Graham Corp. (GHM – NYSE)
Dear Bottarelli Research Member,
Poof! Just like that, we’ve seen this market whip right back into shape, and it’s bringing strong upside momentum to many of our small-cap picks!
Remember, as a Bottarelli Research Small Caps member, you’re carefully positioned in some of the most dynamic small-cap stocks – companies that are perfectly poised to capitalize on the market’s most powerful “sector boom” cycles. These boom cycles include niche sectors like commodities, water purification, solar technology, Chinese gambling, un-met disease control, and dry-bulk shipping, just to name a few.
Each new small-cap pick is designed to take off within 6 to 12 months, but as you have witnessed, some of them blast off much faster than expected. This, my friends, is the trick with small-cap stocks. We always want to be positioned in these stocks before explosive earnings – and ahead of any major announcements or breakthroughs – because we want to be the ones selling for large profits while the rest of the crowd clamors to be piling in.
The latest example of this phenomenon came with Sinovac Biotech (SVA – AMEX), as the stock has now gained 57% from our September 3rd entry price. Yesterday, in fact, the stock opened the day trading as high as $9.50 per share before coming back down in the afternoon. As Bryan mentioned last week, it’s time to take HALF of your profits off the table and let the remaining half of the position ride for more upside. Here’s the current SVA stock chart:
Looking ahead, we’ll continue to get you positioned in the very best small-cap companies before the herd.
The company we’re bringing you this week is involved heavily in the energy field – specifically vacuum and heat transfer technology. They’re global designers, manufacturers, and suppliers of ejectors, pumps, condensers, vacuum systems, and heat exchangers.
Perhaps you’re wondering, “What the heck do these products do?”
Quite honestly, these operational components are found in a vast number of diverse applications, including metal refining, pulp and paper processing, ship-building, water heating, refrigeration, desalination, food processing, heating, air conditioning, oil refining, and electrical power generation.
Like I mentioned, that’s just about everything you can imagine.
The best part is that this company is global, with a footprint in North and South America, Europe, Asia, Africa and the Middle East. Not only that, but they’re rapidly expanding their market (as evidenced by superb numbers last quarter) and they carry a large customer backlog. To be honest, both Bryan and I have had our eye on this one for quite some time, just waiting for it to give us a pull back so we could have an attractive entry price. Well, that pullback has finally arrived, and it’s now time to get positioned.
The company is called Graham Corporation (GHM – AMEX). The perfect entry price is right at the $35.00 level, but quite honestly, it may never get that low. The chart is just too strong. So let’s go ahead and establish a new position at or under $43.00 per share. I’ll let Bryan give you the full story below, but first I want to give you some position updates.
UPDATES
Cereplast (CERP.OB): When I first issued a recommendation to buy this gem, I mentioned that this is a very early play on bio-degradable plastics. I cannot even begin to tell you how important this is, no matter if we’re talking hazardous toys from China or the growing problems with plastic water bottles. This field is wide open, and I urge you to remain patient. I’m extremely bullish on CERP.
Solarfun Power Holdings (SOLF – NASDAQ): We just had a great pop, but I still think there’s a lot more room to run. With a tad over 30% gains in hand, I remain bullish as solar continues gain major momentum. Next year should be even better.
Upstream Biosciences (UPBS.OB): After weeks of under-performance, it’s now time to close this one down for good. After a promising beginning, I no longer have confidence that the company can rebound and deliver us the gains that I originally forecasted, so it’s time to exit. Sell.
Input/Output (IO – NYSE) & Parker Drilling (PKD – NYSE): Both of these are strong companies in the right business, but their stock values have certainly been lagging lately. Fundamentally speaking, I can tell you that both IO and PKD are getting orders and maintaining sales flow, so let’s be patient and give them some room. For those of you who are aggressive, you may want to add to each position at these levels.
Melco PBL Entertainment (MPEL – NASDAQ): As I said before, we invested very early on this one, and I hope you’re beginning to see why being early is such a good thing. We are some of the very first investors who realize the tremendous upside potential on this one, and I think we are going to see the old highs much sooner than anticipated. The Street is just now realizing MPEL’s potential, and I expect more gains to come.
Sinovac Biotech (SVA – AMEX): Here’s another great winner that came to us very quickly. Now, I want you to start taking some of your seed money off the table. We are up 60% in very short order, but the gains are just getting started. In 2 years, I think SVA will be a $25.00 stock. Lock in some gains now and hold the rest for more upside.
JA Solar Holdings (JASO – NASDAQ): Ring, Ring! We have taken profits twice, bought the dips, and we now have a gain over 100%. Once again, I suggest you take all your seed money off the table and let the remaining position ride. Congratulations on another 100% winner. Believe me, you’ll have many more to come!
Have a great week!
Sincerely,
Out-Pace the S&P 500 By an 8-to-1 Margin Using this Overlooked and Non-Descript Vacuum-Pump Maker
Although there are hundreds, perhaps even thousands, of various investing philosophies, I’ve always felt that they all boil down into two basic categories:
Investing Philosophy #1: Taking the lead from Warren Buffett, this is the group that invests only in things that they understand. Long-time Buffett holdings like soft-drink maker Coke, razor firm Gillette, and insurance firm Geiko are examples of this philosophy.
Investing Philosophy #2: Taking on more of an aggressive position, this is the group that is willing to invest in things that they do not understand – simply because this philosophy carries larger upside potential. Examples such as the human genome and nanotechnology immediately come to mind here.
