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ForMyOwnAccount is a seasoned Wall Street veteran and former buy-side investment manager schooled in the Graham & Dodd approach. He now regularly employs the long-term investing principles he practiced for years. He will trade anything and everything for his own account on both the long and... More
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  • Apogee Enterprises: An Undervalued Equity 0 comments
    Feb 7, 2010 11:16 PM | about stocks: APOG


    It's Super Bowl Sunday, the Saints came marching in, and it was a close game.  Yet I'm more excited about a small cap company called Apogee Enterprises (NASDAQ:APOG) than I am that the underdog Saints won tonight.  

    The Super Bowl saw two excellent quarterbacks compete; yet they are far from the top five quarterbacks of all time.  The Associated Press ranks the following as the top 5 NFL quarterbacks of all time:  1. Dan Marino; 2. Joe Montana; 3. John Elway; 4.  Johnny Unitas; and 5. Fran Tarkenton.  Their ranking is based strictly on the stats.  

    I base my buy decision strictly on the stats, too, and the numbers on APOG are good enough to make a plausible long-term investment thesis for APOG.  Apogee provides products such as special glass and engineering services for commercial buildings.  Their products reduce the amount of energy that commercial buildings need to operate. 

    It so happens that commercial buildings consume almost half of all the energy generated in the US today, most of it during peak hours.

    Apogee currently trades at $13-14 per share.  That's (a) a market cap of under $400 million; (b) a Price/Cash Flow of less than 5X; and (c) a Price/Earnings of less than 9X.  The company has an ROIC of greater than 15%, very low debt, and a promising long term future.  APOG is a terrific play on the "green building" movement that is still afoot across the land. 

    Apogee  was mentioned two years ago by Cramer as an undervalued infrastructure/retrofit play, then forgotten when the company missed its earnings "guidance" one quarter.  In fairness to the company, Cramer had the CEO on after the earnings shortfall. APOG, like many other companies, got hit by the weak economy, cut-backs in efficiency improvements, and reduced cap ex.  This has caused the stock price to drift from about $20 to below $14.

    Here are the stats that count for me:
    1.  Mkt Cap/Sales:  APOG has a market cap of less than one-half of sales.  
    2.  Sales and Earnings Growth:  APOG has sales of about $800 million, down from a peak two years ago of just shy of $1 billion, and earnings fell accordingly.  But I expect top and bottom line growth to resume.
    3.  Debt-to-Equity Ratio:  APOG has almost no debt (under $9 million).
    4.  Quality of Management:  APOG has a dedicated and experienced management team that thinks like owners.  

    This may be an excellent long-term investment and a play on the recovery of the economy.  The possible negatives are, why pay a dividend when your ROI is in the teens?  And STOP GIVING WALL STREET ANALYSTS EARNINGS GUIDANCE.  It creates a short-term focus.  

    I am a possible buyer of Apogee Enterprises Inc. shares on dips below $13 unless the investment thesis changes. 

    Disclosure: No Position in APOG

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