Stock Screening - Defense Names Pop Up
Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
One of the tactics that has allowed me to uncover some gems is using a stock screener. I do a lot of my investing for the longer term so I like to find strong solid companies that have healthy balance sheets and are growing.
Using the following criteria I am going to highlight 2 picks that I've found and like, both in the defense sector.
Market Cap > 250 Million
P/E > 0.00 (avoids companies that have posted a loss)
Last Price > $1.00 (avoids penny stocks)
5 year Revenue Growth > 0.00% (avoids stocks that are seeing sales decline, and I prefer to use Revenue rather than Earnings as earnings can be manipulated through one time events)
Total Debt / Assets = 0.00% (No debt)
Using this list you will get a little bit of garbage (stocks with thin trading volume, ETFs, etc) but I saw 2 stand out in seemingly bland industries. National Presto Industries Inc. (NYSE: NPK) and Sturm, Ruger & Company (NYSE: RGR).
NPK makes kitchen appliances, military grade ammunition and of all things, adult diapers. Comparisons are a little tricky given the 3 segments but to get exposure to all 3 you would need a Whirlpool (NYSE: WHR), a Kimberly Clark (NYSE: KMB) and a gun stock (keep reading).
I like the fact that this company makes appliances, but unlike WHR and some of the other names, its not saddled with the heavy debt you'd expect from a manufacturer. KMB may be a tough comparison for the consumer products (KMB does make Depends), but they, like the other diversified household product companies, have reached a stage of slow / no growth. KMB is reducing its Capex with slowing sales. NPK gives you exposure to this space (and more importantly the baby boomer portion of household items) with the capacity for growth going forward. Slowing sales in the recent quarter and a special dividend of $5.00 have taken it's toll on the stock price but they are sitting on over $100M in cash and have a current ratio of over 5. With no long term debt, they have a ROI of over 15%, pay a 1.5% dividend and a P/E of less than 10.
RGR is in a completely different industry. Guns. RGR distributes its products primarily through retail / wholesale dealers. Unlike other companies such as Smith and Wesson (NASDAQ: SWHC) , RGR focuses its sales on the sport, leisure and hunting markets. I feel this is a better space to be in than a company that relies solely on military and local law enforcement contracts. While SWHC is up this year due to a great quarter, their balance sheet and debt levels are much less exciting than RGR. Further, given the state of things, the consumer is more likely to turn around and start spending than the states and local municipalities. So RGR will see stronger and faster growth as the market recovers than SWHC.
The stock is up over 100% this year but I don't see that as a cause to stay away. The P/E is around 20 but the 5yr EPS growth expectations are in the 50% range giving this stock a PEG (P/E to Growth) of less than 0.50 which still screams value. This company beat earnings estimates all 4 quarters in 2011, still has zero debt, pays a 1.3% dividend, and has cash on hand to cover all liabilities. With earnings growth topping 80% I see no reason for this stock to run out of steam in the coming years and should continue to return value to shareholders.
Over the next few years I feel these 2 companies are perfect in a balanced portfolio. They have the right amount of defense but are poised to continue to return value through revenue growth.
Motley Fool newsletter services recommend Kimberly-Clark. The Motley Fool owns shares of National Presto Industries. CMartin26 has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.