Short and long term pick: ZZ (Sealy Corp.) [more]
Here's a company that I think has the chance to become a "10-bagger".
You won't find this one being pitched by your broker or being held by any of your mutual funds, as it currently is just too small (micro-cap), under-covered by Wall Street (one analyst covers it), and too low of volume (often just a couple thousand shares a day -which makes it virtually impossible for institutional investors to hold).
I found this one scanning the digest of corporate earnings reports while looking for companies that are growing both revenues and earnings in excess of 20%
This company has a double growth element to them as both their category of products are growing (pro-biotics) and they are in a growth market (China).
Over the last two years, yogurt (in which probiotics are often added) consumption in China has increased by 25% each year, and it is expected to grow by over ten-fold from 2007 through 2015. China Biotics with their "Shining Essence" brand name pro-biotic dietary supplement, along with their food additive products, is poised to grow tremendously along with this growing market. Currently the demand for pro-biotic bulk additives in China is met through imports, but China Biotic is now working on a 150-ton capacity pro-biotic facility to meet this demand, which "will be the only large-scale plant in China that supplies the bulk additive market." (from their investor presentation, found here:http://www.chn-biotics.com/files/03-13-2009%20CHBT%20profile.pdf). This is huge as they expect "that the Chinese Ministry of Health will soon require probiotics in infant milk formula sold in China"!
From this new facility they expect "to generate up to $110 million in annual revenues", and they expect the gross margins will hold steady at around 70% on these revenues. This is wonderful for the company as it would basically triple the size of their current revenues. Additionally they are planning on expanding their retail outlets from just over 100 to 300 by the end of 2010, and each of these outlets they claim have "an average payback period of less than one year."
Last quarter they grew revenues by 32% and earnings by 40% which makes their trailing earnings multiple of just 13 look very attractive when comparing it to growth rates. The one analyst who covers it is expecting $1.11 in EPS during 2010, for a forward multiple of less than 10 at todays price of $10.75. This value gets even better as here again is another company sitting on $66 million in cash, and have just $18 million in debt (on a $184 million market cap).
So to recap, I recommend this stock based on the fact the company itself is experiencing tremendous growth and the current multiple does not reflect that. The risk to reward scenario highly favors those who are willing to purchase this stock long before it makes its way out of micro-cap territory, becomes widely covered by Wall Street, and subsequently the volume will pick up (upon which the stock will trade much higher).
Here is some hard data on the divergence nat gas has had from oil. I knew the average ratio between the two was way beyond its norm, but I had been reading quite a few different numbers (some were saying an average of 7, others an average of 10) and none of the sources seemed completly reliable.
But here is the facts.
So, again, my bet is that the correlation tendencies will pull nat gas prices up (or oil down), in addition to the overall theme of nat gas prices being depressed for quite awhile and at some point hurricane scares will give em a boost.
Here's a pick of another company that is overlooked (no analyst cover it yet), but yet has sound growth and great profitability.
They are in the business of renting surgical equipment to hospitals, which appears to be how more and more hospitals are going about obtaining their equipment versus having the high capital expenditure costs of purchasing equipment.
Again last quarter they showed incredible growth with a 62% increase in revenues, which lead to a 62% increase in net income. They trade at a mere 14 times earnings which is just too low for a company that is having these growth rates because they have been increasing their net income as a percentage of their revenues all while increasing those revenues every year. If these growth rates continue, the future earnings multiple will be very low and I would expect they would increase their dividend (currently at $0.30 for a 3% yield).
So to recap, here's just one more great company that is doing great even in this economic environment, and since it is a micro-cap company ($60 million) that has been overlooked by Wall Street, I think it presents a great risk to reward scenario for those willing to get in long before it even becomes a small-cap company.
Alright. Here is another company that appears to be overlooked and might be a real value at these price levels.
They are involved with oil and gas exploration and production within some South American countries such as Peru and Columbia, and are doing it very well!
Recently their revenues grew by 60% and their earnings grew by a full 200%!
Yet, as of now, the company is trading at just 7 times the expected earnings for next year. This gets even better due to the fact they have $0 debt, but also have $148 million in cash (on an $811 million market cap). So on an enterprise valuation multiple it is even cheaper.
This has a chance to really continue this growth as managements "vision" is to be eventually producing 100,000 barrels of oil a day. Currently as of Q1 09 they are producing 10,390 barrels a day. And even if oil prices drop from the recent run they have had, this company appears to be positioned well as they stated in this conference call (http://www.wsw.com/webcast/rbc102/panel3/) that they are still comfortable maintaining current operations even if oil dropped back to $30 a barrel.
Technically, the stock appears to have hit a bottom last October and has since formed a nice base around the $2 level. Currently it looks to be at the high end of the uptrend that started late October, but at $3.36 it still seems like a bargain even though a slight pull-back seems likely to occur.
At some point this summer hurricanes will occur, and nat gas will spike in price due to the fears it will cause, and how depressed the price of it has been recently. I'll be playing this one through then nat gas ETF: UNG.
I'd like to reiterate my thesis on buying either the UNG or options on UNG. I knew it could pull back in a bit further so I have waited until today to finally add to my position. I opted for the options, and am down slightly ($0.30 an option), but at these levels I REALLY like it fundamentally on the basis on the divergence nat gas as had from oil. Usually they are highly correlated with how they trade, but recently oil has really rallied, while nat gas has just done nothing at all. Technically I like it based on that I think the downtrend since last August has finally been broken, and now I think the bottom was hit in late April, and since a higher double bottom (with the second part of the W bottom) being formed right now.