Stock Picks: Top 5 Mid-Caps for Aug. 14 - TheStreet

Stock Picks: Top 5 Mid-Caps for Aug. 14

Circor, Amphenol, Ameron, Airgas and Donaldson make the list.
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Top Five Mid-Cap Stocks: August 14By TSC Ratings StaffEach 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.

Circor International

(CIR) - Get Report

has been manufacturing an array of valves since the early 1900s, ranging 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 the space shuttle. The company also designs, makes and distributes a variety of related products, such as fittings, actuators, condensate pumps, flow meters and water heaters, and 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 strengths can be seen in multiple areas, such as its impressive record of earnings-per-share growth, compelling growth in net income, revenue growth and solid stock price performance. Earnings per share grew 68.9% for the first quarter of fiscal-year 2008 when compared with the same quarter of fiscal 2007, which brought its three-year average EPS growth rate to a solid 47.7%. The company reported 9.5% growth in its revenue over the same period, which trailed its industry average but allowed it to boost net income, which grew 74.1% for the interim. In addition, as of the market's close on May 20 of this year, Circor's share price has jumped 38.8% compared with its closing price of one year prior. The stock currently trades at a valuation level that is in line with its peer average and a discount to the

S&P 500

average.

We feel that the company's strengths outweigh the fact that Circor sports a relatively low operating profit margin, at 11.1% for the quarter just ended. In its release reporting first-quarter results, the company indicated that its orders grew 27% year over year on the back of strength in its naval, aerospace and energy markets. Its backlog jumped 45% from the year-ago quarter. Management is guiding investors to expect EPS for the second quarter in the range of 74 cents to 83 cents, excluding special charges. This compares with 60 cents earned for the second quarter of fiscal 2007.

Amphenol Corporation

(APH) - Get Report

designs, manufactures and markets electrical, electronic and fiber optic connectors, interconnect systems and coaxial and flat-ribbon cable. The company primarily serves the communications and information processing markets, including cable television, cellular telephone and data communication and information processing systems; aerospace and military electronics; and automotive, rail and other transportation and industrial applications. Amphenol's connectors and interconnect systems are used primarily to conduct electrical and optical signals for a range of sophisticated electronic applications. The company has facilities for manufacturing and assembling its products in the Americas, Europe, Africa and Asia.

Our buy rating for Amphenol has been in place since June 2003. The company reported record EPS growth of 33% year over year for the second quarter of fiscal 2008, along with record sales that rose 23% to $846.8 million. The global communications, military and commercial aerospace markets performed particularly well for the company, although growth was broad-based. Net income for the second quarter rose to $110 million from $84 million a year ago. During the quarter, Amphenol broadened its technology offering in the military market by completing the acquisition of a U.S. manufacturer of audio interconnect products for that market. Additionally, the company's profitability and cash flow remained strong in the second quarter.

Looking ahead, Amphenol forecasts revenue for the third quarter of fiscal 2008 in the range of $825 million to $840 million. In addition, EPS is expected to be in the range of 59 cents to 61 cents per share. The company raised its full-year 2008 revenue growth guidance to 15% to 16% year over year, or $3.28 billion to $3.31 billion. Management reported continued strength in its business despite economic uncertainties and a generally moderate demand in certain markets. However, low profit margins could be a concern, as could any unfavorable changes, particularly in the communication and defense markets that are the company's highest revenue contributors.

Ameron International Corporation

(AMN) - Get Report

manufactures highly engineered products and materials for the chemical, industrial, energy, transportation and infrastructure markets worldwide. The company's products include such items as high-performance coatings and surfacer systems for the preservation of structures, molded fiberglass pipes and fittings, ready-mix concrete and products and services used in the construction of water pipelines. Products are produced at plants in a variety of locations throughout the U.S. -- such as 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. Strong performances from the fiberglass-composite-pipe group and Tamco (Ameron's 50%-owned steel mini-mill) led to higher results in the second quarter of fiscal 2008. The company reported a slight revenue increase of 1.9% year over year, which appears to have helped boost earnings per share from $1.63 in the second quarter of fiscal 2007 to $1.78 in the most-recent quarter. Net income increased 3.4% when compared with the same quarter one year prior, rising from $15.80 million to $16.33 million. Return on equity also improved slightly, and the company appears to be successfully managing its debt levels.

