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Boring Portfolio, Stimulating Returns

Tractors, doors and ranches pay off handsomely.

Sometimes, profits come from the most unlikely places.

Over the past year, for example, a doormaker, a ranch store operator and an irrigation system manufacturer have all outperformed the

Nasdaq

. And some say the party might not be over for these stocks just yet.

Last August ,

TheStreet.com

wrote about the virtues of investing in "boring" stocks like

Tractor Supply

(TSCO) - Get Report

, which operates retail farm and ranch stores, and

Masonite

(MHM)

, which makes doors. Both companies were cited as dominant players in their respective fields with attractive valuations.

Meanwhile, other firms like

Toro

(TTC) - Get Report

, which produces and sells maintenance equipment and irrigation systems, transportation company

Landstar Systems

(LSTR) - Get Report

TST Recommends

and packaging firm

Silgan Holdings

(SLGN) - Get Report

were said to be good, if somewhat dull, bets.

With the exception of Silgan, all of these stocks have performed solidly over the last 12 months. Tractor Supply, which has split its stock twice in the past year, has more than doubled, while Masonite is up almost 28%. Toro has risen 56% and Landstar has gained 18%. Silgan has fallen almost 3%. By comparison, the

S&P 500

has advanced by 5%.

Favors the Bold

After such heady gains, some say it might be time to book profits. But it's also worth leaving a little money on the table. Although Tractor Supply has rocketed over the last 12 months, its valuation hasn't changed much because profits have also increased sharply. The firm's trailing price-to-earnings ratio is still around 24 and its price-to-sales ratio is under 1. Tractor Supply is expected to post a 35% jump in earnings per share this year and a 19% gain in 2004.

"We believe the fundamentals have never been stronger," said Avondale Partners analyst Scott Pettit in a research note. The firm's "competitive landscape and unit growth prospects are among the most favorable in the specialty retail niche." (None of the analysts mentioned in this story has an investment banking relationship with the company he or she discusses.)

Doormaker Masonite sports a lower P/E than it did in August of last year: 11 times trailing earnings. And the company is expected to post a 25% jump in profits this year to $1.97 a share. Still, the company is dependent on the housing market, and with long-term interest rates inching higher recently, some worry it might have trouble reaching its goal of 10% annual sales growth going forward.

"Longer term, we are concerned that the very high levels of housing and renovation activity seen over the last two years may have pulled forward future sales," said analyst Cherilyn Radbourne at RBC Capital Markets. The outlook for this year and next, however, remain favorable, she said.

Torrid

As for Toro, it recently raised its earnings projections for 2003 after posting solid results in its fiscal third quarter. The company has been aggressive in reducing costs in recent years and has boosted earnings by cutting a deal with

Home Depot

(HD) - Get Report

to supply a line of lawn mowers.

Seaver Wang, an analyst at Sidoti, said he is expecting the company's earnings to slow down after some "spectacular" growth. But he is still forecasting EPS growth of 10% to 15% over the next few years and said there's a possibility Toro will find another mass merchandiser in the near future. The stock trades at 15 times earnings and at a price-to-sales ratio of less than 1.

The outlook for Landstar also seems reasonably good, with analysts calling for earnings-per-share growth of 13% in 2004. A.G. Edwards analyst Donald Broughton said the firm is able to produce strong cash flow because it doesn't actually own any trucks and instead relies on commission-paid agents to transport freight. That enables the firm to repurchase shares and increase per share earnings.

Still, Broughton noted that the number of agents, or owner operators, has started to go down recently, and that other trucking firms may be better positioned to take advantage of an improving economy.

The worst-performing recommendation -- Silgan Holdings -- isn't likely to see a reversal of fortunes anytime soon, say some analysts. The firm just recently lowered its third-quarter and 2003 earnings guidance after closing a plant in Connecticut. Although the move should be accretive to earnings next year, some say investors should be careful with the stock because, like Landstar, it is very thinly traded, meaning it could move down sharply if disappointing news is released.