Friday, May 30, 2008

On Wisconsin!

Next week I'll be spending time with the folks in the place where I grew up--America's Dairyland, aka Wisconsin. In general, when we're not battling mosquitoes or shoveling snow, we Wisconsinites are genial people probably because of our diets. Beer, brats, cheese, and an oompah band will put a grin on anyone's face...well, maybe not the oompah band. (Use an accordion, go to jail is my motto.) And we're not known as the Home of the Braves (until they upped and moved to Atlanta--grrr!) for nothing. I mean, how many other people are willing to risk making fools of themselves by wearing holey foam hats on their heads? Some people may label us as ridiculous but I prefer to think of ourselves as being courageous touched with a soupcon of self-deprecation. (Actually, it's probably just the beer talking.) Anyway, in honor of my homecoming, I decided to devote today's blog to Wisconsin-based companies.

When you think of Wisconsin companies, beer, sausage, dairy, and Harley's probably spring to mind. But unfortunately, one of the beers that made Milwaukee famous, Budweiser, is based in St. Louis although they do own a brewery in Milwaukee. The only other major state brewery is Miller but that company is privately held. As for sausage, Johnsonville is the largest and that, too, is a private corporation. Same with the major dairy companies. So what's left to talk about? Plenty. Of the state's major iconic firms, only Harley-Davidson (HOG) makes the list, but Wisconsin isn't just made up of artery-clogging, DT-inducing companies. The most widely held public companies have nothing to do with personal consumption. Their focus runs the gamut from large farm and mining equipment to paper products to computer technology to auto parts to business services to retail. I looked at 25 of the most actively traded Wisconsin firms and there's a quite a few that would make juicy additions to anyone's portfolio. I won't bore you with every one I like--just my top picks.

The Cream of the Crop
In my March 12th blog, we looked at heavy metal stocks, i.e. those companies engaged in large-equipment manufacturing. I cited Joy Global (JOYG) and Bucyrus (BUCY) as being the pick of the litter among the mining manufacturers. They are both based in Wisconsin and since I recommended them, they've both been in a steady uptrend hitting new highs almost daily with JOYG gaining 22% and BUCY up 31%. Although they've been huge winners for the past couple of years, their charts aren't giving any indication of exhaustion. An analyst at BMO Capital raised JOYG's price target from $85 to $95 citing not only positive earnings and a solid back-log but future growth due to the resurgence in coal-mining. The situation is identical with BUCY with a Lehman Brothers analyst initiating coverage of the stock at “Overweight” (that means the stock is a strong buy) with a price target of $140. That's double the current price! He says that the company is well-positioned to take advantage of the world-wide growing commodities demand especially coal which accounted for 73% of the companies 2007 sales. I'd be a buyer of these stocks on any sort of pull-back.

Actuant (ATU) is a diversified machinery company that makes hydraulic and electrical tools as well as motion sensors for a wide range of commercial and industrial applications. On March 19th, it blew out earnings and raised yearly guidance. Since then, the stock has risen 20% and just recently broke above its all-time high.

If you're a handyman (handygal? handyperson?), chances are you're familiar with my next pick: Snap-on (SNA). This company makes tools for the home-based DIYer (do-it-yourselfer) as well as diagnostic and test equipment for the automotive industry. It also provides loans and financial services to its franchisees. Although the Commerce Department today released figures that showed a sharp decline in personal income growth, this didn't hurt Snap-on's stock as the price is now bumping up against its all-time high. The reason for this is that 44% of the company's first quarter sales came from overseas markets which more than offset falling US sales. According to Snap-on's CEO, the company is working hard to improve its global supply chain and sees “a strong and sustainable platform for future growth.” The company also recently raised 2008 guidance and Zack's put it on its buy list. Note that this company pays a nice dividend (2% dividend yield) to boot.

You might not have heard of the next company but you've probably seen their products. Brady (BRC) makes identification systems such as bar-coded tags which identify and protect products, premises, and people. The company's stock suffered a 34% decline from its August 2007 peak, and has been digging its way back since mid-February. It finally broke out of its trading range on May 22nd when it reported record earnings on improving margins and raised 2008 revenue and earnings guidance. In March, the company announced a one million share buy-back program. The stock has risen sharply since its earnings report (over 15% from its pre-announcement level) and because of this rapid rise, I'd wait to see if it pulls-back before buying. (Note: Brady has a 1.6% dividend yield.)

Pork sausage isn't the only type of hog product made in Wisconsin. Consider motorcycle manufacturer Harley-Davidson (HOG). While Jim Cramer has been tough on this company lately, the stock's chart is painting a rosier picture. It's put in a triple bottom from the middle of January to the middle of April and has since then it's been making a series of higher highs and higher lows. One more up day and the stock will have broken out of its base. A rise through its next major resistance level of $45 will be a sure signal to go long. Perhaps the rising price at the pumps has something to do with renewed interest in the company's products? Sure, many regard motorcycles as a purely recreational vehicle but they can also be viewed as an energy-efficient form of transportation. International sales have helped Harley fend off declines in the US market, and increasing global market share can only improve its bottom line. Just today US Senator Russ Feingold from Wisconsin urged the government of India to ease import tariffs on Harley products. If further tariffs can be eased, that would bode well indeed for hog aficionados world-wide. (I'd hate to be at a world-wide Sturgis meet!) The company also pays a respectable dividend (current yield is 3.2%)

Conclusion
See? There's more to Wisconsin than just cheese. By adding a few of these Dairyland Darlings to your portfolio could be gouda for your bottom line. (Sorry!)

Since I'll be gone next week I'm turning my blog over to my guest contributor, Professor Pat who will be delving into the finer points of Modern Portfolio Theory as well as introducing concepts of Post-Modern Portfolio Theory. All you math-geeks out there get ready and dust off your propeller hats.

Wisconsin Jokes
Q: What do they call a thin person in Wisconsin?
A: Tourist.

There are two seasons in Wisconsin--winter and road construction.

Have a good weekend!

2 comments:

Jay said...

Please do not forget JnJ!

Dr. Kris said...

Hi Jay!

You're confusing Johnson & Johnson, the drug manufacturer based in New Jersey with SC Johnson, the privately held wax company that occupies the famous eponymous building designed by Frank Lloyd Wright in Racine, WI.

No problem. We cheeseheads are subject to confusion especially after a few brewskis.

Dr. Kris