Top Five Mid-Cap Stocks: Berry, Flowserve

Berry Petroleum, Ametek, Energen, Flowserve and American Ecology are all on top.
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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.

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 U.S. 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 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 a year ago. Net income more than doubled to $43 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 strong earnings growth, this stock has surged 42% over the past year, and we feel that it 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.


(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 process, 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 consistent revenue, EPS 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 strong revenue growth of 21%. Continuing its pattern of EPS growth over the past two years, the company again reported improved EPS to 62 cents from 48 cents in the first quarter of 2007. Net income grew to $66.4 million from $50.9 million a year ago. Furthermore, operating cash flow increased 39% to $77 million. Additionally, the company recently paid a quarterly dividend of 6 cents per share on March 31, 2008.

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 per 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.



is an energy holding company that engages in the acquisition, development, exploration and production of oil, natural gas and natural gas liquids in the U.S. The company has two subsidiaries, Energen Resources Corporation and Alabama Gas Corporation. Energen Resources, which explores for and produces oil and gas, generates about 85% of the company's consolidated net income. Alabama Gas Corporation is the largest natural gas distributor in Alabama. Energen is based in Birmingham.

Energen has been rated a buy since January 2006. A number of positive investment measures should help this stock outperform the majority of stocks that we rate. Energen's revenue increased slightly in the first quarter of fiscal 2008, rising 5.9% year over year. This growth appears to have helped boost the company's earnings per share by 13% in the same period. In addition, net income improved 12% to $116.7 million in the first quarter. Energen's expanding profit margins are also strengths, as the company reported that its gross profit margin increased to 46%, compared with 43% in first quarter of 2007.

Management was pleased with the first-quarter results and is excited about Energen's future outlook. The company has capitalized on the recent upward momentum of oil and gas market prices by strengthening its hedge position for 2009 and 2010 production in order to help lock in earnings and cash flow growth. Additionally, management announced its new earnings guidance for fiscal 2008, with earnings per diluted share now estimated to be in the range of $4.15 to $4.55 due to the current market strength of commodity prices. However, any significant decline in natural gas and oil prices along with any unfavorable regulatory movements could negatively affect the company's business and future profitability.


(FLS) - Get Report

develops, manufactures and sells precision-engineered flow equipment 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 EPS improved to $1.53 from 59 cents a year ago. 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.

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. A significant portion of the company's revenue from operating disposal facilities -- those that actively receive and treat waste materials -- comes from discrete, one-time clean-up projects, which may span weeks, months, or years depending on the project scope. American Ecology's Non-Operating Disposal Facilities segment consists of facilities that no longer receive waste materials but continue to be monitored and maintained as part of the treatment of previously received waste materials. Other services include waste stabilization, encapsulation and chemical oxidation.

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, revenue rose 19% year over year. This growth appears to have trickled down to the bottom line, improving EPS 19% over the same period. 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 feel that American Ecology's strengths outweigh weak operating cash flow.

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.