5 stocks on a steady roll
Posted
Sep 23 2009, 03:37 PM
by
CAPS Editor
Rating:
This post comes from The Motley Fool's Rich Smith.
The idea of buying a stock right after it establishes a 52-week high sends dread through most investors, who worry about the whole "gravity" thing.
That's the thesis of my weekly column on Nasdaq ($COMPX) stocks trading around their one-year highs. I run the names through the wisdom-of-the-crowds meter we call MSN CAPS, and out comes a list of stocks that could be poised to plunge.
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But while many of the stocks will indeed fall back to Earth, some seem immune to gravity, steadily riding a megatrend to ever-greater heights.
Today, we'll move beyond stocks hitting 52-week highs to identify companies surpassing five solid years of outperformance. Each of these stocks recently appeared on a MSN Money list of stocks trading at new five-year highs. What we want to know is which of these will thrash the market averages for another half-decade.
Here are this week's leading contenders:
NewMarket (NEU) makes petroleum additives that improve the performance of gasoline, diesel and other fuels. The Richmond, Va., company has a four-star rating at CAPS.
Marvel Entertainment (MVL) is a comic book publisher and movie maker with more than 5,000 characters, including Spider-Man, the Avengers and the Incredible Hulk. The New York company, which is being acquired by Walt Disney (DIS), has a four-star rating at CAPS.
SXC Health Solutions (SXCI) provides software to help pharmacists manage their businesses. The Lisle, Ill., company has three-star rating at CAPS.
Express Scripts (ESRX) is one of the nation's biggest pharmacy benefits managers, and it will get a lot bigger when it completes its $4.7 billion acquisition of WellPoint's (WLP) NextRx subsidiaries. The St. Louis company has a three-star rating at CAPS.
TJX (TJX) operates eight retail chains that sell brand-name apparel, shoes, accessories and housewares at discount prices. The Framingham, Mass., company, whose best-known outlets are T.J. Maxx and Marshalls, has a two-star rating at CAPS.
The bullish case for NewMarket
CAPS All-Star "mansloth" introduced us to NewMarket in 2006, pointing out that its petroleum additives are supplied to oil companies, refineries, chemical companies and others. NewMarket has fuel additives used to improve both the oil refining process and the performance of gasoline and other fuels by helping to protect against deposits in fuel injectors, intake valves and the combustion chamber.
"This is a very competitive industry that may see some consolidation," mansloth wrote. "NewMarket seems to have a nicely distributed customer base. . . . The business is family owned and operated, and very shareholder-friendly. Non-dilutive and very consistent growth. Management seems to have a tendency to under-promise and over-deliver. For the long term, I like it."
Other members of our super investor All-Star class are coming around. Last month, "shaileshnita" argued that NewMarket will "improve its revenue as the automotive industry recovers from recession. . . . This company is in the growth trajectory."
Another CAPS All-Star, "220330," also likes the stock, noting that it boasts a PEG (price/earnings to growth) ratio of less than 1 and a return on equity of greater than 20%.
The more I look at NewMarket, the more I like it. This is definitely not the kind of company you'd ordinarily expect to be hitting five-year highs. Its business has very little sex appeal. Only three analysts track the stock, giving it a lower profile than rivals like Lubrizol (LZ) or Chevron (CVX).
Basically, I agree with our CAPS members that this is just a good, steady business, and attractively priced despite its place on this list. The stock trades at a price-to-earnings ratio of 15, which seems appropriate given its projected 15% annualized five-year growth rate. Its strong generation of free cash flow (which comes in just ahead of reported GAAP earnings over the last 12 months) suggests a high quality of earnings, although such a performance has not been consistent in the last few years. But, lending support to the company's valuation, NewMarket pays a respectable 1% dividend.
Really, folks, I find little to dislike about NewMarket. Is it the market's most exciting stock? No. NewMarket won't set any speed records for growth, or burn any barns getting there. Rather, NewMarket is a steady performer, selling for a fair to modestly discounted price.
But in a market like this one, where so many companies of debatable quality have been bid up to ridiculous valuations, boring and fairly priced seems to me a nice place to be.
Disagree? Feel free. Click on over to CAPS and tell us what you think about the stock. If you've got a more exciting investment idea, tell us about that, too.
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