Management was overall pleased with the year-to-date results, as the company's performance for the first half of fiscal 2008 was positive. The company anticipates steady returns for the year from its various businesses, with Tamco and the fiberglass-composite-pipe group expected to continue performing at record levels. However, weak market conditions will most likely continue to negatively affect the infrastructure products group. Bear in mind 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.

Airgas

(ARG)

distributes industrial, medical and specialty gases (delivered in packaged or cylinder form) and welding, safety and related products (hard goods). Airgas is the largest producer of nitrous oxide in the U.S., a producer and supplier of dry ice and a supplier of liquid carbon dioxide in the Southeastern U.S. The company markets these products to its diversified customer base through multiple sales channels including branch-based sales representatives, retail stores, strategic customer account programs, telesales, catalogs, e-business and independent distributors. Products reach customers through an integrated network of over 900 locations, including production facilities, packaged gas fill plants, specialty gas labs, distribution centers, branches and retail stores.

We have rated Airgas a buy since May 2006 based on several positive investment measures, such as the company's robust revenue growth, solid stock price performance, impressive record of earnings-per-share growth, compelling growth in net income and reasonable valuation levels. On July 23, the company reported that its net earnings in the first quarter of fiscal year 2009 surged 33.2%, driven by acquisition and organic growth in its key end-markets. Net income rose to $68.88 million, or 81 cents per share, in the quarter from $51.72 million, or 63 cents per share, in the same quarter last year. During the first quarter, revenue ascended 22.0% to $1.12 billion from $915.10 million a year ago, helped by a 15% contribution from acquisitions and 7% growth in same-store sales.

Moreover, Airgas' strategic product categories, which contribute 40% of total revenue, grew 10% organically. Segment-wise, revenue from gas and rent rose 21.1% to $656.91 million from $542.25 million, while revenue from hard goods increased 23.3% to $459.79 million from $372.85 million in prior year's quarter. During the quarter under review, Airgas completed the acquisition of the packaged gas operations of Linde Gas USA for $310 million. As per the deal, the acquisition involved 130 locations, including branches, warehouses, packaged gas fill plants and other operations involved in distributing packaged industrial and specialty gases and related equipment.

Looking ahead to the second quarter of fiscal year 2009, Airgas anticipates its EPS to range from 82 cents to 84 cents per share. For the full fiscal year 2009, the company raised the lower end of its EPS forecast to a range of $3.30 to $3.40 per share from its previous guidance of $3.24 to $3.40 per share. While the company has a high leverage level, we feel its strengths outweigh the fact that it has had generally poor debt management on most measures that we evaluated.

Donaldson Company

(DCI) - Get Report

is a worldwide manufacturer of filtration systems and replacement parts. The company's product mix includes air and liquid filters and exhaust and emission control products for mobile equipment and in-plant-air-cleaning systems, compressed air-purification systems, and air-intake systems for industrial gas turbines. The company also produces specialized filters for such diverse applications as computer disk drives, industrial bags and semiconductor processing. Donaldson's principal offices and research facilities are located in Bloomington, Minn., while its primary European administrative and engineering offices are in Leuven, Belgium. The company also has extensive operations in the Asia-Pacific region. Donaldson manufactures its products at over 30 plants worldwide, as well as through three joint ventures.

Donaldson has been rated a buy since December 2002. Our rating is based on the company's strong revenue growth, improving margins, low leverage levels and healthy cash position. These positives are further supplemented by higher engine filtration unit sales, robust off-road products and after-market sales, and improved capacity utilization. For the third quarter of fiscal 2008, Donaldson's revenue grew 21.4% year over year, driven by double-digit growth in its industrial products and engine products segments. Led by the higher revenue growth, the company's gross profit margin improved 96 basis points to 34.99% during the quarter, while its operating margin improved 44 basis points to 10.81%. Net income grew 14.5% to $45.99 million from $40.15 million in the third quarter of fiscal 2007. Additionally, Donaldson's cash position was enhanced by a 10.5% increase in cash and cash equivalents, while net operating cash flow soared 112.3% to $57.54 million.

Management was pleased with what it saw as broad-based strength during the quarter, and it expects Donaldson's business conditions to remain good for the balance of fiscal 2008. Bear in mind that delayed shipments and the slowdown in residential construction markets may negatively impact the company's future financial results, as could EPA emissions standards that have affected new truck build rates. Shrinking returns, lower liquidity levels and an unfavorable product mix in gas turbine systems and industrial filtration solutions products could also be areas of concern.

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.