Real Money's Long Shot column is dedicated to trading ideas that are highly risky, but which present an opportunity for significant payoff if they work. Such ideas are sometimes characterized as "lottery tickets" and are for only the most risk-tolerant investors, as the potential for 100% loss is high.
One of the real dangers an investor faces is becoming too rigid and fixed in their thought process. Although I am wedded to my deep-value style of investing and probably won't ever change my approach, I still need to be aware of other schools of thoughts and investing approaches. Sometimes, if you track what growth investors, arbitrageurs and even short-term traders are thinking and doing, they provide information about market trends and activity levels. Sometimes they provide solid investment ideas with excellent long-term potential that I might have otherwise overlooked. These ideas may not find their way into my portfolio, but my kids -- as well as a few associates and clients -- do favor a little more sizzle with their value proposition.
With that in mind, I force myself to sit down at least once a month and run some simple growth stock screens. One of the most productive among them has been on what I call "undiscovered growth" issues. I look for companies that have been growing sales and earnings for at least the past five years. I also want institutional ownership to be less than 50%; in that way, they won't be on the Wall Street radar screen and subject to what I call "analyst games" and short-term traders. I've found some great stocks in this way that have become huge winners. Some of them have even passed through my value screens and ended up in my core portfolio.
When I ran the screen this morning, I found some interesting companies worth additional research. I've made no secret of the fact that I think infrastructure stocks will be a huge sector some day in the not-too-distant future. This is a "has to happen" event, unless the nation goes into a serious decline.
One company that stands to benefit is Manitex International (MNTX), which manufactures what they call engineered lifting solutions. This includes cranes, container handling equipment, rough terrain forklifts and special mission vehicles. Basically, the company sells things that lift stuff. It sells to the energy industry and power-plant-construction market, as well as government and military agencies. Manitex's equipment is also used in railroad construction, in repair and in ports for container handling.
The company has been executing well in what has been a weak environment for infrastructure construction. On average, revenue has grown by 28% a year for the past five years, although the growth has been very lumpy. Last year Manitex saw sales climb by 48% on a year-over-year basis, and the backlog has increased for the past nine quarters. In the second quarter of the current year, revenue continued to climb, growing by 42% compared with last year. The company expects to see modest improvements in the second half of the year, despite the weak economic backdrop.
The stock has a few fleas on it. The company has a lot of debt and has been increasing borrowings. Long-term debt has to risen to $49 million from $42 million last year. The company recently issued an equity offering of $4.1 million to pay off debts maturing later this year. The Z-score is in the gray area. However, the company has an F-score of 7, and I am confident it will grow its way out of short-term difficulties and repair the balance sheet.
Manitex serves industries and sectors that will need massive rebuilding over the next decade. Its cranes, booms and forklifts should see rising demand that lifts the company's profit and stock price. I have the company's intrinsic value at $8.75, so if the shares fall back to a six-handle from today's $7.46 level, they will be worth consideration as a long-term value opportunity.
The stock is not yet on Wall Street's radar screen -- only two analysts follow it right now. Institutions own less than 50% of the shares, but some sharp growth investors are starting to notice it. Driehauss Capital and Bridgeway Capital, for instance, were both buyers in the last three months. As other large investors take notice of Manitex, we could see strong buying pressure in the shares. When infrastructure spending returns, meanwhile, this could easily become a solid growth and momentum favorite.
So, again, here's one good example of how undiscovered growth stocks can be a source of substantial profits as growth continues -- and as Wall Street eventually discovers the stock.