Hilary Kramer's Daily Picks & Pans

Dear Readers,
 
I'm working on some new projects that will prevent me from blogging more than once or twice a week for the next month and a half. Filling in for me during this time is Larry Schutts, vice president of Stockwinners.com and a contributing editor for Theflyonthewall.com. Larry is a former professor of geophysics and industry consultant, who turned to full-time investing and stock-picking nine years ago.
 
Larry's selections involve stocks which present technical and fundamental characteristics consistent with the potential for near-term upside. He expects each of his stock picks to rise in a 30-day time frame, but price movements may be volatile. Please note he includes a stop-loss price in each post. Consider selling a position should the stop-loss be violated.

They say it's best to invest in companies that make things you know. Well, we all know houses and we all know cars and Quanex Corporation (NYSE: NX) engineers materials and components that go into each. The firm's building products group fabricates parts used to make windows, window frames, screens and doors. Its vehicular products segment provides a variety of materials used in the construction of farm equipment, passenger cars and off-road vehicles. The company is based in Texas and operates facilities in twelve, primarily midwestern, states.

Quanex pleased investors last week, when it issued favorable guidance for fiscal Q1 earnings. Management said it expects to report diluted EPS of 45-50 cents, when it presents results on February 27th. Analysts were looking for 42 cents. That topped a less optimistic 35-45 cent view offered in early December and suggested that things are moving in the right direction for the company. Shares popped through 30-day, 50-day and 200-day moving average resistance on the news and are now consolidating the gain in a bullish "flag" pattern. Note that the formation is currently using the 200-day curve for support. Equities frequently exit flags moving in the same direction theywere traveling when they entered them. In this case, that would be to the upside.

Brokers recommend the stock with three "strong buys", one "buy", two "holds" and a "sell". The NX P/E ratio (9.09), PEG ratio (0.73), Price to Sales ratio (0.68), Price to Book ratio (1.82), Price to Cash Flow ratio (5.97), Price to Free Cash Flow ratio (8.03), Return on Assets (13.84%), Return on Investment (16.93%) and Return on Equity (22.66%) compare favorably with sector and S&P 500 averages. The stock is one of those used to calculate the S&P 600 SmallCap Index. Institutional investors hold about 95 percent of the outstanding shares. Over the past fifty-two weeks, NX has traded between $29.15 and $49.02. A stop-loss of $32.50 looks good here.

|  Add to del.icio.us |  digg this

• #2 Comment from ldschutts 
  1/24/07 1:34 PM | Permalink

  Nice to hear from you, eegg447. Glad you like the approach. A quick look at the chart of RTP suggests that it may be coming into an area of resistance, at the upper boundary of a negative eleven-week trading channel. HEB looks like it may be stuck between 90-day moving average resistance and 200-day moving average support. Both firms are expected to report quarterly results in early February, so those technical conditions may change, but it's usually best not to put money at risk right before earnings. Watch this blog for better possibilities.
  
  Larry Schutts
• #1 Comment from eegg447 
  1/23/07 11:38 PM | Permalink

  Good luck w/ your new projects, Hilary; we'll miss ya.  But thanks for getting a Great sub for you in the meantime.  Larry's fundamental/technical analysis here is refreshing and most welcome (tho it might be too technical for some readers); he does a nice job explaining things, adding to his credibility.  This blog needs to see more specific recommendations of buy/sell points, so I was glad to see Larry include the stop-loss target.  I'll definitely look into NX now -- and would like to see Larry's views of (for instance) HEB and RTP.