Retailer American Eagle Outfitters ( AEOS) has had a buy rating since December 2004. The company's initiatives to spread its market share geographically and build its brand identity have positioned it for consistent growth. What's more, revenue increased by 19.9% in the third quarter of 2006 over the same period a year earlier. This revenue growth is attributed to a 13% same-store sales growth rate and the contributions from 40 new store openings during the period. Operating margins also increased, and net income grew by 37.7% to $100.94 million during the quarter. Risks to the rating include alienating the fickle 15-to 25-year-old demographic -- its core customer group -- by rolling out clothing lines that don't change to fit fashion trends. Declining consumer spending or confidence also could present a risk to the buy rating.
The real estate and money management service company Jones Lang LaSalle ( JLL) has had a buy rating since December 2004. The company boasts a number of impressive strengths, including a return on equity in the third quarter of 2006 that exceeded its return on equity of the previous year (a sign of internal strength), revenue growth of 41.64% for the quarter compared with last year (nearly double that of the industry average) and EPS growth of 19.7% for the quarter. The company's positive EPS has shown a pattern of reliable increases for the last two years, seen most clearly in its share price, which rocketed upward by 80.19% during 2006. With positive investment measures across the boards, the company's low profit margins and decreasing liquidity are nothing to be overly concerned about.
Carrying a buy rating since August 2004, Layne Christensen ( LAYN) provides drilling services and products to four principal markets: water resources, mineral exploration, geoconstruction and energy. The company enjoyed a stellar third quarter, setting a net earnings record, revenue growth of 63.7% (to $186 million), and an earnings-per-share increase of 61.3%. Despite relatively low liquidity, Layne shows no signs of slowing.
Harleysville Group ( HGIC) is a holding company for property and casualty insurers that operates primarily in the eastern and midwestern U.S. It has been rated buy since December 2004. The company's strengths include its notable return on equity, solid stock-price performance, an impressive record of EPS and revenue growth, and a largely solid financial position with reasonable debt levels by most measures. These strengths outweigh the fact that the company shows weak operating cash flow.