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Stock Picks Bob's Advice
Wednesday, 5 November 2008
Rock-Tenn Co. (RKT) "Trading Transparency"

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please consult with your professional investment advisers before making any investment decisions based on information on this website.

That "nickel" was burning a hole in my pocket!  I always talk about having a nickel in my pocket when I have sold a portion of one of my holdings at a gain.  Indeed yesterday my recently purchased holding, WMS Industries hit a first appreciation target and I sold 1/7th of my small holding.  These sales are the barometers I use to determine my own equity exposure in the market.  With that sale, I started to look for a new position that met my own criteria for a holding, and a purchase that would be at the 'average' of my remaining holdings in size.

Looking first to the list of top % gainers, I came across Rock-Tenn (RKT) which closed at $32.94, up $3.79 or 13% on the day.  I purchased 93 shares at $33.06.

Rock-Tenn climbed yesterday after releasing 4th quarter 2008 results.  The company reported that it earned $28.4 million or $.74/share, up from $19.7 million or $.50/share last year.  "Excluding one-time items, Rock-Tenn earned $34.5 million or $.90/share."

I place great significance on expectations of earnings in trying to determine how 'good' an earnings report really is.  In this case, the company easily outperformed expectations as analysts polled by Thomson Reuters had been expecting earnings of $.84/share. 

But of course, a single quarterly result isn't enough to get my own 'seal of approval' on a stock!

Reviewing the Morningstar.com '5-Yr Restated' financials on RKT, we can see the steady growth in revenue from $1.4 billion in 2003 to $2.3 billion in 2007 and $2.7 billion in the trailing twelve months (TTM).

Earnings, however, have been far more erratic, dipping from $.85/share in 2003 to a low of $.49/share in 2005.  Since 2005, earnings have grown to $.77/share in 2006, $2.07/share in 2007, and per Morningstar a dip to $2.07/share in the TTM.  However, with the latest quarterly result, we can see that the increase is 'back on track'.

The company has a record of paying dividends and has been increasing that dividend from $.32/share in 2003 to $.39/share in 2007 and $.40/share in the TTM.

Outstanding shares have been fairly stable with 35 million outstanding in 2003 increasing to 38 million in the TTM.

Free cash flow is positive and growing with $99 million in 2005, $160 million in 2007 and $175 million in the TTM.  The balance sheet appears adequate with $57 million in cash and $618 million in other current assets, compared to $636.5 million in current liabilities---a current ratio just over 1.0, and $1.7 billion in long-term liabilities on the balance sheet.

This isn't a perfect fit to my own strategy of steady earnings growth and solid balance sheets.  But the overall fit works for me.  

Let's take a quick look at the 'point & figure' chart from StockCharts.com:

 

We can see that the price moved higher between April, 2005, when it dipped to a low of $9.50, to a peak of $46 in September, 2008.  The stock broke down after that dipping to a low of $24 in October, 2008, just last month.  The stock appears to be attempting to break through resistance at $40, but actually has a ways to go.

Like so many stocks in today's bear market, the charts are under pressure.

With my own 'leash' on every investment, and my own signal to be adding a position, this one works for me.  This company that "manufactures packaging products, paperboard, and merchandising displays in North America" according to the Yahoo "Profile".   This is a mid-cap stock with a market cap of $1.26 billion, a p/e of 17.33, and a PEG of 1.18 per the Yahoo "Key Statistics".

Wish me luck.

I shall try to keep you posted with all of my holdings, my own trades, my own thoughts and fears and hopes and aspirations in the market.

By the way, congratulations are in order to all of my friends who supported Obama for President!  For those of you who supported McCain or others, I feel your pain as well and offer you my understanding.  

But isn't it great that all of the campaigning is over?

If you have any comments or questions, please feel free to leave them on the blog, or email me at bobsadviceforstocks@lycos.com.

Yours in investing,

 

Bob


Posted by bobsadviceforstocks at 8:48 AM CST | Post Comment | View Comments (1) | Permalink

Wednesday, 5 November 2008 - 9:53 AM CST

Name: "Michelle Boswell"
Home Page: http://www.ino.com

I have looked over your blog a few times and I love it. I would like to
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We have a lot of great material that I think your readers would
appreciate you introducing  to them. I can set you up with a staff
membership of our products first so that you can see what we have to
offer. Best of all this is not costing you a thing in fact every month
you will make extra money.

Do you work with any strategic partnerships? If  you have a chance you
could send me over your ad rates as well as some traffic statistics.
I know you are busy but if you have a chance take a look at our site
www.ino.com and let me know what you think.

I look forward to hearing from you,

Michelle Boswell

Partner Relations
www.ino.com
1800-538-7424 ext-128

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