec Industries, Inc. engages in the design, engineering, manufacture, and marketing of equipment and components used in road building, utility, and related construction activities worldwide. I like because of the fundamental and their reach appears to be a bit broader than just machine tools.

And for a pure play Machine tool company, look at Fanuc (The US ADR is FANUY). This was a bit of trip down memory lane as I remembered working on robotic cables for Fanuc Machines in the Auto Industry in a former life. Their financials are sound and they are well positioned to grow with the economy. As a Japanese Company, their reporting is a bit sketchy but the sec filings seem to be in order. The best source of info was Morningstar.

If I had to choose one over the other, I would pick FANUY as their financials look nicer and with a PE ratio of 11, it looks cheaper. Do you homework on this one. I would suggest finding out how they are positioned to get tooling into China and India. That is where a lot of growth will go. I have a limit order at 52 a share for Tuesday Morning. This will fall into my speculative holdings category if I catch it.

Yesterday, Thursday, I was presented with a great paper about the water market. The document is intended for UBS clients and suggest you contact a representative of UBS to get a hold of it. I will be doing some in depth research with it this weekend. (Wow, what an exciting life I lead.) The paper outlines the initial findings of a study that indicates by 2030 half of the population of the world will live in “water stressed” environments. Then the piece done by Christoph Hugi, analyst, UBS AG, Gianreto Gamboni, analyst, UBS AG,

And Alexander Stiehler, analyst, UBS AG.

Off the top of the hat I have found a couple yopu might want to look at over the long weekend. Both are metering equipment manufacturing. Itron (ITRI) is a fast growing innovative manufacturer of meters for water AND electric utilities. You can also look at Badger Meter BMI. I’ll have more as I tear the report apart.


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