Building America And My Growth Portfolio With Manitowoc

Jul.25.14 | About: Carrizo Oil (CRZO)

Summary

I sold Carrizo out of my growth portfolio because I was too "oily" already and needed exposure to the industrial sector.

Manitowoc is a great growth company with a potential breakup story.

If the American economy is really recovering, then Manitowoc's stock price should rise.

I recently sold Carrizo Oil & Gas Inc. (NASDAQ:CRZO) from my growth portfolio because I felt that I was too "oily" at the time in the portfolio and I wanted to add shares of The Manitowoc Company, Inc. (NYSE:MTW) to the portfolio because I didn't have any exposure in the industrial goods sector. Manitowoc is a multi-industry, capital goods manufacturer. It operates in two business markets namely, Cranes and Related Products and Foodservice Equipment. On May 1, 2014, Manitowoc reported first quarter earnings of $0.17 per share, which missed the consensus of analysts' estimates by $0.03. In the past year, the company's stock is up 54.63% excluding dividends (up 55.03% including dividends) and is beating the S&P 500 (NYSPY), which has gained 17.42% in the same time frame. I initiated my position in Manitowoc on July 22, 2014.

I sold my shares in Carrizo because more than 20% of my growth portfolio was dedicated to oil stocks and I wanted to lower the exposure. Carrizo Oil & Gas Inc. is an oil and gas exploration, development and production company. It explores in Eagle Ford Shale in South Texas, the Niobrara Formation in Colorado, the Marcellus Shale in Pennsylvania and the Utica Shale in Ohio. On May 6, 2014, the company reported first-quarter earnings of $0.51 per share, which beat the consensus of analysts' estimates by $0.07. In the past year, the company's stock is up 106.58% and is beating the S&P 500, which has gained 17.42% in the same time frame. With all this in mind, I'd like to take a moment to evaluate both stocks on a fundamental, financial, and technical basis to show why I swapped out of one for the other.

Carrizo Oil & Gas Inc.

The company currently trades at a trailing 12-month P/E ratio of 103.38, which is expensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 16 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (2.19), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced based on a 1-year EPS growth rate of 47.16%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 47.16%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 26.5%.

On a financial basis, the things I look for are the dividend payouts, return on assets, equity, and investment. The company does not sport a dividend to speak of, but is sporting return on assets, equity, and investment values of 1.1%, 3.1%, and 5.4%, respectively, which are all respectable values. In this particular instance, I skipped the dividend aspect of the financials because the stock is in my growth portfolio, and in the growth portfolio, a stock does not have to have a dividend.

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Looking first at the relative strength index chart [RSI] at the top, I see the stock in middle ground territory with a current value of 55.56. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is below the red line, with the divergence bars increasing in height, indicating bullish momentum. As for the stock price itself ($67.20), I'm looking at $73.58 to act as resistance and $65.07 to act as support, for a risk/reward ratio which plays out to be -3.17% to 9.49%.

The Manitowoc Company, Inc.

The company currently trades at a trailing 12-month P/E ratio of 27.93, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 15.49 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (1.14), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is fairly priced based on a 1-year EPS growth rate of 24.57%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 24.57%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 30.73%.

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 0.25% with a payout ratio of 7% of trailing 12-month earnings while sporting return on assets, equity and investment values of 3%, 16.5% and 14.1%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I don't believe the 0.25% yield of this company alone is good enough for me to take shelter in for the time being.

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Looking first at the relative strength index chart [RSI] at the top, I see the stock is in middle ground territory, with a current value of 54.79. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is below the red line, with the divergence bars decreasing in height, indicating bearish momentum. As for the stock price itself ($31.56), I'm looking at $35.17 to act as resistance and $31.02 to act as support, for a risk/reward ratio which plays out to be -1.71% to 11.44%.

Wrap Up

I sold Carrizo for a 17.04% gain or 208.4% on an annualized basis. Again, I only sold Carrizo because I felt my growth portfolio was already too "oily" and I didn't have any exposure to the industrial goods sector. Carrizo is a very excellent company with great growth expectations and it was just a matter of exposure for me. I needed exposure in the industrial sector and wanted it in the form of commercial and industrial construction. I felt that Manitowoc was the company capable of providing me that flexibility. I'm already long with United Rentals (NYSE:URI) for the growth portfolio in the form of construction equipment, but that is a services company in the sense that it rents the equipment. I wanted a manufacturer of equipment.

This is definitely one of those stocks where the sum of the parts is greater than the whole. The company has the construction crane business, which I wanted exposure to, and the food services unit, which I don't really want too much exposure. In late June, hedge fund Relational Investors took a stake in the company and advocated for a spinoff. Relational Investors has experience with break ups already by being the instigator of the split up between Timken (NYSE:TKR) and TimkenSteel (NYSE:TMST). Because the American economy is beginning to experience good times we are experiencing cyclical stocks surge. Just take a look at Caterpillar (NYSE:CAT), which is up 17.85% year to date and United Rentals is up 44.49% year to date. From the food services side of the business the closest comparison would be Middleby, but it is down 6.73% in 2014. If you've been following me for a while then you know that I love breakup stories as they have done very well for me, and this could be a potential breakup story. Irrespective of a breakup this is a good stock to hold onto. Even if a breakup doesn't occur, the food services business can provide some protection against the cyclicality of the crane business.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Disclosure: The author is long TKR, MTW, URI, SPY. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.