Now here’s the thing: While preparing this week’s alert, I realized that I have to adjust my original thinking and add a new investment philosophy – one that includes investors who overlook some of the most promising investment opportunities simply because the business sector is overlooked, or non-descript, or even outright boring.
This is the situation we have with Graham Corporation (GHM – AMEX).
Graham Corporation manufactures and sells vacuum and heat transfer equipment. While I’m sure that the business category of “vacuum equipment” doesn’t exactly light your world on fire, this truly is a critical business component for a large majority of the world’s top industries. A quick background:
The vacuum pump was invented in 1650 by Otto von Guericke. This was an important global invention because fluids (as you probably know) cannot be pulled. Therefore, a vacuum has to be created first, and a vacuum pump acts as the pumping device that removes gas molecules from a sealed volume in order to leave behind a partial vacuum – thus facilitating the easy movement of liquids.
It’s rather interesting to note that the science behind this innovation was emulated from your very own diaphragm, which is the muscle that expands the chest cavity and causes the volume of your lungs to increase. This expansion reduces pressure and creates a partial vacuum, which is filled by air that’s pushed into your body by atmospheric pressure. Also, a manual water pump applies these same principles, drawing water up from a well by creating a vacuum that water rushes in to fill.
Now that you have the necessary background information on vacuum pump technology, you’ll understand the basic operational concept when you learn that Graham Corporation is the worldwide leader in vacuum technology.
Founded in 1936 and is headquartered in Batavia, New York, I like the company because GHM’s products are highly specialized – but the applications for their products are extremely broad and varied.
For example, the primary markets for Graham’s equipment are the chemical and petroleum industries. In fact, Graham’s equipment can be found in major chemical plants, oil refineries, electric power generation plants, pulp and paper plants, and even ship-building plants, just to name a few.
Plus, their heat transfer and vacuum products can also be used in industrial applications for the food and beverage industries, plastics plants, fertilizer plants, liquefied natural gas production facilities, soap manufacturing plants, air conditioning systems, fossil fuel plants, and even nuclear and geothermal power plants. One of GHM’s crude oil vacuum ejector towers is pictured below.
According to industry experts, GHM’s liquid ring vacuum pump technology is quickly becoming the top choice on a global scale. Compared to older designs, GHM’s system is more efficient and easier to maintain because it only has one rotating part (a multi-bladed impeller keyed to the pump shaft).
Without boring you with technical details, the impeller is mounted eccentrically in a round pump housing – and as the impeller rotates, centrifugal force throws the seal liquid against the outside wall forming a liquid ring. This makes for much easier applications in the crude oil and plastics markets – which look to be the principle growth driver for GHM going forward.
Now, since specialized engineering is such a critical aspect of Graham’s business model, all of their equipment is sold directly by sales engineers who tailor each order to the exact standards and codes contained within each individual plant.
In fact, most of GHM’s products are sold with a detailed engineering analysis of the application and special drawings of the equipment required – and this individualized attention and engineering know-how has helped GHM carve out a niche as the very best provider of heat transfer and vacuum equipment in the world. For example, a typical sale would include the following:
Application Appraisal: A Graham engineering or sales specialist will survey the process and recommend the best way to apply their equipment.
Personnel Training: Grahm conducts special seminars at the customer location. Run by GHM’s very own specialists, these training courses teach each customer how to operate, apply, maintain, and service their new GHM products.
Facility Start-Up: As the products are being installed, Graham engineers are available to supervise both installation and also the start-up of all the new operating technology.
Equipment Service: Once installed, Graham service engineers will travel anywhere in the world to service their equipment.
Production Application Facilities: As new applications become available (or the operational plant grows larger), GHM’s research and development department will continue to work with existing customers to develop special projects and new prototypes for future work.
Now once again, this company description is all fine and dandy – but what’ll really fuel GHM’s continued stock price appreciation is strong financial numbers.
After all, the future of vacuum pump technology certainly isn’t going to get the top financial headline on CBS Marketwatch, but explosive growth results will. And when you look at the company’s income statement, you’ll see why the future looks so promising.
The best part of GHM’s investment argument is their year-over-year quarterly earnings growth of 138.20%, which amounts to an amazing quarterly revenue growth of 36.80%. With these incredible growth statistics, it’s easy to understand why the stock has gained 123% over the last 52-weeks. Compare that to the S&P 500’s gain of 14%, and GHM is out-pacing the top 500 companies in the world by an 8-to-1 margin! Plus, with over $20 million in cash versus $83,000 in debt, I fully expect GHM to continue moving higher over the next 6 to 12 months – and their list of new 52-week highs set on September 12th, 13th, and 19th clearly illustrate this trend. Just check out the chart:
Looking at GHM’s competitors, you’ll notice that the vacuum pump technology segment is dominated by only three major players. The largest company is Dover (DOV – NYSE), which carries a $10.41 billion market cap and has gained 15% over the last year. Next in line is Pfeiffer Vacuum Technology (PV – NYSE) which carries a $794.37 million market cap and has gained 40% over the last year. And then there’s GHM with their $158.90 million market cap and 123% yearly gains. When you compare the performance of all three competitors, it’s quite clear which of the three has the most upside potential. And that’s GHM.
Let’s take advantage of this rapidly-growing firm that’s overlooked on Wall Street due to their drab business segment. Use this week’s momentary price dip as a prime opportunity to add shares to your small-cap ledger.
PLAY: Buy shares of Graham Corporation (GHM – AMEX) at or under $43.00, good for the week.
Sincerely,
© 2012 CSR Group, LLC. All rights reserved. Published in USA.
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