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Chances are that you never heard of Kaydon Corporation (NYSE:KDN), I didn’t either until a few weeks ago, but it’s a stock that deserves a place in your portfolio. Here’s why:

Company

Kaydon, based in Michigan, designs and manufactures custom engineered products that are used in robotics, medical, aerospace, alternative-energy, defense, security, electronic, material handling, construction, and other industrial applications. More specifically, Kaydon provides Friction control products, Motion control products, Velocity control products and sealing products.

Just by reading that much you can tell that the company has exposure to some of the best and most promising sectors such as: Alternative Energy (Wind), Aerospace, Medical, Defense, and Security among others. This also makes for a diversified source of revenues.

Source: Kaydon.com - Key Banc Presentation

Statistics

  • Stock Price (8/14/2007): $52.71
  • Market Cap: 1.49 Billion
  • Dividend: .60 (1.10%) (Recently Raised)
  • P/E: 23.20
  • Forward P/E: 18.96
  • Cash: $374 million
  • Analyst Coverage

  • KeyBanc Capital has an ‘Aggressive Buy’ rating on the stock with a price target of $66
  • Friedman Billings has an ‘Outperform’ rating on the stock with a price target of $63
  • Barrington Research has an ‘Outperform’ rating on the stock with a price target of $60
  • I recently found out about the company when it was mentioned positively in Barrons. What interested me the most about it was the exposure to Wind Energy. I follow Alternative Energy stocks very closely and while there are a number of Solar Stocks out there, the number of Wind stocks are all but a couple. [I cannot count General Electric (NYSE:GE) since it's such a large conglomerate).

    Here’s what KeyBanc had to say in one of its recent research note: (via NewRatings.com)

    Company’s new CEO is likely to focus on closing accretive acquisitions. Kaydon has about $400 million in cash, which can be used to make acquisitions that would result in significant EPS accretion, the analysts say. in a position to make acquisitions going ahead, are likely to lend upside to the company’s share price. The company’s share of the domestic wind power market could expand to 75% by 2010, driven by the company’s aggressive capacity expansion programme and an estimated 15%-25% industry growth rate over the next several years.

    Also, the following is from Barron’s: (via SeekingAlpha.com)

    Friedman, Billings, Ramsey analyst Ned Armstrong says revenue from wind-turbine parts could easily jump five-fold, from a present $20 million to $100M. Keybanc Capital Markets’ Steve Barger thinks O’Leary will buy a European wind-power manufacturer to increase its current 30% non-domestic sales.

    Kaydon recently announced it has approved additional $25 million capital expansion to supply the wind energy industry. The quarter ending backlog equaled a record $201.5 million of which $60 million is for Wind.

    This seems like a good way to play the alternative energy sector for investors who don’t like the speculative and volatile alternative energy stocks. The company has solid fundamentals, diversified revenue stream, and strong growth prospects ahead with Wind Energy. This is a solid company without the wind exposure but it's the wind exposure that makes it a definite buy for me.

    Disclosure: I own Call Options of Kaydon.

    KDN 1-year chart:

    kdn

    Source: Kaydon Corp: Not Particulary Sexy But Definitely Worth Picking Up