SPX Corporation: Bring on the Boring Stocks

| About: SPX Corporation (SPXC)

Action and adventure are overrated – at least when it comes to investments. It’s time to bring on the boring stocks.

While hip companies like Apple (NASDAQ:AAPL) and Abercrombie & Fitch (AFN) provide investors with a dash of pizazz for every dollar of profit, there’s something to be said of the boring stocks – the companies that make hopelessly uninteresting products like database software solutions or those plastic things at the ends of your shoelaces, but have awesome financials, stellar growth, and enough cash to buy a small island nation for their next junket.

Hyperbole aside, “Buy Boring” certainly has its fans… investors like Jeremy Siegel and David Dreman have been known to talk about the profit potential of stocks that most people find uninteresting.

One of the poster children for boring stocks is SPX Corporation (SPW). This “multi-industry manufacturing company” is about as hype-free as a stock can get. The company’s operations touch a wide range of businesses in four operating segments: Flow Technology, Test and Measurement, Thermal Equipment and Services, and Industrial Products and Services.

Through their various segments, the SPX produces products like industrial pumps and filtration systems, and develops diagnostic tools, thermal components, and electrical transformers. The company is especially active in serving companies in the power generation and automotive industries.

With the Department of Energy projecting in increase in demand for electricity in this country weighing in around 135,000 megawatts over the next decade, SPX’s strong customer base in power generation could prove to be great positioning for the investors of 2009.

Many analysts have been squeamish about SPX’s exposure to the U.S. auto industry. While declining domestic auto production will certainly cut down the company’s sales of diagnostic tools to Ford, GM, and Chrysler, I think that their sales to repair facilities will remain fairly recession resistant – after all, fewer new car sales will mean a higher number of older cars that need to get fixed in the interim.

Indeed, the SPX did see their automotive divisions shrink a bit in the last quarter, but the damage was minimal, a fact that bodes well for 2009.

What a Company

Besides being boring there’s another thing I like about this rhino stock… it’s undergoing a corporate makeover.

In late 2007 then CEO John Blystone resigned after investors pooh-poohed his excessive compensation. The current chief executive, Chris Kearney, took over last December, bringing with him a new series of initiatives that brought the company notable acclaim in 2008.

For starters, CRO Magazine chose SPX as one of the 100 Best Corporate Citizens. Then, the company was named one of America’s Most Admired Companies by Fortune, taking in fifth place in the electronics industry category. Finally came the #43 spot on the Barron’s 500 – the ranking of America’s best publicly traded companies based on cash flow and sales growth.

As if that wasn’t enough, 2008 was also a great year for the company’s financial performance. In the last year, SPX has grown its sales 28.8% to $1.51 billion, bringing net income with it at almost the same rate. Organic and acquisition-driven growth has had a huge effect on the company’s bottom line… income for Q3 2008 alone was 40% of total net income for 2007.

SPX is in good financial health with almost $1 billion in working capital, and substantial free cash flows at the end of 2008.

SPX… Investing in Itself

SPX has been investing heavily in itself recently. Acquisitions have been a core part of the company’s growth strategy since the mid 1990s, and have continued in 2008 primarily with the purchases of APV, a leader in the sanitation market, and AUTOBOSS, a diagnostic tools company.

But the company’s reinvestment doesn’t end at acquisitions…

Since 2005, SPX has retired 40% of its outstanding shares, concentrating investors’ ownership positions. The trend will continue this year with a 3 million-share buyback announced last summer.

While both of those investments have cost SPX a considerable amount of cash, growth numbers suggest that they seem to be paying off.

Couple that with the company’s strong margins, a cheap valuation, and a modest dividend, and SPX Corporation starts to look like a very attractive investment.

Disclosure: SPW is a long position in the Rhino Stock Report’s model portfolio.