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  • Should You Buy These High Growth, High Margin Plays? 0 comments
    Jan 8, 2014 8:00 AM | about stocks: ZIXI, HNRG

    It is great to have high growth, high margin plays in one's portfolio as they tend to balance out the impact of slow movers. Hallador Energy Company (NASDAQ:HNRG) and Zix Corporation (NASDAQ: ZIXI) are such potentially outperforming stocks which are expected to offer handsome returns to investors. Here is a closer look.

    Colorado based Hallador Energy Company mines and sells steam coal that is used in the electric power generation industry in the United States. Given the fact that natural gas is displacing coal in thermal power plants in the country, coal mining stocks have not fared well. As such, Hallador Energy has also seen downs through the last 12 months before turning up recently. The stock is still down 5 percent from a year ago, but has moved up 10 percent in the last month after analysts at Cowen upped their rating on the stock from "market perform" to "outperform" with a $9 price target, representing a 20 percent potential upside. While the coal market has been affected, Hallador Energy's business has actually flourished with nine month revenue growing 9.2 percent. Even in this traditional business, the company's operating profit margin stands at an impressive 21.5 percent. In terms of valuation, it is no rocket science to see that a dividend paying stock (2.1 percent annual yield), with an unleveraged balance sheet (debt equity ratio of 0.06), should be trading at a price earnings ratio in high double digits. A multiple of 9.3 is rather attractive for such fast mover.

    Zix Corporation offers email encryption services to enterprises that allow use of secure e-mail for sensitive information exchange. The company's major clients are in the healthcare, financial services, insurance and government sectors. The stock has jumped more than 60 percent over the last 12 months and looking at the results, it is not difficult to see why. In the three months ended September 30, 2103, Zix Corporation reported an 11 percent increase in the top line, but a marked drop in selling, general, and administrative fees led to a more than 60 percent jump in net income to $3.2 million. This translates to a net profit margin in excess of 20 percent. Over the last few years, the company has made great improvement in its business operations, which has taken its top line from $26.4 million in 2009 to $43.4 million in 2012. Thanks to a debt free balance sheet, its profits have also grown substantially. At a forward price earnings ratio of less than 20, the stock is attractively priced.

    Stocks: ZIXI, HNRG
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