Taking a Closer Look at Three Companies

 | Mar 09, 2012 | 12:00 PM EST
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I made it through the first day of the NCAA basketball tournament season yesterday and was still able to get all my tasks accomplished. I am hoping that I can repeat this noteworthy accomplishment, but I will be handicapped by some really intriguing games today. I am sure my Maryland Terrapins will be the latest victim of the North Carolina Tar Heels' juggernaut, but I shall root for them regardless. While I am waiting for the games to begin, I thought I would wander around Wall Street and kick a few more rocks.

I ran a screen looking for good solid companies that are not on the radar screen of most analysts and large pools of capital. I specifically looked for those that have been able to grow sales and earnings over the last five years, are currently profitable and pay a dividend. I also added qualifiers, so that the resulting list of companies had relatively low levels of debt but decent balance sheet liquidity. Few companies made the cut, but those that did are in less-than-exciting but steady businesses. As a last step before digging deeper, I used a modified version of the Ben Graham value calculation to come up with a fair value for each company.

Eastern Company (EML) is makes industrial hardware, security and metal products, including metal support structures for mines, latches, security locks, electronic locks for vending machines and video games, and smart-card security products. There is nothing really sexy about the company or its products but it does have a steady business that can grow in a weak economy. The 153-year-old company has seen its share of economic cycles and has managed to survive and eventually thrive though them all. When the economic recovery gains a little traction growth rates should pick up for the company. My calculations give me a fair value for the company of about $16 a share. So, it's a little high right now, but on a pullback this would be a solid addition to the portfolio.

Equally exciting, Chase Corporation (CCF) makes, among other things, waterproofing products for racetracks, airports and roads, insulating material for electrical cable and anticorrosive materials for oil, gas and marine pipelines. Protective materials are not as exciting as the latest whiz-bang gadget, but companies will always need to purchase coatings, tapes and sealants. The company has been around since 1946, and I suspect it will be around for another 60 years. Currently, the stock trades at a slight discount to my $15.70 fair-value calculation and is worth further investigation.

Orchid Paper Products (TIS) is another company in an incredibly boring business. It makes paper products such as paper towels, bathroom tissue and napkins, which it sells to discount stores, convenience stores and grocery stores in the Midwestern and Southwestern parts of the country. The company is based in Pryor, Okla., and ships to stores and distributors within 500 miles of their production facilities.

Despite its lack of flash, this is actually a great business with fairly high barriers to entry. One in three consumers has shopped at a discount store in the last year and the private-label tissue products market has grown by more than 7% a year -- even during the recent recession. By concentrating on discount store, Orchid avoids competing with the larger branded products and has carved out a solid nice for itself.

The stock is a little bit ahead of my $15.50 fair value calculation after its recent rally, but it is on my watch and buy list if it slips. This one is way off the radar screen as institutions only own about 30% of the stock. The shares yield at the current price is 4.43% since it is a candidate for income as well as growth portfolios.

Wandering around kicking over rocks on Wall Street has been incredibly profitable over the years. Often when the market has rallied as it has recently, not all the ideas you find will be immediately actionable. However, having a list of profitable, dividend paying boring companies that you can be ready to buy when they trade to a discount to intrinsic value can be a very valuable asset when the markets do finally pull back. At the right price, these companies will bore you all the way to the bank.

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we like this chart here, it appears ready to move higher. BOUGHT BZUN OCT 35 CALL AT 3.40
Large-cap, high-quality McKesson (MCK) is too cheap now, at $147.51 or so. The stock hit $243.60 more than 2.5...



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