by stock | February 17, 2012 4:44 pm
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Source URL: https://www.stockgumshoe.com/2012/02/february-idea-of-the-month-clean-hot-water/
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we keep hearing about water investments but have had little appreciation in those stocks. hope this one will be better.
Thanks for an extremely well done, thorough analysis Travis. And, based on your observations, AOS should be followed. I have two issues: where AOS is in terms of China and price. I spent a lot of time attempting to invest in stocks that should do well in China (I am waiting to see what happens with AAPL) and many have fallen by the wayside because China’s semi-capitalistic system is in early stages and there are few means of prosecuting stolen concepts, patents et al. That’s issue number one, number two price: as I am one who prefers bottom fishing the only way I could buy at this price of $46.60 is based on enormous expansion as they are at a top now. So I just have to wait and see. I never buy momentum stocks but many do.
But I certainly admire your presentation, succinct and well done. Thanks. /* Phil */
I personally have trouble with “buying at the top” too, but I think that’s a weakness of mine when it comes to strong growth companies that aren’t yet crazy expensive — what looks like the top in the rear view mirror of the chart is sometimes just the first foothill of a mountain range. May not be the case with AOS, of course.
Travis. I think you are very intelligent. So, I expect correct grammar. A Company is an “it”, not a “they”. Most in your business make this error. It offends me.
AOS has been a featured stock by Chris Meyer in his premium newsletter: Meyer’s Special Situations. It has performed well since his recco. I sold too early. It was good management that moved into China and expanded the company and I am a believer in good management. The future is good for this company. IT is a solid find for you. Good health!
Speaking of ever-so-slightly [ie, trivially]-loose grammar: “recco”? Would that be a truncated “recommendation”? 😉 Most in Travis’ business use “reco”, which would seem preferable, as denoting the term’s origin trumps, IMO, suggesting the pronunciation, assuming the latter is your rationale.
Well, we all have our pet peeves, don’t we…
Cheers, and good trading.
Travis – I grew up very near to Milwaukee. The giant clock at the AO Smith factory is still a landmark there. I enjoy reading the commentaries you offer as they are so much more relaxed than the high power sales pitches in some of the newsletters I have seen. One thing that bothers me on AO Smith is that I see a lot of insider option executions accompanied by selling of shares.
True enough, there has been a fair amount of option exercising and selling. I try not to get bothered about insider selling for stable companies, since insiders sell for lots of reasons and haven’t been proven to be any better than the rest of us at determining when their stock is “overvalued” … It can be a red flag, of course, but it usually isn’t and that can only be determined after the fact (insider buying is an important indicator, on average, insider selling is not).
I do like that the founding company still has effective control of the company, with a 15% equity stake and super-voting A shares. Not that I love the super-voting shares, but I think they’ve done a good job shepherding their investment to this point and I like that the founders still own a large chunk.
Hi Travis. Nice analysis. Since it appears some of the recent reports on housing are anything but stellar and China growth continues to slow, do you still feel as strong about AOS as you did 5 weeks ago?
I still think it’s a good long-term play and a good value at this price — I have no idea whether the bounceback in demand for new construction in the US will be next year or in three years, but the replacement market is very, very steady and makes up most of their business. I think any concerns about Chinese growth overstate the impact it will have on modernization of their housing markets, with more hot water and water purification demand inevitable and AOS in a good position there with an established western brand that appeals to the rising middle class/higher end markets. I readily acknowledge that they might not get a spurt of growth in the next year from new US construction or spikes in Chinese demand, but I think both are likely over the coming several years and the company is well-priced, profitable and effectively managed and growing, with a growing dividend, even without any dramatic increase in short-term revenue. That said, I haven’t personally bought the shares (yet, at least), though that’s not necessarily an indication of success — some of the “Idea of the Month” picks that are substantial players in my portfolio have been some of the worst ones.
What do you think of TPX Tempur-Pedic? It was about $87 on April 18, then plummeted all the way down $20.90 on Jun 26.
The company has a P/E ratio of 6.3. TPX improved earnings per share by 26.5% in the most recent quarter compared to the same quarter last year. The company has demonstrated a pattern of positive earnings per share growth over the past two years. For 2012, it is expecting a contraction of 15.1% in earnings ($2.70 versus $3.93 that was previously expected). I like this because TPX might have been oversold. What do you think?
Articles:
I am particularly intrigued by this significant insider buy: http://www.marketwatch.com/News/Story/Story.aspx?guid=6DC716DB-8083-4065-BB34-9DD30E273249&siteid=yhoof2
http://seekingalpha.com/article/667631-why-tempur-pedic-international-is-likely-poised-for-a-rebound?source=yahoo