Watsco, Inc. (NYSE:WSO)

Outperform

Housing recovery

Distributor of air conditioning equipment/supplies. Fixing your AC "isn't a want, it's a need."

http://www.smartmoney.com/invest/strategies/the-400-man-1328818316857/#printMode

This is a steady business. Although they've got a lot of competition, they're a well-known and well-respected player. They've taking some financial hits in the last year, which might mean they're relatively cheap right now.

Lots of FCF, dividend yield of 3.6%, long-term management, low-debt.

pent up demand, carrier jv integration

There is pent up demand for HVAC type products and Watsco is great at capturing any demand there is.

Advisor recommended

This is a true buy to hold stock. The dividend gives me all the time in the world to wait. Consolidation of fragmented industry is a great business model. Ebix & Amedisys have also done well for me in different industries but with the same pattern. Load it up on any pullbacks.

50

Tom

hot sweater markets

Gotta be kidding me on this price. Completely unjustified. A moderate dividend is supposed to sustain the stock at these levels? Yeah right. Might short in real life.

Conservative picks in case the market stays down.

It will outperform due to the nature of the business. Most of its sales are coming up in the hotter months and they are almost neck and neck with the S&P 500. therefore their stock price will go up and the S&P 500 still has to receive some blows to its index because of its 20% composition of Financial stocks.

Air conditioning etc. company with excellent financials (e. g. low and shrinking debt ratio) and solid management. Flies under W S's radar, so price isn't jerked around by the expectations of the Dark Suits. Possible buyout when housing shows strong signs of recovery?

Monopoly

I have just completed my first round of due diligence and low price to book value... Check out my value scorecard at:
http://etstockideas.blogspot.com/2007/01/stockpickr-spotlight-portfolio-review.html

This is yet another stock being unfairly dragged down by the declining real estate market. This year they had record sales. I can't remember the exact figure but they own about 35% of the air conditioning market in the US. That is practically a monopoly. I think people are unlikely to give up their air conditioning any time soon. Plus, mechanical systems like air conditioning must always be replaced or repaired over time, so there is likely to be some business coming in the future. Even if nobody buys a house, they may still buy an air conditioning unit! With less than 10% debt and currently selling (as of 12/28/06) at about a 57% discount to intrinsic value it seems like you could not get hurt too badly with WSO.