Top Five Mid-Caps: April 3

Flowserve, Sigma-Aldrich, C.H. Robinson, Circor and Cabot Oil & Gas are all on top.
Author:
Publish date:

Updated from 7:09 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.

Must-Own Mid-Cap Stocks

var config = new Array(); config<BRACKET>"videoId"</BRACKET> = 1487554825; config<BRACKET>"playerTag"</BRACKET> = "TSCM Embedded Video Player"; config<BRACKET>"autoStart"</BRACKET> = false; config<BRACKET>"preloadBackColor"</BRACKET> = "#FFFFFF"; config<BRACKET>"useOverlayMenu"</BRACKET> = "false"; config<BRACKET>"width"</BRACKET> = 265; config<BRACKET>"height"</BRACKET> = 255; config<BRACKET>"playerId"</BRACKET> = 1243645856; createExperience(config, 8);

Flowserve

(FLS) - Get Report

developments, manufactures and sells precision-engineered flow equipment through three divisions: Flowserve Pump, Flow Control and Flow Solutions. The company operates worldwide, with 43% of its revenue coming from North America.

We have rated Flowserve a buy since January 2007. This is based on robust revenue growth, good cash flow from operations and expanding profit margins. Flowserve's revenue rose 19% year over year for the third quarter of 2007. The company also reported earnings per share of $1.10, compared with 49 cents in the third quarter of 2006. Furthermore, net operating cash flow has significantly increased to $106.8 million from the year-ago quarter. We also believe the company's gross profit margin of 36% is strong.

The recent surge in commodity costs is a challenge to the machinery industry. This could affect Flowserve's results in the future.

Sigma-Aldrich

(SIAL)

develops, manufactures and distributes a broad range of quality biochemicals and organic chemicals. These chemical products and kits are used in scientific and genomic research, biotechnology, pharmaceutical development and the diagnosis of disease. They are also used in pharmaceutical and other high-technology manufacturing. The company operates in 35 countries, with chemical production facilities in Australia, Canada, France, Germany, India, Japan, Singapore, Switzerland, the U.K. and various U.S. states.

Our buy rating for Sigma-Aldrich has been in place since November 2003. The company's strong financial performance supports this rating. Spurred by solid organic growth, acquisitions and favorable exchange rate effects, Sigma-Aldrich's revenue increased 15% year over year for the fourth quarter of 2007. Net income also increased to $84.9 million from $71.6 million in the year-ago quarter. Looking forward, management expects earnings per share in the range of $2.52 to $2.62 for fiscal 2008.

Sigma-Aldrich is setting up a manufacturing hub in China as part of its efforts to generate 25% of its total revenue from Canada, the Asia-Pacific, and Latin America by 2010. The company is also considering the construction of a facility in South Korea to supply electronic chemicals for use in the semiconductor market. There are additional plans to expand production capacity at facilities in Ireland and Switzerland. Successful completion of these initiatives could further strengthen Sigma-Aldrich's business going forward. However, any unexpected delay in commercializing the company's strong product pipeline could impact the company's revenue stream. Any slowdown in consumption industries could also have adverse effects.

C.H. Robinson

(CHRW) - Get Report

is one of the world's largest third-party logistics companies. It provides freight transportation services and logistics solutions to companies of all sizes. Customers are spread across a variety of industries. The company has offices in North and South America, Europe and Asia.

C.H. Robinson is a non-asset based transportation provider, meaning that it does not own the equipment that transports its customers' freight. Instead, the company has relationships with approximately 40,000 transportation companies and hires the appropriate transportation to manage its customers' freight needs.

C.H. Robinson grew out of a sourcing business (the buying, selling, and brokering of fresh produce) that began in 1905, and sourcing continues to be a portion of the company's business today. The company even has its own brand of produce.

Our buy rating for C.H. Robinson has not changed since November 2002. The rating is influenced by the company's healthy financial performance in the fourth quarter of 2007 as well as our belief that it is well positioned for the future due to growth initiatives and a strong balance sheet. Revenue increased 19% year over year to $1.95 billion for the fourth quarter, supported by strong performance across segments. Net income rose 19% to $85.25 million, aided by a higher operating margin and a slight increase in investment and other income.

C.H. Robinson continued to have zero debt on its books at the end of the fourth quarter, while shareholders' equity (net worth) stood at $1.04 billion. The company has also continued to expand its capabilities within the truckload market and has developed several high-service offerings while focusing on strengthening customer relationships to drive growth in a difficult environment.

Looking ahead to fiscal year 2008, C.H. Robinson plans to open five to ten new offices and make acquisitions that should enhance its service offerings. The company also plans to expand into two new geographical regions to achieve its long-term growth goal of 15% per year. Softening economic conditions and rising fuel prices are the principal risks to our rating for this stock. Additionally, any adverse changes in the regulatory framework are a cause for concern, as is potential foreign currency risk from international expansion.

Circor

(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.

The company also designs, makes, and distributes a variety of related products, such as fittings, actuators, condensate pumps, flow meters, and water heaters and 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. Its strength can be seen in areas such as its good cash flow from operations, solid stock performance and a largely solid financial position. Net operating cash flow increased by 118% year over year to $36.5 million in the fourth quarter of 2007.

The company's debt-to-equity ratio is very low at 0.05, implying successful management of debt levels. Shares have jumped 29% in the past year. While the stock price has been driven to a level that is somewhat expensive compared to industry peers, we feel the premium is justified.

In addition, we believe the company's strengths outweigh a year-over-year net income decline to $10.12 million from $10.38 million. Circor did record revenue growth of 2.9% for the fourth quarter, but this does not appear to have trickled down to the company's bottom line, as evidenced by a decline in earnings per share. For the fourth quarter, Circor's EPS came in slightly below the year-ago quarter, and the company has reported somewhat volatile earnings recently. However, we feel that Circor is poised for EPS growth in the coming year.

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, Texas, 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, benefiting from increasing production and pricing trends. Revenue increased 13% year over year, and net income rose 31% to $42.1 million. This was mainly due to lower brokered natural gas costs and lower taxes and partially offset by charges related to depreciation, depletion and amortization. Due to successful drilling programs, the company's natural gas production increased 5.2%. Total production of crude oil and natural gas increased 5.4%.

Looking forward, Cabot plans to continue to pursue lower-risk drilling and selectively track impact exploration opportunities, a tactic which should enhance shareholder returns in the longer term. The company expects to complete 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.

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

: CHRW operates in the air delivery and freight services industry, and some of the other stocks in its field include

UPS

(UPS) - Get Report

and

FedEx

(FDX) - Get Report

. These stocks were recently trading at $74.03, -0.65% and $96.47, -0.88% 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.