Opinion on  Barnes Group Inc (B)     Sector: Basic Materials  >  Industry: Misc. Fabricated Products
Barnes Group (B)

I really do intend to cut back on the posting around here for a couple of weeks...at least that is the plan :). But before I get to cutting back, I did want to write up this stock that made the list of top % gainers on the NYSE , Barnes Group (B), which actually was #1 on the list closing at $28.61, up $3.81 or 15.36% on the day. I do not own any shares (I actually have owned shares in my trading account in the past), nor do I have any options on this stock. But I still like this stock and that is why I think

BARNES GROUP (B) IS RATED A BUY

Let me go over a few of the things that after reviewing the stock I believe that this company deserves a spot on my blog.

I first wrote up Barnes Group (B) on February 16, 2006 , when the stock was trading at $39.11/share. Barnes split 2:1 on June 12, 2006, making my effective pick price actually $19.56. With the stock closing today at $28.61, this represents a gain of $9.05 or 46.3% since posting a little over a year ago.

What exactly does this company do?

According to the Yahoo "Profile" on Barnes, the company

"...engages in the manufacture and distribution of aerospace and industrial products worldwide. It operates in three segments: Barnes Distribution, Associated Spring, and Barnes Aerospace."

How did the company do in the latest quarter?

It was the announcement of 1st quarter 2007 results this morning prior to the start of trading that drove the stock higher this morning. Sales for the quarter came in at $360.7 million, up 20% from $299.9 million in the first quarter of 2006. Net income climbed 50% to $27.7 million or $.50/diluted share, compared to $18.5 million or $.36/diluted share last year.

The company beat expectations of $.40/share and also raised guidance for the full fiscal year to a new range of $1.74 to $1.83/share, from the previously announced range of $1.53 to $1.60/share. It is what I call the "trifecta-plus" when a company comes in with a great earnings report that beats expectations and they go ahead and raise guidance on future earnings; the street liked the announcement and bid up the price of Barnes Group accordingly.

How about longer-term results?

Reviewing the Morningstar.com "5-Yr Restated" financials on B , we can see that revenue has steadily increased from $784 million in 2002 to $1.26 billion in 2006. Earnings have increased steadily, except for a slight dip between 2003 and 2004 when earnings dropped from $.66/share to $.63/share, from $.58/share in 2002 to $1.39/share in 2006.

The company also pays a dividend and has raised it several times from $.40/share declared in 2002 to $.42/share in 2005 and $.49/share in 2006. The company has increased the share float from 37 million in 2002 to 51 million in 2006 and 53 million in the trailing twelve months (TTM). This 43% increase in outstanding shares was accompanied by a 79% increase in revenue and a 140% increase in earnings. So while I do believe that this share issuance was a bit dilutive, the company was able to successfully manage the new shares growing faster in both revenue and earnings than outstanding shares.

The company is free cash-flow positive and growing it with $24 million in free cash in 2004, increasing to $44 million in 2005 and $73 million in 2006.

The balance sheet is solid with $35.4 million in cash reported along with $425.9 million in other current assets. This total of $461.3 million in total current assets, easily covers the $295.1 million in current liabilities yielding a current ratio of 1.56.

What about some valuation numbers on this stock?

Checking Yahoo "Key Statistics" on Barnes (B) , we find that the company is a mid cap stock with a market capitalization of $1.51 billion. The trailing p/e is a moderate 20.51, with an even nicer forward p/e (fye 31-Dec-08) estimated at 15.63. The PEG is a very reasonable (5 yr expected) 1.03.

Using the Fidelity.com eresearch website , we can see that the Price/Sales (TTM) also suggests reasonable valuation with a ratio of 1.01 for Barnes, compared to the industry average of 1.41. However, according to Fidelity, the Return on Equity (TTM) for Barnes is a bit low at 15.25% compared to the industry average of 23.44%.

Finishing up with Yahoo, we can see that there are 52.62 million shares outstanding with 40.12 million that float. Of those that float, 4.44 million were out short as of April 10, 2007, representing 9.6% of the float or 17.6 trading days of volume. This is very significant from my perspective as I use a "3 day rule" to determine significant short interest. That is if it would take more than 3 days of average volume to cover the shares already sold short by speculators, I believe the setting is ripe for a 'squeeze' of the shorts. And in this particular case, there are (as of 4/10/07) actually 17.6 trading days of volume. I suspect lots of short-sellers were scrambline to buy today as the stock had a volume of 3.7 million shares traded today, almost 9 times the average trading volume of 441,447 shares.

Yahoo reports that the company pays a forward dividend of $.56/share yielding 2.3%. The last stock split was the 2:1 split I discussed above which occurred on June 12, 2006

What about the chart?

Reviewing a "Point & Figure" Chart on Barnes Group (B) from StockCharts.com , we can see that this stock has been a bit volatile, but recently bounced off the support line at around $15.5 in July, 2006, and has since moved almost straigt higher to the current level of around $29.00.

Summary: What do I think?

Well, needless to say, I like this stock a lot. In fact, I even owned shares for awhile, which goes to show you that I am indeed willing to re-examine past stock selections even if I end up getting stopped out and selling shares. Unfortunately, I am currently at my maximum holdings (20) because with the selling of a portion of my Precision Castparts, this would have 'entitled' me to add a new position to my holdings. But since I am at 20....well I guess I shall not be doing anything.

