I am big on America's new found economic glory in our oil reserves and companies deciding to come back home to manufacture its products. These two aspects will help the U.S. gain new economic ground that we have never seen. Some experts are calling the U.S. the new Saudi Arabia as our shale deposits and oil deposits continue to be reachable in a cost effective manner. Additionally, the rising wages and demands for benefits from Chinese workers make the case difficult to keep production over there. Instead, the U.S. is starting to look attractive as a destination to relocate manufacturing. Companies like Apple Inc. (NASDAQ: AAPL) have started to move parts of their manufacturing back to the U.S. As this revolution gains steam, there will be a need to upgrade and furnish new factories (and old factories). This kind of spending is called capital expenditures and the U.S. government has already released a report showing that capital expenditures are at a 13 month high and climbing. This bodes well for companies that furnish factories, such as Material Sciences Corporation (NASDAQ: MASC). More specifically, it sells acoustical and coated metal products to customers.
Looking at the fundamentals, Materials Sciences has a market cap of $100.17 million and currently a conservative buy rating from analysts. The company has a price to earnings of 4.13 and a forward price to earnings of 13. Currently, the stock is trading at a discount to its PEG of 0.83 and price to sales of 0.79. Furthermore, the company is right in line with its book value and has a healthy price to cash of 2.78. Additionally, the company has no debt and $3.54 cash per share, giving the company a healthy and safe current ratio of 4.08. Earnings are expected to rise 168 percent this year and 21 percent next year. Material Sciences has excellent management effectiveness ratios with return on assets of 21.5 percent, return on equity of 30 percent and return on investment of 26 percent.
Technically speaking, the stock broke below its upward channel and currently sees support at $9.50. This should be looked at as a good entry position, if you choose. First resistance is at $9.95 and second resistance is at $10.50.
The main risk that I see right now is the fact that the overall market looks top heavy, meaning we could be looking at some declines as the market comes off a stellar win streak. However, investors should look at this as a long-term trade rather than short term. Capital expenditures do not happen over night and do require some time to take affect. However, they are expected to continue rising the next couple of years. Material Sciences is in excellent financial health and it will be able to weather any downturns in the meantime. Keep in mind that the stock is already undervalued so it is not likely that we will see major declines, unless there is a bad report from the company. The bottom line here is that this is a long-term winner.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.