In the January/February 2006 issue of the Financial Analysts Journal, Jeremy Siegel and Jeremy Schwartz published a study titled Long-Term Returns on the Original S&P 500 Companies. Their conclusion would seem to support a buy and hold strategy: “We found that a portfolio of the original 500 stocks chosen by Standard & Poor’s in 1957 to launch their index outperformed the actual (updated) S&P 500 over the subsequent 46-year period and with lower risk.”
They provided a table of the 20 best performing survivor companies based on returns over the period from March 1957 to December 2003. The list was comprised of 11 consumer products companies, 6 pharmaceutical companies, 1 retailer, and 1 integrated oil company. The company completing the list and that caught my attention was Crane. Here’s a mid-cap industrial company vulnerable to economic cycles whose stock returned 15.1% over the period studied making it the 10th best performer.
Fast Track results: Crane (CR) failed 3 of the 10 categories, and is a potential idea that’s worth the time to thoroughly research.
Key points:
- “A diversified manufacturer of highly engineered industrial products,” Crane adds a lot of value to the products it sells. The Aerospace and Electronics division can boast that its products can be found on “virtually all commercial and military aircraft.”
- Crane’s long-term staying power through good and bad times, together with the returns that the stock has awarded shareholders is impressive.
- Crane has been growing cash on its balance sheet. The company ended this year’s first quarter with cash and equivalents of $294.7 million, up from $133.9 million a year earlier and $283.4 million at the end of 2007.
- Free cash flow has been growing. The company generated free cash flow of $185.7 million in 2007, up from $154.5 million in 2006. The first quarter came in at $35.0 million, which was $5.1 million above a year ago.
- Earnings beat Street expectations for the last 4 quarters, and consensus estimates for this year and next have held steady. Management stated their earnings forecast for 2008 in the annual report and re-affirmed it in the first quarter earnings release at $3.45 - $3.60, for a gain of 8% - 13%.
- Street analysts are giving little support to the stock, leaving plenty of room for ratings upgrades. Eight analysts are covering Crane, and only 2 are recommending purchase.
- Crane offers good value. The stock’s P/E based on trailing 12-months earnings per share is 11.3, well below the S&P 500’s 18. The PEG ratio at 1 also compares favorably with the S&P 500’s 1.2.
The Company Stock Risk Profile Fast Track is a research tool for quickly and easily screening stocks for potential ideas. Fast Track is comprised of 10 key categories incorporating fundamentals, valuation and how management and the Street feel about the stock. I like to see a stock fail no more than 3 categories before putting the stock through the complete 50-category Company Stock Risk Profile research process. Most important, whatever screening tool you choose to use, always thoroughly research the stocks that pass your screen before buying.
