If I Had a Billion Dollars...
Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
If I had a billion dollars there are a couple of things I would invest in before the stock market. I would want a house, a new car, and a private jet has always looked like tons of fun. Of course once the basics were covered I would use that money in a way that benefited people besides myself.
But what if a magic genie gave me that amount of money and told that I had to invest it in only one company with a market cap of approximately $1 billion? Here are two companies I would seriously consider, as well as one that I'd stay away from.
Top-notch engine maker
Briggs & Stratton (NYSE: BGG) is the world's largest producer of air cooled gasoline engines for outdoor power equipment. The company has two reportable segments: engines and products.
The engines segment's sales are primarily to original equipment manufacturers or OEMs. An OEM sale occurs when another company buys a Briggs & Stratton piece of equipment to use as a component in its own products. For example Deere & Company buys engines from BGG to use in in its lawn mowers.
Accounting for over 80% of sales, the engines segment primarily serves manufacturers of lawn and garden equipment. Examples of lawn and garden equipment powered by the segment's engines include lawn mowers and garden tillers.
While its engines segment primarily powers the products of other companies, in some cases BGG is the one making the final product. Such sales are reported under its products segment. Examples of such products include generators, pressure washers, and snow throwers.
Whereas the engines segment has been profitable, products has delivered a net loss in each of the past three years. Capital expenditures for the segment have also been trending downward.
One reason the segment may be doing so poorly is that, when dealing with massive retailers like Wal-Mart, the company has absolutely no pricing power. The company has stated that its products segment will now focus on higher margin products, sold through regional retailers and its own independent dealer network.
Some disturbing aspects of the company investors should be aware of include: a significant portion of sales coming from just a few customers, razor thin margins, and a five year average return on equity of below 4%.
A billion dollar oil and gas company
Newpark Resources Inc. (NYSE: NR) provides products to the oil and gas exploration industry. Its products include: drilling fluids, materials used in well construction, and waste disposal services.
The company delivered results that topped analysts' expectations when it reported first quarter results. Earnings per share of 18 cents represented year-over-year growth of 13%. And net operating margin clocked in at 6.2%, a YoY increase of 20 basis points (.2%).
Newpark's current working capital amounts to approximately $446 million, or almost half of its current market cap. Current assets outweigh all liabilities by over $125 million. And shareholders' equity, which stands at $533.8 million, has grown at a CAGR of just over 6% for the past nine years.
The company is incredibly well diversified geographically, with operations on all six highly populated continents. It recently reached an agreement with the Kuwait Oil Company to provide drilling equipment and services for the next half decade, a deal that will bring the company an estimated $75 million in revenues.
Noodles? No thanks
Shares of Noodles and Company (NASDAQ: NDLS) have shot up over 250% since its IPO a little over a week ago. This company had the biggest pop in its first day of trading since Splunk went public in April of last year.
There are 343 Noodles locations (291 company-owned, 52 franchised) across the country serving a wide variety of noodle themed dishes. Revenues have grown at a four year CAGR of 15.3% and were $300 million in 2012.
In the same time-frame EBIT grew at an impressive CAGR of 68.2% (don't expect that trend to continue for much longer) and was $16 million in 2012. I don't usually like paying over $1 billion for a company that generated less than 2% of that amount in EBIT during the previous year.
Shareholders who are miffed at missing out on Chipotle might view this company as a second chance to cash in on the fast casual craze. But as a fellow Fool pointed out this company, while an incredible grower, has not performed nearly as well as Chipotle did before its IPO.
Foolish final thoughts
It would be pretty sweet if a genie gave me a billion dollars, even if I did have to invest it all in just one company.
But even though I don't have a billion dollars, that doesn't really matter. If you can establish that a company with a market cap of $1 billion is a good buy and each of its shares are trading for, say $10, then logically each share at $10 is also a good buy.
Briggs & Stratton is one company I would consider spending that billion on. With the exception of 2012, it has generated operating cash flow of over $100 million in each of the past four years. And while its products division has been floundering, the company still has a strong brand and a solid balance sheet.
Newpark Resources has been growing its revenues and earnings per share at a steady clip. Margins are also headed in the right direction. Like Briggs, the company's balance sheet is in excellent shape. This company is also very diversified. If I had to pick one or the other (NR or BGG) to spend a billion on, it would probably be Newpark.
And then there's Noodles and Company. Congratulations to those investors that were able to get in immediately on this company's IPO and the almost instantaneous huge gains that you've achieved.
But for investors looking to get in now, perhaps hoping this company will be the next Chipotle, I would strongly advise against doing so. Try to invest in "the next ______" will almost always get you burned.
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Fool blogger Ryan Palmer has no positions in any of the stocks mentioned. The Motley Fool does not recommend or hold a position in any of the stocks mentioned. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own