Warm Business Trends in Minnesota

 | Aug 05, 2013 | 10:30 AM EDT  | Comments
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Stock quotes in this article:

ssys

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cpla

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dlx

I like offbeat investor conferences that highlight themes or names I might not otherwise discover, and I report on these regularly. 

I made my way last week to Minneapolis, the capital of the "upper Midwest," for the InvestMNt 2013 conference. This conference was organized by the CFA Society of Minnesota in order to turn a spotlight on names from the region.

Despite the incredibly cold winters, the Upper Midwest is a surprisingly productive region, with leading companies in a range of sectors, from medical devices to agriculture to materials to technology. The conference put on stage several names from the region, whose stories tickled my fancy and will spur additional research.

Here are three at which you should be looking as well.

Stratasys (SSYS), based in the Minneapolis suburb of Eden Prairie, is a leader in 3-D printing, one of the darling tech themes at the moment. The company has been around "forever" (founded in 1989), and spent most of the last 20 years developing the technology and waiting for its markets to develop.

It's unfortunate if you don't already own the stock. It ran from $10 a couple years ago to around $90 now, giving it a $3.5 billion market cap. The run is justified as the 3-D printer market takes off. The company is expected to earn $2.00 this year and $2.50 in 2014, putting the stock at a reasonable 35x price-to-earnings ratio. In the world of manufacturing, the productivity benefits from 3-D printing are impressive.

Furthermore, the technology is steadily diffusing into more applications. I recently toured a high school in which the "shop" class designed things that they then produce on a 3-D printer -- a far cry from the old woodworking I did in middle school shop class!

Capella Education (CPLA), based in Minneapolis, was hit by controversy surrounding its sector of higher education, but may be in the midst of a turn. The stock declined from $90 a year ago to around $30, but started to ramp this spring as investors start to believe the earnings outlook. Analysts are looking for $2.69 this year and $2.89 next year, putting the stock at a "market multiple" of around 17x.

The company is a classic online university that offers a solid education without the capital cost of a large network of classrooms and other bricks and mortar infrastructure. The group certainly was hit by the scandals around federal loans supporting the more aggressive industry players. But given a stagnant employment situation in this country, the need for working adults to train for new careers is clear. Capella is in a good position to capture market share while delivering an important product.

 Deluxe Corporation (DLX), based in St Paul, is an incredibly contrarian name in a Paypal world. Deluxe is well-known for its check-printing operations, which is a business in secular decline as the world moves to electronic payment. If all Deluxe printed was checks, they would eventually go the way of Kodak. Instead, they have reinvented themselves in a number of different segments that leverage their relationships with small businesses.

In addition to checks, they print other forms such as deposit tickets, billing forms, work orders, job proposals, purchase orders, invoices and personnel forms. They also print computer forms and check registers. You can also include accessories and other products, such as envelopes, office supplies, stamps, and labels as well as retail packaging supplies.

More importantly, they have growing businesses in web design and e-commerce for small business and in electronic marketing. This is not a high growth name. Earnings are probably going to progress at about 10% a year.  You are not paying up, however, with the stock at 10x, and the cash flow is attractive. DLX pays a 2.4% dividend, which is rising each year as cash flow grows.

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