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Sunday, August 8, 2010

Exploring New Frontiers: Five Stocks I've Never Heard of Before

As promised, I have done my exploring and now I am ready to discuss five companies I have never heard of before that I found to be possibly good buys.

Pentair (PNR)

This is a company whose name I seem to recall seeing at some point, but if you had put a gun to my head a few days ago and asked me what in the name of God they do to make money, I couldn't have told you. Apparently, their main businesses are water filtration systems, water pumps, and a segment broadly called "technical products" which involves cooling and enclosure products for electronic systems. They're all fairly solid businesses and Pentair has shown fairly consistent revenue and profit growth that do justify its otherwise rich 20 PE. Also, its dividend at 2.24% isn't bad, particularly when 10-year treasuries are only paying 2.82%. Growth prospects are good and they have a wonderful habit of clobbering analyst expectations.

Nu Skin Enterprises (NUS)

As you might expect, Nu Skin is a skin care and personal care products company. It engages in direct selling rather than through retailers on a number of personal care products including things like spa gels, botanical products, and so on. I know profoundly little of this sort of market, but trading at 15x earnings, consistent and high earnings growth, good growth prospects, and a 1.8% dividend to slightly sweeten the pot, I have to say that this doesn't look half bad. My only caution is that as I don't understand these sorts of markets, I will warn that these sorts of products are very vulnerable to trends that those who are not well versed in the industry aren't aware of and earnings growth could suddenly turn awful. That being said, this looks fairly promising.

Xyratex (XRTX)

This is a network storage products company that has exhibited a peculiar growth pattern of late, by which I mean its growth has gone through the ceiling in recent quarters. For years they seemed to be milling around $200-250 million in revenue a quarter. Suddenly that accelerated to $320 million and then $455 million in the last quarter. It is a tiny company with little coverage so it is hard to tell how sustainable this is. It is a favorable sector to be in and if they can even come close to replicating their recent earnings successes, the stock is quite cheap. One serious caution is that this is a small small company and can be bandied about by a single mutual fund deciding that they don't like it. They also do compete against much larger companies, but that actually means that there is a good chance that they could be bought out at some point in the future.

Companhia de San Basico (SBS)

This is fairly simple to explain. This is a Brazilan water utility in the state of Sao Paulo, Brazil's biggest state. If a Brazilian reader by some random chance was reading this blog, this company would be well-known to them, but it was completely unheard of to me. Growth prospects aren't always the best for water utilities, even in emerging markets, but given its low valuation and consistent earnings delivery, I think it is worth a shot. Brazilian companies are always hard to figure out with their dividend yields because they are so irregular or they pay monthly with big special dividends. Even though usually utilities pay large dividends, going over SBS, it doesn't seem to, which is unfortunate.

Provida Pension Fund Administrator (PVD)

This is a Chilean private pension fund administrator which is not strictly involved in conventional pensions but also defined contribution plans and what appear to be something similar to health savings accounts, though I might have to investigate further. The stock is very thinly traded, so it can be hard to complete your trades, but the fundamentals of the company appear very strong indeed. All told, I like what I see here a lot as they are essentially an asset manager in a country with a phenomenal amount of growth potential in that area. It's a good long term play and it appears very reasonably valued, though with an erratic dividend pay out history. You will see it shows a 14.3% dividend yield, but that is because it had a very large one time payout as best as I can tell.

Anyway, those are my five. I don't favor them in any particular order as I still need to do a bit more research on a couple of them to become truly comfortable. I hope this exercise has expanded your horizons as it has mine.

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