Top Five Mid-Caps: April 10

Pharmaceutical Product Development, Tupperware, Lindsay Corp., Cabot Oil & Gas and Steel Dynamics are all on top.
By TheStreet Ratings Staff ,

Updated from 07:10 a.m. EDT

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.

Pharmaceutical Product Development

( PPDI) is a global contract research organization. The company provides drug discovery and developmental services, post-approval expertise, and compound partnering programs for clients and partners that include pharmaceutical, biotechnology, medical-device and government organizations.

We have rated this company a buy since May 2004. This rating reflects a respectable financial performance and strong fundamentals. Revenue rose 15% year over year for the fourth quarter of 2007. The company has a gross profit margin of 45%, which we consider strong. In addition, the net profit margin is 11%. Pharmaceutical Product Development became debt-free during the third quarter of 2007, while it carried total debt of $56.7 million one year prior. Furthermore, the company increased its bottom line by earning $1.37 a share for the fourth quarter of 2007, compared with $1.32 one year prior. Finally, Pharmaceutical Product Development recently increased its annual cash dividend to 40 cents a share, payable quarterly at a rate of 10 cents, vs. a previous annual rate of 12 cents a share.

We feel that the company's strengths outweigh recent subpar growth in net income. Also, increasing cancellation rates and growing operating expenses remain major concerns. Further, the emergence of small sized companies offering niche services has led to increased competitive pressure that could affect the firm's prospects.

Tupperware

(TUP) - Get Report

makes and markets consumer products for the home, as well as cosmetics and personal-care products. The company operates in the U.S. and almost 100 foreign countries. Its core product line includes food storage containers and an established line of children's educational toys, serving products, microwave products and gifts. In 2000, the company acquired BeautiControl, which makes and sells skin care products, cosmetics and related products. Tupperware products are primarily distributed through the direct selling method. Distributors are granted the right to market Tupperware products using parties and other non-traditional retail methods and to utilize the Tupperware trademark. BeautiControl's products are sold through consultants and directors who are independent contractors.

Our buy rating for Tupperware has not changed since July 2004. The company's strengths can be seen in a variety of areas, such as its solid stock performance, revenue growth and improvement in net income. During the fourth quarter of 2007, revenue rose 19% year over year, and this growth appears to have helped boost earnings per share, which climbed 35% in the same period. Net income increased 38%, rising to $54.9 million from $39.9 million a year ago. Tupperware saw strong sales growth across all five of its business segments in the fourth quarter. Powered by its strong earnings growth, this stock has surged 53% over the past year. Finally, net operating cash flow increased to $127.2 million, or 10%, year over year.

Looking ahead to fiscal 2008, management expects an 8% to 10% full-year sales increase over 2007. With more than 84% of Tupperware's sales and even more of the company's profits coming from international markets, management feels that the company is somewhat insulated from the weakness of the U.S. dollar and the U.S. economy. While almost any stock can fall in a broad market decline, we feel that the company's strengths outweigh such weaknesses as poor debt management. The stock should continue to move higher despite the gain that it has seen in the past year.

Lindsay Corp.

(LNN) - Get Report

manufactures and sells automated irrigation systems. These systems help the agricultural industry increase or stabilize production while conserving water, energy and labor. Lindsay's principal manufacturing facilities are located in Lindsay, Neb., but the company also has foreign sales and production facilities in France, Brazil, and South Africa, providing it with important bases of operation in key international markets.

The company has been rated a buy since March 2007, based on its robust revenue growth, compelling improvement in net income and a solid financial position. Earnings per share grew to 79 cents from 21 cents over the same period, while net sales grew to $108.4 million from $63.7 million. Net income increased to $9.7 million from $2.5 million. Net operating cash flow has significantly increased, and the company's debt-to-equity ratio is low at 0.31.

While the company is currently trading at a premium valuation, we feel that these strengths justify the price levels. Furthermore, management expects domestic demand for irrigation products will remain strong in the future, based on the current USDA forecast of a second consecutive year of record net-cash farm income in 2008. Global agricultural development and higher commodity prices lead the company to anticipate increased international demand as well. Management plans to continue to focus on growing each of its segments both organically and through acquisitions. Bear in mind, however, that the machinery industry overall is vulnerable to increases in commodity costs.

Cabot Oil & Gas

(COG) - Get Report

is an independent oil and gas company engaged in the exploration, development, acquisition and exploitation of oil and gas properties in North America. Headquartered in Houston, TX, the company has five principal areas of operation: Appalachian Basin, the Rocky Mountains, Anadarko Basin, the Gulf Coast (onshore and offshore in Texas and Louisiana), and the gas basin of western Canada. Cabot states that approximately 97% of reserves and 90% of production are natural gas.

Cabot has been rated buy since September 2004. The company displayed an impressive performance in the fourth quarter of fiscal 2007, benefitting from increasing production and pricing trends. Revenue increased 13% year-over-year, and net income increased 31% to $42 million. This was mainly due to lower brokered natural gas costs and lower taxes, partially offset by higher depreciation, depletion and amortization charges. Due to successful drilling programs undertaken by Cabot, the company's natural gas production increased 5.2% following a rise in production from the East Coast, Gulf Coast, and Canada operational regions. Total production of crude oil and natural gas increased 5.4%.

Looking forward, Cabot plans to continue to pursue lower-risk drilling opportunities and selectively engage in impact exploration, a tactic that is expected to enhance shareholder returns in the longer term. The company expects to complete the drilling of approximately 419 gross wells during fiscal 2008. While we feel that the current trends in Cabot's results should continue on the back of this investment in exploration activities, it is important to remember that crude oil and natural gas prices are highly volatile and cyclical in nature. They are already trading at record highs, and any significant downward trend may affect Cabot's profitability. Moreover, oil exploration is a matter of chance, and the company's currently high success rate may change in the future.

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. Steel Dynamics produces flat-rolled steel, fabricated products, and so-called long products such as bars and beams. The company produces its steel primarily from steel scrap and was founded in 1993.

We have rated Steel Dynamics a buy since June 2003. The company continues to offer superior returns to shareholders, with return-on-equity reported at a higher 26% at the end of the fourth quarter of 2007. Net sales for the fourth quarter rose to $1.45 billion from $839.80 million in the year-ago quarter. This increase was driven primarily by the October 2007 acquisition of OmniSource, one of the leading scrap metal recycling companies in North America. Furthermore, the company's capacity-expansion plans for its Structural and Rail division is expected to increase production capacity to 2 million tons per year, vs. 1.00 million in 2006.

Looking forward, positive industry trends could improve the company's bottom-line performance in the near future. Demand for steel, and therefore steel prices, continue to be strong in 2008 due to increased demand in emerging markets and a weakening U.S. dollar. In addition, strong global economic activity and exceptional inventory controls are expected to increase production despite recessionary trends in the U.S. However, the higher cost of scrap metal and energy could hurt Steel Dynamic's operating margin if current steel pricing trends do not continue, and any undue delay in completing the company's capacity enhancement program could hinder growth prospects.

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

: TUP operates in the consumer goods industry, and some of the other stocks in its field include

Avon

(AVP) - Get Report

and

Newell Rubbermaid

(NWL) - Get Report

. These stocks were recently trading at $40.02, +0.98% and $22.87, -0.65% respectively. For more on the value of knowing what you own, visit TheStreet.com's

Investing A-to-Z

section.

This article was written by a staff member of TheStreet.com Ratings.

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