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Top Five Mid-Cap Stocks: March 27

TheStreet.com Ratings Staff

Each business day, TheStreet.com Ratings compiles a list of the top five stocks in five categories -- fast-growth, all-around value, large-cap, mid-cap and small-cap -- and publishes these lists in the Ratings section of our Web site.

This list is based on data from the close of the previous trading session. Today we focus on mid-caps. These are stocks of companies that have market capitalizations of between $500 million and $10 billion that rank near the top of all stocks rated by our proprietary quantitative model, which looks at more than 60 factors.

The stocks must also be followed by at least one financial analyst who posts estimates on the Institutional Brokers' Estimate System. They are ordered by their potential to appreciate.

Note that no provision is made for off-balance-sheet assets such as unrealized appreciation/depreciation of investments, market value of real estate or contingent liabilities that might affect book value. This could be material for some companies with large underfunded pension plans.

Flowserve FLS develops, manufactures and sells precision-engineered flow equipment through three divisions: Flowserve Pump, Flow Control and Flow Solutions. The company operates worldwide, with 43% of its revenue coming from North America.

We have rated Flowserve a buy since January 2007. The rating is based on robust revenue growth, good cash flow from operations and expanding profit margins. Flowserve's revenue rose 19% year over year for the third quarter of 2007. The company also reported earnings per share of $1.10, compared with 49 cents in the third quarter of 2006. Furthermore, net operating cash flow has significantly increased to $106.8 million when compared to the year-ago quarter, and the company has a gross profit margin of 35.9%, which we consider strong.

The recent surge in commodity costs is a challenge to the machinery industry. This could affect Flowserve's results in the future.

Sigma-Aldrich SIAL develops, manufactures and distributes a broad range of biochemicals and organic chemicals. These chemical products and kits are used in scientific and genomic research, biotechnology, pharmaceutical development and the diagnosis of disease. They are also used as key components in pharmaceutical and other high-technology manufacturing. The company operates in 35 countries, with facilities in Australia, Canada, France, Germany, India, Japan, Singapore, Switzerland, the U.K. and various U.S. states.

Our buy rating for Sigma-Aldrich has been in place since November 2003. The company's strong financial performance supports this rating. Sigma-Aldrich's revenue increased 15% for the fourth quarter of 2007, primarily due to solid organic growth and further helped by acquisitions and favorable exchange rate effects. Net income increased to $84.9 million from $71.6 million year over year. Looking forward, management expects earnings per share in the range of $2.52 to $2.62 in fiscal 2008.

Sigma-Aldrich is setting up a manufacturing hub in China as part of its efforts to generate 25% of its total revenue from Canada, Asia-Pacific and Latin America by 2010. The company is also considering construction of a facility in South Korea to supply electronic chemicals for use in the semiconductor market. There are also plans to expand production capacity at facilities in Ireland and Switzerland. Successful completion of these initiatives could further strengthen Sigma-Aldrich's business going forward.

However, any unexpected delay in commercializing the company's strong product pipeline could impact revenue. Any slowdown in consumption industries could also have adverse effects.

Circor CIR has been manufacturing an array of valves since the early 1900s. Valves range in application from generic products for heating and cooling to more specialized steam catapult valves on nuclear-powered aircraft carriers and cryogenic valves used in space shuttles.

The company also designs, makes and distributes a variety of related products, such as fittings, actuators, condensate pumps, flow meters and water heaters. It provides a range of services to assist customers in the installation and maintenance of fluid-control systems. Circor operates 16 manufacturing facilities in the U.S., Canada, Western Europe and China, and services more than 12,000 customers in over 119 countries.

Circor has been rated a buy since November 2004. The company's strength can be seen in its good cash flow from operations, encouraging stock performance and solid financial position. Net operating cash flow increased 118% year over year to $36.5 million in the fourth quarter of 2007. The company's debt-to-equity ratio is very low at 0.05, implying successful management of debt levels. Shares have jumped 29% in the past year. While the stock price has been driven to a level that is somewhat expensive compared to industry peers, we feel the higher price is justified.

