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Metal Manufacturers Are Spending Money: How To Profit

|Includes:Hurco Companies, Inc. (HURC)

If you follow my articles then it is no secret that I have been really pushing the industrial capital expenditures play. I believe manufacturing and our newfound energy dominance will help propel the U.S. economy and create a new era of prosperity for our country. As wages rise in Asia, more companies are weighing the costs of overseas manufacturing and shipping verses moving manufacturing operations back to the home. This leads us to the building of more factories and the purchasing of new equipment (and American jobs). One company primed to profit from new equipment purchases if Hurco Companies Inc. (NASDAQ: HURC). Hurco is a manufacturer and designer of machines for the metal cutting industry. These machines are needed in almost every aspect of metal manufacturing. What makes Hurco so appealing is that its machines are run by software, which makes it so that even inexperienced workers can use them and boost productivity. That is why analysts give the stock a strong buy rating of 1.00. Shares currently trade around $28 and analysts are predicting the share price to end the year at $45.

Despite the niche product in an industry that is expected to see high growth, Hurco trades at a discounted PEG of 0.79 and a discount to its sales with a price to sales of 0.90. Currently, the company shows a price to earnings of 11.83 and essentially no debt. This will allow the company to use its massive cash reserve of $5.55 cash per share to innovate and boost its presence in the industry. The company's financial security is very solid with a current ratio of 3.51. Earnings are expected to jump 40 percent this year and 15 percent over the next five years. Meanwhile, sales are up 15.5 percent quarter over quarter and earnings per share have seen a massive jump of 53 percent quarter over quarter. Expect this trend of upside earnings to continue.

Looking at the risks involved, the stock recently made a bearish double top formation that appears to be stabilizing. However, the stock could retreat to its first support of $23.95 or its secondary support of $22. Furthermore, this sector is a bit crowded and while Hurco does have factors that separate it from the pack, it is advised that you watch competitors for a "copycat" system. Other than that, the stock is listed in the NASDAQ, which tends to lead the three indexes as far as changing trends goes. If this aging bull market starts to die off, it would be best to protect your position sooner rather than later. Regardless, Hurco will profit over the long haul as it has done over the past year. The business environment in the U.S. is improving slowly and cash hoarding companies are looking to start spending some of their reserves.

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

Stocks: HURC