Kaydon Corp: Great Growth, Phenomenal Management

We've all heard of the parlor game, Six Degrees of Kevin Bacon. You can take the same principle of interconnections and apply it to trends. All trends have ripple effects, and sometimes the best opportunities are found not in the trend itself, but in industries several steps removed from, but related to, the trend.

Take the energy crunch that's affecting companies and economies around the world. This is an obvious trend, and you may fear oil and power companies are overvalued. So take it a step further. These industries need oil rigs and wind farms.

A step further? The need for hardware to build, run and maintain this complex equipment.

A market leader in the field of ball bearings for wind farms and oil rigs, Kaydon Corp. (KDN), stands to prosper. This one isn't going to knock your socks off in the short term, but it stands to benefit over the long term from ongoing demands for its products in the energy sector, as well as in the many other industries that use its products, from robotics to defense to medicine.

As I pointed out back in June, this company has been growing steadily over the past few years, and the second quarter of 2007 saw record sales. Margins suffered somewhat last year from KDN's expansion into Europe and Asia, but the company stands to benefit in the long term from this expansion, and from other efforts to cut costs and improve efficiency, including a plant relocation that is expected to be completed at the end of this year.

I also think this is a potential acquisition target because of its strong cash holdings and management, and especially because of its strong position as a supplier to the growing wind farming industry.

Type of Company: A manufacturer of a wide range of products used in a wide range of industries, with a solid history of growth, low debt, high cash reserves and a phenomenal management team.

Price Target: KDN has been up and down over the past few months, and is trading just where it was when I wrote it up in June, in the low $50s. I called for an $80 price target over the next eighteen months, and I still stand by that.