Today leads off with Harsco ( HSC), which provides industrial services and engineered products to the steel, construction, railway and energy industries. It has been rated a buy since September 2005. The company demonstrates robust revenue growth, good cash flow from operations, net income growth that has outperformed its industry average and a pattern of positive EPS growth over the past two years. Powered by these strong financial results, Harsco's stock has appreciated by 50.20% in the 12-month period prior to Sept. 27.
Valmont Industries ( VMI) produces fabricated metal products. It has been rated a buy since September 2005. The company's revenue grew 18.7% in the second quarter of 2007 compared with the year-earlier period, exceeding the industry average of 5.1%. Its debt-to-equity ratio of 0.55 is below the industry average, implying that there has been successful management of debt levels. Valmont has demonstrated a pattern of positive EPS growth over the past two years, a trend that should continue. Powered by strong earnings and other factors, the company's stock price has increased by 58.32% over the last 12 months. However, its strengths outweigh the fact that the company is trading at a premium valuation to earnings and book value.
Amphenol ( APH), which has been rated a buy since July 2005, designs, manufactures and markets electrical, electronic and fiber-optic connectors. Amphenol has undertaken recent initiatives to strengthen margins and reduce costs; it now manufactures about 67% of its products in low-cost countries. It also leases facilities instead of buying them and frequently employs temporary or part-time workers in place of full-timers. These strategies have enabled it to achieve significant cost savings and helped attain some of the highest profit margins in the industry.
Designing, manufacturing and servicing electrical components and equipment for aircraft and industrial engines, Woodward Governor ( WGOV) has had a buy rating since September 2005. It demonstrates solid revenue growth, a very low debt-to-equity ratio and a largely solid financial position with reasonable debt and valuation levels. Its net operating cash flow increased 34.71% to $36.44 million in the third quarter of fiscal 2007 compared with the same period last year. The firm also exceeded the industry average cash flow growth rate of 10.64%. These strengths outweigh the company's subpar net income growth.
Heico ( HEI), a maker of aerospace, defense and electronics products, has been rated a buy since September 2005. The company has demonstrated a pattern of positive EPS growth over the past two years, and its year-on-year revenue growth of 30.3% for the third quarter was well above the industry average of 6.2%. Its debt-to-equity ratio of 0.12 is below that of the industry average, implying that there has been very successful management of debt levels. The stock's sharp appreciation of 42.77% in the 12 months since Sept. 27 has driven it to a price level that is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels. Heico's weak operating cash flow is not a threat to the buy rating at this time.