Top Five Mid-Cap Stocks
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.
Ametek
(AME) - Get Report
manufactures electronic instruments and electromechanical devices. The company has operations throughout the U.S. and in more than 30 other countries. The company's Electronic Instruments segment manufactures advanced monitoring, testing, calibrating and display instruments for the aerospace, power and industrial markets worldwide. The Electromechanical segment produces highly engineered electromechanical connectors for hermetic (moisture-proof) applications; specialty metals for niche markets; and brushless air-moving motors, blowers, and heat exchangers. The products are used in floor care and other specialty applications.
Ametek has been rated a buy since November 2002. The company's strengths include its consistent revenue, earnings per share and net income growth, as well as a solid stock performance. In addition, Ametek's minimal exposure to the housing and automobile markets could insulate it from the sluggish U.S. economy.
For the first quarter of 2008, the company reported a 30% year-over-year increase in earnings, led by operational improvements and a strong revenue growth of 21%. Continuing its pattern of EPS growth over the past two years, the company improved EPS to 62 cents in the most recent quarter from 48 cents a year ago. Net income grew to $66.4 million from $50.9 in the same period. Furthermore, operating cash flow increased 39% to $77 million. Additionally, the company recently paid a quarterly dividend of 6 cents a share on March 31.
Going forward, Ametek estimates revenue for 2008 to increase in the high teens on a percentage basis, while earnings are estimated to be in the range of $2.47 to $2.52 a share. Management also expects earnings for the second quarter to be approximately 61 cents to 63 cents a share, an increase of 13% to 17% over last year's second-quarter results. However, these results could be negatively affected should the company fail to successfully integrate its recent acquisitions. Other risks include the price and availability of raw materials and changes in the competitive environment.
Valmont Industries
(VMI) - Get Report
is a global manufacturer that designs and manufactures poles, towers and structures for the lighting, traffic, utility and communications industries. The company also makes mechanized irrigation systems and water-management equipment for agricultural use, provides protective coating services for infrastructure, and produces fabricated products for commercial and industrial applications. Headquartered in Omaha, Neb., Valmont currently operates 43 facilities located in 14 countries.
We have rated Valmont a buy since April 2005, based on the company's robust revenue growth, largely solid financial position and compelling improvement in net income. For the first quarter, revenue rose 24% year over year. This growth appears to have helped boost earnings per share, which improved to 11 cents from 10 cents in the year-ago quarter. Net income increased 59% to $29.7 million. Overall, the company's strong results were driven by global demand for its infrastructure and agriculture products. Finally, the company's current debt-to-equity ratio of 0.53 is relatively low, implying successful management of debt levels.
Valmont expects that the positive environment seen in the first quarter will continue through this year, and it hopes to benefit from a strong global agricultural economy and increased global spending on infrastructure. Management now anticipates year-over-year sales growth to be in the high teens, while operating income as a percent of sales is expected to show a small improvement for the year. However, Valmont's future results and our buy rating are subject to a variety of risks, including the availability and price of raw materials, future economic and market circumstances, and any actions or policy changes from domestic and foreign governments.
Steel Dynamics
(STLD) - Get Report
is the nation's fifth-largest producer of carbon steel products. The company operates five electric-furnace mini-mills and employs about 3,500 people. Using steel primarily from scrap materials, the company produces flat-rolled steel, fabricated products, and so-called long products such as bars and beams. Steel Dynamics was founded in 1993.
We have rated the stock a buy since June 2003. The company's strengths include revenue growth, increased earnings per share and growth in net income. Steel Dynamics recently reported that its net income for the first quarter of 2008 rose 40% year over year, bolstered by strong sales growth in the flat-roll steel market and the metals recycling business. Revenue for the first quarter more than doubled, increasing from $865.7 million a year ago to $1.9 billion. This revenue growth appears to have helped boost the company's earnings per share, which improved 43% over the same quarter a year ago. Powered by earnings growth and other factors, this stock has surged 65% over the past year.
Looking forward to the second quarter, the company's preliminary earnings estimate is in the range of 80 cents to 90 cents a share. In addition, the company expects to take advantage of the current strong demand for flat-rolled steel created by domestic supply constraints, low steel inventories and limited steel imports. However, Steel Dynamics' future results could be influenced by changes in economic conditions that affect steel consumption, increases in energy costs and difficulties in integrating acquired businesses.
Berry Petroleum
(BRY) - Get Report
is an independent energy company that produces, develops, acquires, exploits and explores for crude oil and natural gas. The company has producing operations in California, Colorado and Utah, as well as interests in undeveloped and prospective oil and gas leasehold land positions in the western United States. The company is also expanding into the Rockies and mid-continent for light oil and natural gas. Berry was founded in 1909, and had 243 employees as of December 2007.
Our buy rating for the company has not changed since June 2003. Berry's strengths can be seen in multiple areas, including its growth in revenue and net income. Revenue grew 58% year over year for the first quarter of fiscal 2008. This appears to have helped boost earnings per share, which improved to 95 cents from 42 cents in the same period. Net income rose to $43 million from $18.9 million.
Management reports that the company is on target to achieve a 10% increase in production and net proved reserves in 2008, in addition to being in an excellent financial position. Powered by its strong earnings growth and other factors, shares have surged 42% over the past year, and we feel that the stock could move higher despite its nice gains. We feel that Berry's strengths outweigh a somewhat disappointing return on equity. However, it is important to remember that any stock can fall in a major bear market.
Harsco
(HSC) - Get Report
is a diversified, multinational provider of industrial services and engineered products. The company works with a variety of industries, including steel, construction, railways and energy. Harsco operates in three business segments: Mill Services, Access Services, and Minerals and Rail Services and Products. The company has locations in 45 countries, including the U.S.
Harsco has been rated a buy since March 2003, based on various company strengths, such as its growth in revenue and net income and its largely solid financial position. Revenue rose by 18% year over year during the first quarter of fiscal 2008. Earnings per share appear to have been boosted by this revenue growth, improving 24% in the same period. Net income increased 20% to $57.04 million. The company's current debt-to-equity ratio of 0.71 implies successful debt management.
The company was pleased with what it considered a strong start to fiscal 2008 and remains confident in its outlook. With almost 70% of revenue generated outside the U.S., the company feels that it has effectively limited its exposure to domestic economic conditions. Management raised its full-year 2008 guidance for EPS from continuing operations to a new range of $3.45 to $3.55 from the previous range of $3.40 to $3.50. Although the company reported a disappointing return on equity, we feel that its strengths outweigh this weakness. While the stock's increase in price over the past year has made it relatively expensive compared to the rest of its industry, we feel that the company's strengths justify the premium.
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.
This article was written by a staff member of TheStreet.com Ratings.