In this article, we look at some interesting picks outside the large cap domain, with stock selections in research, water resource management and others. These picks present solid bargains and long-term growth potential.
IDEXX laboratories, Inc. (IDXX) is a healthcare equipment (more specifically, clinical analyzers and other diagnostic products) manufacturer for the veterinary market, a segment that accounts for over 80% of its revenues per the most recent quarter. In addition, the company has smaller water analysis equipment and dairy diagnostics, among others. The stock last traded at $76.32 with a 52-week range of $87.29 - $55.03, trading above the 200-day moving average, which is sloping upwards. The Bollinger bands are in a tight squeeze, indicating a possible break-out on the cards.
The company remains a solid bet, reflected in the 8% revenue and 34% earnings growth for the last quarter. The company's key segment, Companion Animal Group, saw a rise in both sales volume and margins, with the other segments also reporting positive growth. While the valuation is a tad higher at the moment than would make it a stellar buy, the company remains a solid bet for the long run.
York Water (YORW) provides water purification and distribution services within the county of York in Pennsylvania, as well as a few other neighboring counties. The company is a small-cap firm conducting the basic water business with 2 reservoirs, pipelines, pumping station and filtration plant. With a market capitalization of about $228 million and last quarter revenues of about $10 million, the company’s stock does not have much volatility and nearly double the industry standard for dividend payout at nearly 70% versus around 37%.
The liquidity position is very strong with nearly 2 times current and quick ratios. With water being an indispensable resource, the company is shielded from recessionary pressures seen in relatively stable earnings and revenues. The newly acquired Adams county market bodes well for the company.
Boston Beer Company (SAM) is possibly the last standing American brewery, a small $1 billion, under $500 million revenue craft house with popular brands such as Samuel Adams, Twisted Tea and Hardcore in its portfolio. It is one of the few breweries which brew a substantial (95%) amount in-house or at company owned breweries. The company is currently trading at $77.58, taking a beating for most of August on account of lower than expected quarter earnings, which missed the street mark by about $0.10 on the share.
This is what makes SAM a great buy--it is priced well at around 18 times earnings per share versus 21 times for the industry, well below the 5-year price earnings low. The returns on assets are nearly 8 times the industry average at over 21%, with the return on equity around 5 times at 33.61%. Margins beat the industry mark on every account, and the company has no debt. Boston Beer offers a better bet than SAB Miller (SBMRF.PK) and Inbev-Anheuser Busch (BUD).
FactSet Research Systems (FDS) provides financial data and information to entities that require such data for their operations, including investment banks, analysts and others. The company competes with major providers, including Bloomberg, and is a leader in the segment. The stock has been in a proverbial free-fall since June of this year, with the last trade at $84.50 in a 52-week range of $72.89 - $112.40, with a trailing price-earnings of 23 times, at par with the industry average.
The stock has basically taken a hit on account of Wall Street expectations, rather than a fundamental inability to make money. In fact, analyst expected 95 cents on the share as forward earnings potential, whereas the company said 93 to 95 cents, which Wall Street did not take kindly to. Unfortunately what went unnoticed was the addition of 26 new customers and an increase of 15% in revenues, despite a slowly recovering economy.
National Research Corporation (NRCI) is another small cap performer with little volume, indicating low levels of speculation on the stock. The company provides performance measurement and governance education to healthcare providers, based primarily on ongoing surveys as a data collection tool. The company has a market cap of just about $228 million and a most recent quarterly revenue of $18 million.
The stock is a stable one, with a price-earnings ratio of 24 times, compared to an industry average of 16 times, which would indicate a slightly higher than average pricing. As such the stock is not particularly a bargain in itself, but the fundamentals for the company are excellent, and the dividend payout is nearly twice the industry average at about 58%. It is not surprising that the valuation is what it is, considering the stock beat virtually any index out there with a 66% return on price within 2010 alone. The margins are well above the industry average, as are the key returns: returns on assets (10.6%) and return on equity (19.2%).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.