“Recession-Proof Business Poised for 100% Gains” Motley Fool

The good folks at Motley Fool’s Stock Advisor newsletter have another teaser for us … they think they’ve got a “virtually recession-proof” stock for you to buy … in their words:

“On Sale Now… a Virtually Recession-Proof Business Poised for 100% Gains…

“An investment story like this doesn’t come along very often…

“It’s a business that is sailing through one of the most difficult financial markets we’ve seen in decades.

“In fact, it’s been able to do what very few businesses can- not only grow its business, but protect its stock value along the way.

“You see, while the S&P has lost more than 30% of its value over the past 6 months – this stock has remained virtually flat.

“What’s even more amazing is that over the past year, as the subprime mess escalated and the economy started unwinding, this stock has jumped more than 65%.

“It’s a point worth repeating… up 65% over the course of one of the most difficult financial markets we’ve seen in decades.”

OK, so they got my attention. What is this?

They do provide a few clues:

“It creates and manufactures cutting-edge surveillance technologies and it’s quickly becoming a niche leader in the security and defense industry…”

And, my favorite clues, some actual numbers:

“Sales have almost tripled since the end of 2003…
“Current backlog orders equal $180 million…
“The company has NO debt…
“During the first 6 months of this year, sales rose 49% year over year…
“The company recently expanded manufacturing operations to keep up with demand.”

Not bad, eh? I think we can rest assured that this isn’t a homebuilder, or yet another Motley Fool teaser ad touting Moody’s or Markel.

We also get that perfect marketing add-on, a quote from a reputable source:

“… as Investor’s Business Daily points out, ‘This company is selling its systems faster than it can make them.’”

And they have been building international business, too — they “played a key role” at the Beijing Olympics, and they’re expanding in Asia and the Middle East.

The final coup de grace: almost 20% of the shares are owned by insiders — which is a big Motley Fool green flag.

The folks at the Motley Fool are calling today’s market the “greatest buying opportunity of our generation,” and they think this is one stock everyone should consider. So what is it?

Well, we take those delightful little clues, crunch them up into little balls, and throw them in the Thinkolator … a few moments on “liquefy,” and I can tell you that this company is …

Axsys Technologies (AXYS)

To be honest, I had never heard of this company before this morning. And aside from having a name that sounds like an extinct bird, it does look like an interesting company to investigate … that IBD article, by the way, is here if you’d like to read up on it, they do give a very good overview of the business. The article came out in October so, unlike many of these “expert quotes” we see in ads, it’s fairly current.

The company has a lot of fans — aside from the Fool brothers, it’s been a pick very recently of Zacks, and since it’s one of the top performing stocks of 2008 (it had doubled at the highs, and is still up about 60% or so), it’s probably on a lot of other growth and momentum screens … though the stock over the last couple months has been bouncing around between $50 and $70 (it started the year in the mid-$30s, so I’m sure many of us would be delighted to have enjoyed that performance).

Read that IBD article for a better overview of what the company does, but essentially they design and sell camera and motion sensing systems for surveillance networks, vehicles, and similar applications — they did provide some of the equipment for the surveillance networks at the Olympics in Beijing, and they are expanding internationally, but the lion’s share of their work is military, either directly or indirectly (they sell components to systems integration contractors and vehicle manufacturers, too).

And if you’d like to hear management’s thoughts, the conference call transcript from last month’s earnings release is available at Seeking Alpha — not as good as hearing their voice, perhaps, but certainly a lot quicker to scan.

So … is it a buy? Well, that’s your call. It is refreshing to see a stock teased that is actually up this year, not one that’s a bottom fishing opportunity, and their general business seems to be in an uptrend — they’ve beaten earnings estimates for several quarters in a row, though the analyst pool is not particularly deep, and those same analysts see them continuing to grow at about 20% a year into the future. The only fairly close competitor I can think of is Flir, which is more of an infrared specialist (and much, much larger — $4 billion market cap versus $600 million), and the valuations of the two companies are so similar (based on earnings, at least) that they’re virtually identical.

