Boring Stocks, Rich Owners

Investors looking for the next great place to park their money might want to stop thinking about chips and routers and start thinking about doors andfarm equipment.

It may sound boring, but the returns on some of these stocks have beenanything but dull in recent years. While more dynamic issues like Cisco ( CSCO) and Intel ( INTC) have each lost half their value since March 2000, doormaker Masonite ( MHM) has doubled and Tractor Supply ( TSCO), a company that operates retailfarm and ranch stores, is up over 260%.

Masonite was recently higher by 0.44%, to $16.05, while Tractor was up0.6%, to $32.30.

After such an impressive surge, you might think these stocks areovervalued, but analysts say that's not the case. Masonitetrades at just 15 times last year's profits, while Tractor Supply trades at24 times earnings. Both sport a low price-to-sales ratio.

Indeed, Masonite said just last week that it will beat analysts' second-quarter earnings estimates by as much as 9 cents a share. Tractor Supplyalso raised guidance recently and now expects sales to be up as much as 41%this year.

Aside from strong financials, both firms are also the dominant playersin their respective fields. After Premdor bought Masonite last year, thecompany's only real competitor is a private firm called Jeld-Wen.Meanwhile, Tractor Supply's main rival, Quality Stores, went out of businesslast year, enabling the retailer to purchase about 87 of that company'sbest stores.

Even after Tuesday's stock split, Tractor Supply has just 18 million shares outstanding and because the stock has a very low average daily volume, it can be susceptible to big price swings. Meanwhile, Masonite is highly leveraged and owes at least some of its success to the strength in the housing market. If the economic backdrop were to change, some analysts fear that the stock could pull back. Still, the downside is seen as limited because the stock remains cheap.

David Campbell, an analyst at Davenport, believes Tractor Supplyactually has a lot of upside despite the recent advance. "I don't thinkthere's a lot of hot money in the retail sector right now," he said.

Greener

Opportunities for wealth creation can be found in other unusual places,too. Consider Toro ( TTC), a maker of professional turf maintenance andirrigation systems. Granted, it's not the most exciting area to be in, butthis firm has seen respectable growth in recent years.

The stock has surged 93% since the market peaked two years ago, but itstill trades at just 14 times earnings and 0.5 times sales. The company hasbeen growing profits steadily for the last five years and just last weeksaid third-quarter earnings should be 6 cents to 8 cents better than analystsexpect.

Then there's trucking company Landstar ( LSTR) and packaging firm SilganHoldings ( SLGN). Both have risen sharply over the past year, but remainrelatively inexpensive.

Tim Truebenbach, president and general partner at True CapitalManagement, said even if stocks have had a big run, they can continue torally if they produce solid earnings and revenue growth.

"Some of them could do real well because they weren't some of thebiggest portfolio holdings at the end of the '90s, so they don't face sellingfor the next few years," he said.

Truebenbach added that after the crash of 1929, it took many years forsome highflying companies to recover, "so I wouldn't look at technology orany of those big names for a couple of decades."

Another View

Still, Jeffrey Kleintop, chief investment strategist at PNC Advisors,isn't so sure that stodgy, cyclical businesses will continue to lead theway. In fact, he believes expectations are too high for some of thesefirms. In the case of Masonite, analysts are looking for 37% growth inearnings per share this year and almost 20% growth in 2003. As for TractorSupply, earnings per share are slated to grow 35% this year and 33% in 2003,according to estimates provided by Thomson Financial/First Call.

"This is a different type of cycle and it's likely to be the businessdemand that's been pent up that will be coming back. So I don't think we'llsee the traditionally cyclical companies leading us out of this malaise,"he said.

He also noted that technology companies generally have better balancesheets and that the tech group is the least indebted sector of the S&P 500.That said, demand for tech products has yet to show any signs of turningaround, and valuations among many high-tech firms remain at historicallyhigh levels.

"If you're not tech or telecom right now, you're going to have a muchbetter chance," Truebenbach said.

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