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As I wrote up earlier today, after my sale of a portion of my Universal Electronics (UEIC) at a gain, I had the "permission slip" to add a new position to my trading portfolio. Earlier today, I purchased 140 shares of Baldor (BEZ) at $44/share to fill out my portfolio. I promised I would let you briefly know why I chose Baldor and how it fit into my portfolio and why
BALDOR (BEZ) IS RATED A BUY
What exactly does Baldor (BEZ) do?
According to the Yahoo "Profile" on BEZ, the company
"...designs, manufactures, and sells electric motors, drives, and generators to original equipment manufacturers and independent distributors worldwide. The company�s motor products include AC and DC electric motors; drives consist of inverter, vector, and servo drives, as well as linear and rotary servo motors and motion control products; and generator products comprise portable generators, as well as industrial towable, mobile light towers, emergency and standby, prime power, and peak-shaving generators."
How did they do in the latest quarter?
The company reported 1st quarter results today and reported revenue growth up nearly 100% to $395.7 million from $192.3 million, and earnings increasing 84% to $11.4 million or $.34/share (or $.52/share excluding 'items'). This beat expectations of analysts on both revenue and earnings, who were expecting profit of $.37/share on revenue of $388.5 million.
How about longer-term results?
Checking the Morningstar.com "5-Yr Restated" financials on BEZ, we can see steady revenue growth, steady earnings growth, steady dividend growth, but with a slight expansion of outstanding shares from 33 million in 2006 to 46 million in the trailing twelve months (TTM). Free cash flow is positive and the balance sheet is solid from my perspective.
What about valuation?
Checking Yahoo "Key Statistics", this is a mid cap stock with a market capitalization of $2.01 billion. The trailing p/e is moderate at 30.14, but the forward p/e is estimates (fye 30-Dec-08) at 19.30. Thus, with rapid growth the PEG comes in at a nice 1.12.
Baldor, according to the Fidelity.com eresearch website, has a nice Price/sales ratio of only 1.60 (TTM) compared to the industry average of 22.35. However, Baldor's Return on Equity (TTM) is at 15.84%, somewhat below the industry average reported at 20.30%.
There are 45.74 million shares outstanding with 41.20 million that float. As of 4/10/07, there were 2.69 million shares out short representing 10.5 trading days of volume (the short ratio) well ahead of my own 3 day rule for significance. The company has already traded 1.2 million shares, well ahead of the average volume of 357,000, and also well behind the probably residual level of short shares outstanding. This may well be part of a 'squeeze' of the shorts.
The company pays a forward dividend of $.68/share yielding 1.7%. The company, per Yahoo, last split its stock 4:3 in December 1997.
What about the chart?
If we look at the "Point & Figure" chart on Baldor from StockCharts.com, we can see that the stock, which actually traded lower from $23/share in April, 2002, dipped as low as $16.50 in October, 2002, before starting to trade higher to the current $44 level today. The chart looks strong to me.
Summary: What do I think?
Well, I certainly liked this stock enough to buy some shares! Seriously, the company reported very strong earnings beating expectations, they have grown nicely the last several years increasing both revenue, earnings and dividends, the balance sheet is solid and valuation is reasonable. Finally, the chart looks nice. On top of this, there are lots of shares out short which will need to be covered as the stock appreciates, adding to the buying pressure.
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Have a great weekend everyone!