Transocean Inc. (RIG)
If the current high price of crude oil reflects a fundamental change in the world-wide demand for oil, as many suggest (see Sunday Washington Post article), then prospects may be bright for oil services stocks. We have one oil services stock in our portfolio, Helmerich & Payne (HP). The stock is at $52.90 per share, up from the $33.72 we paid for it last June. HP is 6.8% of our portfolio. HP provides contract drilling services to oil and gas producers primarily in the United States, Argentina, Colombia, Ecuador, and Venezuela.
It might be wise to diversify and include deep water drilling company. Transocean Inc. (RIG) pops up in numerous screens and articles. Value Line describes Transocean as the world’s largest offshore drilling contractor, working in all the major offshore regions, including the Gulf of Mexico, the North Sea, the Middle East, and off the coasts of West Africa, the United Kingdom, Norway, Brazil, and Canada. It specializes in technically demanding deep-water/harsh-environment drilling projects.
Here is a stock selection guide for Transocean. Manifest Investing estimates a projected average return of 19.3%. Morningstar rates Transocean 5-stars (undervalued) and calculates fair vale as $176 (current price is $133). We should consider selling part of our position in HP and buying RIG.
General Electric (GE)
We purchased an initial position in General Electric (GE). It took a huge drop on April 11 when it missed its earnings. Historically, GE never missed earnings. With the drop in price, the dividend alone yields 3.87% based on the April 11 closing price. See attached a stock selection guide. This looks like an excellent buying opportunity. Remember, nothing has changed in GE’s underlying business model between April 11 and 12, despite the 14.8% stock price drop on April 12.
Sun Hydraulics (SNHY)
One of the excellent companies that caught in the market downdraft last week is Sun Hydraulics (SNHY). It is a small industrial company in Sarasota, Florida, that designs and manufacturers screw-in hydraulic cartridge valves and manifolds, which control force, speed and motion as integral components in fluid power systems.
SNHY has a global network with 53% of its sales overseas. It is not dependent on any one customer, with its largest customer accounting for 7% of revenues. Insiders hold hold 32% of the shares. If you listen to its last quarter earnings conference (found on the company website), you get a sense of a well managed company with a closely knit team.
Analysts predict 20% EPS growth. We assumed 18% growth in the stock selection guide and used conservative PEs. Manifest Investing rates the quality 79.9 and projected average return 19.9%. The PE to growth (PEG) ratio is approximately 1. With $149 million in revenue for the TTM, this company has room to grow. Propose we buy this company now.
- Link to the company website
- Link to stock section guide and data sheet
SAP AG (SAP)
SSG and PERT | Google Finance | Company Website
We purchased an initial position in SAP AG on June 13, 2007. Here is the stock selection guide we used for the purchase decision.
Wells Fargo & Company (WFC)
SSG and PERT | Google Finance | Company Website
We purchased an initial position in Wells Fargo & Company on June 13, 2007. This replaces Commerce Bancorp. Here is the stock selection guide we used for the purchase decision.
American International Group (AIG)
SSG and PERT | Google Finance | Company Website
We purchased an initial position in American International Group on June 13, 2007. This replaces Capital One Financial in the financial sector of our portfolio. Here is the stock selection guide we used for the purchase decision.
Microsoft (MSFT)
SSG and PERT | Google Finance | Company Website
We purchased an initial position in Microsoft on June 13, 2007. Here is the stock selection guide we used for the purchase decision.
Walgreen Company (WAG)
SSG and PERT | Google Stocks | Company Website
We purchased an initial position in Walgreens on November 22. Here is the stock selection guide we used for the purchase decision.
Maxim Integ. Prod. (MXIM)
SSG and PERT | Google Stocks | Company Website
Maxim reported earnings for the fiscal year ending June 24, 2006. The company reported revenue growth of 11.2%. However, net income fell (-14.4%)and diluted EPS fell (14.9%) from $1.578 to $1.372. See Maxim’s press release. The expensing of stock based compensation contributed to the poor earnings.
Maxim and Linear Technologies (LLTC) are similar companies with different niches in the semiconducter industry. They had similar results this year, increased revenue growth but declining earnings. LLTC’s EPS did not decline as much as that of MXIM.
Should we sell MXIM? The short answer is no. The company’s fundamentals — the basis on which we buy or hold stocks — still look very good. On Friday, Maxim reported record-high quarterly revenue as bookings. The company has no long term debt. Net profit margins have remained strong. Value Line projects 20% sales growth and 15.5% earnings growth. The analysts consensus for 5-year earnings growth rate is 20%. Morningstar gives Maxim a 5-start rating (meaning it is priced well below fair value), a wide moat, and a stewardship grade of B. Manifest Investing rates its quality 69.
Whenever the earnings of a growth company falter, the price of the stock usually tumbles. Maxim’s stock price is near its three year low even though the company’s fundamentals and business model appear to be intact.
We currently hold 58 shares of Maxim valued at $2,090. It is 4.3% of our portfolio. Our average cost is $35.88 per share. The current share price is $27.94. We have a net loss of $462. (We also have a net loss for Intel, another semiconductor stock.) Revising the stock selection guide for a projected 15% EPS growth, projected average return is 21.5%. At his point, we probably have more to gain than lose by holding Maxim.
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Patterson Cos. (PDCO)
SSG and PERT A | Google “Stocks: PDCO” | Company Website
Patterson has had a somewhat mediocre year but the company seems to be on track to improve sales and earnings in fiscal year 2007. (PDCO’s fiscal year begins on April 1.) PDCO has invested in sales and marketing. With its year-end earnings report, PDCO gave earnings per share guidance for 2007 of $1.61-1.64 (about 13% growth).
Growth. Value Line projects revenue growth of about 12% while Morningstar projects 13%. The revised stock selection guide uses 12%. Future growth will come from a combination of internal growth and small acquisitions. Internally, PDCO sets a goal for growth of 4% above the market. Its dental business is currently growing faster than its other lines of business.
Quality. PDCO remains a high quality stock (although Morningstar gives it a narrow moat). Manifest Investing rates quality at 71.3 (out of 100). Value Line rates PDCO’s financial strength an “A” and it earnings predictability 100.
Valuation. Projected average return is 13.5%. PDCO has always sold at relative high PE. Its current PE is about 24. The stock selection guide uses an average future PE of 24.
We purchased PDCO in March 2003 and have enjoyed an annualized return of 12.5%. It represents 2.25% of the portfolio. This would be a good time to add to our position.
