An Old Industrial Provides a New Thesis

Robbins & Myers (RBN - commentary - Cramer's Take) isn't a name that comes up all that often among investment theses, and we would bet most have never heard of this industrial manufacturing company. This has been the case with many successful companies of late. However, these old-line manufacturers that have spent years in quiet solitude operating in the shadows of companies pursuing more exciting endeavors, have once again become powerhouse performers. With the worldwide growth and demand for energy, among other things, the basic components these companies manufacture for the oil industry are in high demand.

Robbins & Myers is a leading supplier of highly engineered, application critical equipment and systems for global pharmaceutical, energy and industrial markets. That was a mouthful and sounds very impressive. No doubt, based on the performance of the stock, what they are doing is impressive.

The key to their recent success is their exposure to the energy markets. Robbins & Myers operates three business segments: fluid management, process solutions and packaging.

The fluid-management branch manufactures pumps and tubes used in oil and gas, wastewater treatment and specialty-chemicals industries. Their process solutions unit makes reactor systems, mixing equipment, glass-lined tanks and fluoropolymer-based products.

Although a U.S. economic slowdown is a major concern, more than half of Robbins & Myers' revenue is produced overseas. The biggest risk will be if there is a cutback in oil prices. It seems safe to assume that their strong business will continue, but we should be aware that recent price action in the price of oil and other commodities are suggesting the bulk of the rally has occurred for now. These commodities may need some a further pullback and backing-and-filling near term.

Lower energy prices or weakening demand from overseas markets on the back of continued U.S. economic activity would be a negative that could weigh on the stock. For now, the company's main priority is finding acquisitions. They are looking for companies that will offer them new geographic areas and new pumping technologies.

Robbins & Myers

Click here for larger image.

On a technical basis, the stock has recently broken out to a new high on the back of a strong earnings report. This rally occurred from a major basing formation that extends back to the fall of 2007.

The volume during the advance increased, suggesting strong demand for the stock. RBN has continued to display a volume pattern of expanding volume into strength and contracting volume into weakness.

The stock is beginning to show signs of consolidation which is normal and healthy after a strong rally. We would use this lateral price action or a pullback to near-term support in the $42-$45 level as an opportunity to establish long positions. A tight stop below $42 can be used to exit positions. The strong technical configuration suggests there is further upside potential to the low 60s.

---

At the time of publication, John Hughes and Scott Maragioglio had no positions in the stocks mentioned. Hughes and Maragioglio co-founded Epiphany Equity Research, which has developed and utilizes proprietary tools to identify and track liquidity changes in the market indices and sectors. Hughes advises numerous asset managers, hedge funds and institutions managing in excess of $30 billion. Maragioglio is a member of the market technicians association (MTA) as well as The American Association of Professional Technical Analysts (AAPTA) and holds a Chartered Market Technician (CMT) designation. Maragioglio has also served on the board of directors of the AAPTA.