A Beaten Down Manufacturer For The Long-Term Investor

It is getting much harder to find good bargains in this market. It seems that most of the stocks are near 52 week highs after six months of continuous rallying, and valuations look stretched in a multitude of sectors. In times like these, one strategy I use is to find firms which have had significant selloffs over the last year but whose prospects are improving and whose valuations are compelling. One such stock is below:

Rofin-Sinar Technologies (NASDAQ:RSTI) - "Rofin-Sinar Technologies Inc., together with its subsidiaries, engages in the design, development, engineering, manufacturing, and marketing of laser-based products worldwide. The company offers laser macro products to machine tool and automotive markets for cutting and welding of metals. It also provides laser marking products to semiconductor and electronics markets for the marking of integrated circuits, wafers, solar cells, electronic components, and smart cards, as well as to automotive markets for the marking of labels and car components." (Business Description from Yahoo Finance).

6 Reasons to look at RSTI at $24 a share:

  • The company is down some 40% from its highs in the early summer of 2011. It also looks like it has bottomed and just crossed over its 100 day moving average (See chart)

  • The stock is selling at near the bottom of its five year valuation based on P/E, P/S and P/CF.
  • The stock has been punished, as it gets 45% of sales from Europe. However, it should benefit from stabilization in that region and it also gets 34% of sales from fast-growing Asia.
  • The stock is significantly under analysts' price targets. The median price target on RSTI by the 8 analysts that cover the company is $32.
  • It has a solid balance sheet, with approximately $3.50 a share in net cash.
  • Only one insider has sold shares in the last six months; it goes for under 12 times forward earnings, and analysts project revenue growth will rebound at around 10% in FY2013.

This stock is for patient investors. The company gave cautious second quarter guidance during the last earnings report, but the stock has solid valuations and should reward long term investors.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.