RD's Picks

I was watching CNBC's Fast Money Friday night and heard Pete Najarian recommend a trade in Manitowoc (MTW) because of it's connection to overseas construction. That clicked with two of my SLO stocks, ABB and Graham Corp., having had nice moves on earnings last week. To see if this looked like a solid trend, I scanned earnings reports from last week looking for companies that make big, heavy machinery and equipment and sell it around the world. My scan results are shown in the table below. The stock move column is the difference between the closing price before earnings and the opening price after for stocks that reported when the market's closed. For stocks that reported while the market was open, it's the difference between the day's opening and closing prices. Of the 13 that reported last week, ten beat estimates, one met them and two missed. Ten of the stocks moved up on the earnings and three moved down. I like those odds.

It's very possible I missed some companies that should have been included in last weeks list. Since I don't know of a screener for 'make big, heavy stuff and sell worldwide' (MBHS&SW) the scan was looking at companies I knew were in the business and a quick look at the profile for those I hadn't heard of and couldn't tell what they did from the name. Feel free to post a comment if you know of something that should have been included in last week's wrap-up.

This week I'm going to try trading the earnings releases for stocks that fit the MBHS&SW profile. I've identified five candidates so far, Manitowoc is among them - but there's another one I like even better. Most of the stocks for next week have decent looking fundamentals, so they shouldn't get slaughtered too badly if they miss. Because of time constraints research for this is limited to a quick scan of the profile and key statistics on Yahoo Finance and a check of the chart to try and avoid buying on a big run-up before earnings. The company I really like for the earnings trade is Bucyrus (BUCY). They make mining equipment, 'nuff said.

Lincoln Electric (welding supplies), Northwest Pipe (pipe) and Harsco (steel supplier) also reported last week. All three missed earnings estimates, which I found surprising since their customers should include MBHS&SW companies. Based on their results I narrowed the field for next week's trades to equipment manufacturers, not their suppliers.

I'll post a blog entry next weekend with the results.

I've already entered an order to sell my Graham Corp. (GHM). They redefined 'blowout quarter' with their earnings report Friday, estimate was 42 cents a share, they delivered $1.10. However, in the news release they said gross margins for the past quarter had increased due to the product mix and the margins were likely to be lower next quarter. The company's doing great, but it's had a nice run from the high 30's to the high 50's and seems pretty close to fully valued. If the stock pulls back to the 40's, I'll be tempted to buy it back.

Comments: View Comments |  Sunday October 28, 2007