RD's Picks

A few posts ago I mentioned adding a global industrial play to the portfolio and was considering GE, ABB and a few others. This morning I started nibbling at ABB. It was down a bit at the open and tripped a limit buy order. I'm going to try being more patient with this one than I was at the contest start and buy in small chunks on dips.

For those not familiar with ABB, if they generate electricity, use electricity, control machinery, or transmit power, they're a prospective ABB customer. The key factors in the decision were ABB's PEG of 0.9, strong balance sheet and the fact that it's based in Europe so provides some protection against a falling dollar. Sadly, I believe the combination of budget and trade deficits combined with the Fed's hand being forced towards easier money make a weaker dollar inevitable. ABB's home page made it clear this is a global business, listing recent big contract wins in the US, Kenya and China.

Had I been making this buy for my real portfolio, I would have chosen GE. GE's breadth of businesses provides pretty good diversification, which is attractive since I don't hold as many stocks in real life as I'm playing with in the SLO. I also like GE's higher dividend. However, for SLO I was looking for leverage to global industrial growth and ABB is more of a pure play.

While researching industrials, I ran across a small company I'd like to add. Graham Corporation (GHM) has a $150 million or so market cap and makes vacuum and heat transfer equipment used in places like refineries and power plants for customers around the world. They're only covered by one analyst, trade at a reasonable 16 times forward earnings, have almost no debt and over $5 of cash per share. Their last quarter was the definition of a blowout, 66 cents per share vs. estimate of 28. However, by the time I was entering orders, it started to run and was up nearly 9% today - great for shareholders, not so good for those who wanted to buy. I'd still like to add it, but will wait and see if it pulls back some.

Disclosure: At the time of writing, I don't have positions in any of the companies mentioned.

Comments: View Comments |  Wednesday September 5, 2007