We feel that the company's strengths outweigh a year-over-year decline in net income to $10.12 million from $10.38 million. Circor did record revenue growth of 2.9% for the fourth quarter, but this does not appear to have trickled down to the company's bottom line, as evidenced by a decline in earnings per share. The company has reported somewhat volatile earnings recently. However, we feel that Circor is poised for EPS growth in the coming year.

Ameron AMN manufactures highly engineered products and materials for the chemical, industrial, energy, transportation and infrastructure markets worldwide. Products include high-performance coatings and surfacer systems for the preservation of structures, molded fiberglass pipe and fittings and ready-mix concrete. The company has plants in Arkansas, California, Oklahoma, Texas and Washington -- and through subsidiaries in Australia, Colombia, Malaysia, the Netherlands, New Zealand, Saudi Arabia and Singapore.

Ameron has been rated a buy since June 2005. On March 26, the company reported solid results for the first quarter of 2008. Net income was reported as $9.7 million, representing a 15% increase year over year. Earnings per share increased 14%, and sales totaled $149.8 million in the first quarter, which represented an increase of 24%. The earnings improvement was driven by continued growth of the Fiberglass-Composite Pipe Group and the ready-mix concrete and aggregates business in Hawaii.

The company's chairman and CEO announced that the results for the first quarter represent a positive start for fiscal year 2008. The quarterly earnings results were in line with the company's expectations. Management continues to expect solid operating results in 2008, and despite uncertainty regarding the direction of the economy, the company is optimistic about its prospects for growth. Bear in mind, however, that the building products industry's performance is cyclical, depending on the overall health of the U.S. economy. The state of the housing and auto markets in particular could impact this industry and, therefore, this stock.

C.H. Robinson CHRW is one of the world's largest third-party logistics companies. It provides freight transportation services and logistics solutions to companies of all sizes. Customers are spread across a variety of industries. The company has offices in North and South America, Europe and Asia.

C.H. Robinson is a non-asset-based transportation provider, meaning that it does not own the equipment used to transport customers' freight. Instead, the company has relationships with approximately 40,000 transportation companies and hires from among these the appropriate transportation. C.H. Robinson grew out of a sourcing business (the buying, selling and brokering of fresh produce) that began in 1905, and sourcing continues to be a portion of the company's business. The company even has its own brand of produce.

Our buy rating for C.H. Robinson has not changed since November 2002. The rating is influenced by the company's healthy financial performance in the fourth quarter of 2007. We also believe that it is well positioned for the future, due to its growth initiatives and strong balance sheet. Revenue increased 19% year over year to $1.95 billion in the fourth quarter, supported by strong performances across segments. Net income rose 19% to $85.3 million, aided by a higher operating margin and a slight increase in investment and other income.

C.H. Robinson continued to have zero debt on its books at the end of the fourth quarter, while shareholders' equity (net worth) stood at $1.04 billion. The company has also continued to expand its capabilities within the truckload market and develop several high-service offerings.

Looking ahead to 2008, C.H. Robinson plans to open five to 10 new offices and make acquisitions that should enhance its service offerings. The company also plans to expand into two new geographical regions to achieve its long-term growth goal of 15% a year. Softening economic conditions and rising fuel prices are the principal risks to our rating for this stock. Additionally, any adverse changes in the regulatory framework are a cause for concern, as is potential foreign currency risk from international expansion.

Our quantitative rating is based on a variety of historical fundamental and pricing data and represents our opinion of a stock's risk-adjusted performance relative to other stocks.

However, the rating does not incorporate all of the factors that can alter a stock's performance. For example, it doesn't always factor in recent corporate or industry events that could impact the stock price, nor does it include recent technology developments and competitive dynamics that may affect the company.

Know What You Own: CHRW operates in the air delivery and freight services industry, and some of the other stocks in its field include UPSUPS and FedExFDX. These stocks were recently trading at ($72.78, +0.07%) and ($91.64, +0.43%) respectively. For more on the value of knowing what you own, visit TheStreet.com's Investing A-to-Z section.