If you're a patient investor who's looking for a way to motor your portfolio forward, Baldor Electric (BEZ) may provide a spark.

This Arkansas-based manufacturer of motors and drives has struggled to post sales and profit growth, but it should benefit from a second-half economic turnaround. The company offers a solid balance sheet, decent insider ownership and a steady dividend, so its shareholders can afford to be patient.

Powering Ahead

Baldor's business falls into three primary segments: motors, generators and drives. The motor business, which provides more than 80% of the company's revenue, manufactures a wide range of industrial motors, from small ones with fractional horsepower to giant engines providing more than 1,500 horsepower of energy.

The motor business has been anemic over the past several quarters, as it largely tracks the economy. Even though economic activity is showing signs of life, the motor business will more likely follow the economy rather than lead it. Baldor's motor sales will probably show only modest growth for the balance of the year.

In fact, second-quarter earnings reflect just that. Sales decreased 5%, net earnings decreased 17% and earnings per share decreased 13% vs. the year-ago period. So far, 2003 has fared only modestly better. On a year-to-date basis, sales decreased 1%, net earnings decreased 4% and earnings per share remained flat compared to this time a year ago. However, cash flow from operations during the first six months of the year more than doubled from the year before.

However, with easier comparisons in coming quarters, results should begin to paint a better picture for investors later this year. In fact, while motor sales remain relatively flat, business in the generator segment has been powerful. Sales of generators in the second quarter increased nearly 50% from the year-ago quarter. That business remains relatively small for Baldor, but it continues to grow, both internally and through acquisitions, including the recent acquisition of Energy Dynamics, which increases the generation product mix and improves the company's reach in a growing market.

Baldor also produces a number of industrial drives such as inverters, servo products and vector drives. That business should also show signs of growth once the economy begins to re-energize. In fact, signs of resurgence are already finding their way into Baldor's story, as the company recently received a record drive order.

Don't underestimate the benefits Baldor could reap from an economic uptick. Both Baldor and its customers have experienced shrinking inventory, meaning increasing orders are likely as the cycle improves. I expect both orders and pricing to accelerate as the cycle is better defined, although it isn't clear how quickly pricing power will appear.

Enlightened Financials

Management is another major variable for Baldor's performance. The current team has done a solid job of managing through the downturn, preserving balance sheet integrity and balancing the interests of various stakeholders: customers, employees and shareholders.

The company has very little debt -- about 30% of capital -- and has maintained a stable dividend during the downturn. Baldor should be able to post 10% growth in earnings this year and 15%-plus growth in 2004, assuming the economy cooperates. Assuming such growth, the company should also boost its dividend in 2004 from its current 52-cent level to 55 to 57 cents.

The major risk to Baldor is the lack of an economic catalyst. However, unlike many other "higher-tech" electronic manufacturers, Baldor's business is relatively mainstream, with a diverse client base. The risk is more that Baldor will simply plod along rather than see a further decline in business fundamentals.

Another risk is simply valuation. Trading above 25 times earnings, shares look expensive for a company that isn't likely to post much immediate growth. That's hard to argue, but Baldor's growth is likely to accelerate late this year and early next. Signs of an economic resurgence will probably push earnings estimates -- and the stock price -- higher.

I wouldn't want to chase the stock much above $20, but it's worth a look on pullbacks below that level. With the 2.5% dividend, a good management team and a basic, easy-to-understand business, Baldor may deserve investors' patience. I give it 2 1/2 barrels and place it in the Bottom of the Barrel income portfolio. (For an explanation of our barrel rating system,

see our description.)

The portfolio is coming back. Because so many of you have asked for it, I've decided to bring back the tables that once appeared in every Bottom of the Barrel column. The sheer number of names will make weekly updates impractical, but beginning next week, I'll publish the updated table monthly.

Christopher S. Edmonds is vice president and director of research at Pritchard Capital Partners, a New Orleans energy investment firm. He is based in Atlanta. At time of publication, neither Edmonds nor his firm held positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. While Edmonds cannot provide investment advice or recommendations, he welcomes your feedback and invites you to send it to

Chris Edmonds.