The company reported a great quarter today. They beat expectations and raised guidance. They have been doing this steadily for the past five years and also have been increasing their dividend. They have increased the float modestly but revenue and earnings have grown quicker. Free cash flow is positive and growing and the balance sheet appears solid.

Valuation-wise the p/e is moderate and the PEG is just over 1.0. The Price/Sales is nice but the Return on Equity was a bit anemic. Finally, there are LOTS of shares out short probably providing a good floor to the stock price as the short-sellers scramble to cover. Finally the chart looks nice!

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.

What a volatile week we had in the market!  The Dow closed out the week Friday with a 281.42 point loss representing a 2.09% pullback in that index.  The NASDAQ composite was even worse closing at 2,511.25 down 64.73 just on Friday alone, a loss of 64.73 points or 2.51% on the index.

Glad to see that week completed!  I do not know how the market will move on Monday, this week, this month, or this year.  I do know that I shall still maintain my investment strategy of monitoring my holdings closely, selling them quickly on losses, and slowly and partially on gains.  

Let's take a look at some stock picks from last year. As is my practice, I reviewed stock picks from the week of February 6, 2006 last wekeend.  Going ahead a week, I want to review the picks from the week of February 13, 2006.  For the sake of this review, this evaluation assumes a buy and hold strategy for all of the stocks selected.  In actual practice, I advocate and employ a disciplined strategy of limiting losses by selling declining positions quickly and completely, and partially selling appreciating stocks at targeted appreciation levels.  This difference in strategy between this review and my actual practice would certainly affect the overall outcome of stocks selected from this blog.  However, for the ease of evaluation, I plan on continuing to use the "buy and hold" analysis for reviews.

On February 14, 2006, I posted Chico's FAS (CHS) on Stock Picks Bob's Advice when the stock was trading at $47.61.  CHS closed at $17.99 on August 3, 2007, for a loss of $(29.62) or (62.2)% since posting.

On May 30, 2007, Chico's FAS announced 1st quarter 2007 results.  Net sales for the quarter increased 16% to $453 million from $391 million in the same 2006 quarter.  During the quarter comparable store sales decreased 1.6%.  Net income for the quarter dropped from $52.5 million in 2006 to $47.2 million in the same quarter this year.  Net income dropped to $.27/diluted share from $.29/diluted share last year.

The bad news does not appear to be over for Chico's.  On July 11, 2007, Chico's reported that June 'same-store sales' declined (7.3)% in June.

With no good news in sight from my perspective, as well as a poor technical chart,

CHICO'S FAS (CHS) IS RATED A SELL

On February 15, 2006, I posted Roper Industries (ROP) on Stock Picks Bob's Advice when the stock was trading at $42.31.  ROP closed at $60.25 on August 3, 2007, for a gain of $17.94 or 42.4% since posting.

On July 26, 2007, Roper Industries reported 2nd quarter 2007 results.  Second quarter sales came in at $531 million, up 25% over last year's $425 million in sales.  Net earnings came in at $61.2 million up from $48.1 million last year.  This worked out to $.66/diluted share, up from $.53/diluted share.

The company beat expectations as analysts had been expecting $.65/share in earnings on revenue of $513 million.  The company also raised guidance on 2007 earnings results with $2.60 to $2.66/share now expected, up from the prior guidance of $2.54 to $2.64/share.

With this solid earnings report and raised guidance as well as a strong chart,

ROPER INDUSTRIES (ROP) IS RATED A BUY

 On February 16, 2006, I posted Barnes Group (B) on Stock Picks Bob's Advice when the stock was trading at $39.11.

Barnes had a 2:1 stock split on June 12, 2006, making my effective stock pick price $19.56.  Barnes (B) closed at $27.40 on August 3, 2007, for a gain of $7.84 or 40.1% since posting.

On August 2, 2007, Barnes (B) reported 2nd quarter 2007 results.  Revenue came in at $359.5 million, up 16% from $308.9 million last year.  Earnings came in at $28.4 million or $.49/share, up from $18 million or $.34/share in the same quarter in 2006.  The company beat expectations on earnings which had been expected by analysts to come in at $.47/share.  However, revenue came in a little bit low of expectations which were expected to come in at $362.1 million according to Thomson Financial.

With this strong earnings report, and a strong chart,

BARNES GROUP (B) IS RATED A BUY

On February 17, 2006, I posted Micronetics (NOIZ) on Stock Picks Bob's Advice when the stock was trading at $16.22.  NOIZ closed at $9.67 on August 3, 2007, for a loss of $(6.55) or (40.4)%.

On June 29, 2007, NOIZ reported 4th quarter 2007 results.  Revenue for the quarter fell 27% to $6.3 million from $8.6 million last year.  Net income declined to $340,063 or $.07/share, down from $942,109, or $.19/share last year.

With this poor earnings report and weak chart,

MICRONETICS (NOIZ) IS RATED A SELL

So how did I do with these four stocks picked during the week of February, 13, 2006?  Well it certainly was a 'mixed bag' with two gainers and two losers.  The overall performance was a loss of (5.03)%.

This once again demonstrates how there is nothing magical about what I have been doing here and the necessary sales on small losses!  

Thanks so much for visiting!  If you have any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.

Bob