STOCK PICKS: Top 5 Mid-Caps for July 24

Strayer Education, Balchem, Circor, American Ecology and Flowserve make the list.
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Each business day, 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.

Strayer Education

(STRA) - Get Report

is a for-profit post-secondary education services corporation. The company's mission is to make high quality, post-secondary education achievable and convenient for working adults in today's economy.

Our buy rating for Strayer has not changed since March 2003, and is based on a variety of strengths that include the company's revenue and net income growth and its largely solid financial position. For the first quarter of fiscal 2008, Strayer's revenue rose 21% year over year due to increased enrollment and a 5% tuition increase that went into effect in January 2008. As a result, earnings per share improved 26%, while net income increased 25% from $18.81 million in the first quarter of fiscal 2007 to $23.52 million. Another favorable sign for the company is that it is debt free, resulting in a debt-to-equity ratio of zero.

Strayer is working to expand its geographic footprint and expand student enrollment. It recently opened two new campuses for the summer term in new Florida markets. The company has now opened six of the nine new campuses planned for 2008. Due to its strong enrollment growth of 19.0% for the spring term, management estimates second-quarter 2008 diluted EPS will be in the range of $1.45 to $1.47. However, these projected results could be negatively impacted should the company fail to increase student enrollment or successfully implement its growth strategy.


(BCPC) - Get Report

develops, manufactures and markets specialty performance ingredients and products for the food, feed and mechanical sterilization industries. Balchem produces choline products for both human and animal consumption.

Our buy rating for Balchem has not changed since June 2003. The company reported record quarterly results in net sales and net earnings for the first quarter of fiscal 2008. Balchem achieved net sales of $56.9 million, reflecting a 35% increase compared to with the same quarter one year prior. Net earnings increased 35% year over year to $4.6 million. As a result, the company's net earnings per diluted common share increased 31.6% to 25 cents per share from 19 cents per share in the first quarter of 2007.

Management reported that the integration of several acquisitions made during fiscal 2007 have gone well and stated that the first-quarter results did not yet reflect the company's full expectations for those acquisitions. Additionally, management noted again that rising raw material costs are expected to remain a challenge for Balchem in the near term. While the company has taken pricing steps to counteract the effects of these increased input costs, the actions taken in the first quarter did not offset all the cost increases, primarily due to timing. Overall, management expects the remainder of fiscal 2008 to continue to bring double-digit increases in sales and earnings. Bear in mind, however, that global economic issues could affect the company's results.

Circor International

(CIR) - Get Report

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 the space shuttle.

CIR 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 69% 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 48%. 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% for the interim. In addition, as of the market's close on May 20 of this year, Circor's share price has jumped 39% 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


We believe that the company's strengths outweigh the fact that Circor sports a relatively low operating profit margin, at 11% 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 to 60 cents earned for the second quarter of fiscal 2007.

American Ecology

(ECOL) - Get Report

is one of the nation's oldest providers of radioactive, hazardous and industrial waste management services. The company's customers are commercial and government entities, such as nuclear power plants, medical and academic institutions, steel mills, refineries and chemical production facilities.

We have rated American Ecology a buy since October 2005. Strengths such as revenue growth, a largely solid financial position and a notable return on equity influenced this rating. For the first quarter of fiscal 2008, American Ecology's revenue rose by 19% year over year. This growth appears to have trickled down to the bottom line, improving earnings per share by 19% over the first quarter of 2007. In fact, the company has demonstrated a pattern of positive EPS growth over the past two years. A slight improvement in return on equity can be seen as a modest strength for the company. Finally, while total debt increased slightly year over year, it remains at an almost negligible level.

Looking ahead, the company anticipates fiscal 2008 earnings to be in the range of $1.17 to $1.23 per diluted share. This estimate is based on the company's record first-quarter results and its strong outlook for the second quarter. Additionally, we believe that American Ecology's strengths outweigh the fact that the company currently shows weak operating cash flow.


(FLS) - Get Report

engages in the development, manufacture and sale of precision-engineered flow equipments through three divisions: Flowserve Pump, Flow Control and Flow Solutions. The company operates worldwide in more than 56 countries, with 43% of its revenue coming from North America.

We have rated Flowserve a buy since January 2007 based on several positive investment measures, such as the company's increasing revenue and net income. Additionally, the company reported record results in various areas including earnings per share, sales and bookings for the first quarter of fiscal 2008. Flowserve's revenue rose 24% year over year in the first quarter, largely due to strong sales in the oil and gas markets. The company also reported that fully diluted earnings per share improved 159.0%, rising from 59 cents a year ago to $1.53. Furthermore, net income increased 162%, rising from $33.61 million to $88.07 million. Additionally, bookings were up 31% for the quarter.

Management raised its fiscal 2008 EPS forecast to a target range of $5.90 to $6.20 from its previous estimate of $5.10 to $5.40. The company is encouraged by its first-quarter results and its continued strength in key markets, and remains confident in its ability to successfully carry out its operational excellence initiatives to increase its performance in the current global environment. Bear in mind, however, that the recent surge in commodity costs is a challenge to the machinery industry as a whole and could therefore affect Flowserve's results in the future.

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 Ratings.