The only caution in a general sense is that AXYS (like FLIR) is still priced at a premium PE ratio compared to the broader market, which some people hate these days — but if they can keep growing as they have, and keep producing solid profit margins, they certainly deserve a premium. Doesn’t mean the stock can’t go down, or that there aren’t some skeletons in their closet, or an over-reliance on US military procurement that exposes them to “all the eggs in one basket” risk. But it is, at least, priced at a Price/Earnings to Growth (PEG) ratio of just a bit over 1 … and they don’t have any debt.

Nothing to sneeze at, though whether that’s enough to get you off the sidelines and buying is, of course, your choice — please leave a comment below and let us know if you’ve got anything to share …
             ——————–
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1. What has happened with api advanced photonics the page on your site says its not available. The stock above and the flir stock seem to be using older technology when compared to this one. The far infrared sensors being developed here sound like the state of the art in the technology and even though the company is small it seems to be growing at a good pace. Please review and post comments

   [Reply]

   

   StockGumshoe Reply:
   November 19th, 2008 at 4:25 pm

   Haven’t looked at all at this company since I wrote about them last year, though it looks like they’ve had a rough time of it. The original note is here, by the way, sorry it didn’t show in the search:

   http://www.stockgumshoe.com/2007/11/army-of-bees-hunting-bin-laden.html

   [Reply]

   Posted by dav | November 19, 2008, 4:05 pm

2. I am confused…in looking at AXYS [or any other company] do I want to see P/E at 15.00 or at 1.00? Is it better in this market to have a higher P/E number?

   Do Iwant stocks to have a higer PEG or a lower number? I am using your column and a few others to learn about investing.

   [Reply]

   

   StockGumshoe Reply:
   November 19th, 2008 at 5:08 pm

   Welcome Melanie. The popularity of the PEG ratio in the popular consciousness traces back to Peter Lynch, who advocated searching for stocks whose growth rate is at or near (or above) it’s Price/Earnings ratio. That’s not because it’s magical, it’s just a convenient way of assessing a stock’s value versus its growth rate.

   Here’s the short version:

   The price is the price of the stock, the earnings is the total profit of the company divided by the number of shares — so the PE ratio is the price divided by the profits. All else being equal, you would want this to be low — better to pay $1 for 20 cents in annual profits than to pay $1 for 3 cents in annual profits.

   The PEG ratio just puts another number in there that attempts to look at the future, which is a way to justify purchasing high growth stocks even if they trade at a higher multiple of current earnings.

   That means if you have a stock that trades for $1 and has 20 cents in earnings, and is growing earnings at 4% per year, the PEG ratio is 1.25 — that’s a PE ratio of 5 divided by growth of 4%.

   If you have a stock that trades for $1 and has 5 cents in earnings this year, and is growing profits at 40% a year, you have a PEG ratio of .5 — that’s a PE ratio of 20 divided by a growth rate of 40.

   There’s no magic, it’s just shorthand that people use to make a quick assessment of a stock’s value. And it’s a little tough to use right now, since it seems like pretty much everything is a “value” stock at the moment, and a value stock with lead boots at that.

   [Reply]

   Posted by Melanie | November 19, 2008, 4:05 pm

3. this was a takeover many years ago when shearson hamil was floiundering in fact bershad was from sh hamil . they took away the former exs. airplane they then had a reerse split severaql yrs later hey did a 3=2 forward split and its been dgoinup mever since unfortunately names and dates escape me

   [Reply]

   Posted by who noze | November 19, 2008, 8:56 pm

4. I think most stock gurus think it is best to buy stocks with a PEG of 1.00 or below. Right now, though, it is hard to predict future growth.

   [Reply]

   Posted by Don X | November 22, 2008, 10:43 am

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   [Reply]

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