Spot the Next Outbreak of Material Madness

The first name is Titanium Metals(TIE Quote), a $5.6 billion market-cap diversified metals and mining company. The company is commonly referred to as Timet.

It operates as a vertically integrated manufacturer of titanium products, melted products (ingot and slab) and mill products. These products are used in the aerospace business, with 65% of last year's sales coming from the U.S. and 35% from Europe.

While the stock is in the materials sector, this is really a play on the aerospace and defense business. Those who follow Timet closely also monitor Boeing and Airbus aircraft-build projections, the periodical Airline Monitor and other indicators. With its specialty focus, Timet has been able to post compound revenue growth of 45% over the last three years and produced solid return on equity last year of 27%

What's driving all this demand? In addition to aerospace's demand for titanium, the power-generation, chemical-processing and desalination markets are recovering from recent lows and struggling to meet current demand.

The earnings outlook for Timet is strong, with a sales order backlog at the end of 2006 at $1.1 billion and with earnings-per-share growth forecast at 34% to $2.21.

This has not gone completely unnoticed; total return to shareholders over the last 12 months reached 77%. But this one still has very attractive defensive valuation characteristics, selling at just 15 times next year's consensus earnings estimate.