In today's modern economy, it is getting harder and harder to find organic growth. That's why I was always seeking out the next great mid-cap stock when I was a fund manager. What I mean by that is that I wanted to find a small-cap stock that hit the magic growth spurt that makes a true mid-cap stock.
Mid-caps are the stocks that get bought out. It's the sweet spot for mergers and acquisitions (M&A) activity. In the U.S. defense industry, most of the mid-caps are gone. In fact, this week's pick for "Buy, Sell or Hold" is something of a forgotten defense play.
If you like a company that has no debt, a huge pile of cash compared to its market cap, organic growth and whose stock is paying a dividend, then you might be interested in Todd Shipyards Corp. (NYSE TOD).
Todd Shipyards was founded in 1916 and is headquartered in Seattle, Washington. The company has a market cap just north of $100 million, making it a true small-cap stock. It employs just 800 people, and is currently advertising for new project managers. I like to see real organic growth, and Todd Shipyards appears to have it in spades.
They just signed a new contract extension with the U.S. Navy to service a nuclear aircraft carrier that is being brought to Seattle for a major overhaul. The work for the navy is just a slice of Todd's business. The company also works on U.S. Coast Guard ships and ferry craft.
Todd has total cash of almost $40 million dollars, which is huge when you consider that its market cap is just $108 million. The company reported year-over-year revenue growth of 68% in its second quarter, ended Oct. 3.
The company generated nearly $250 million in revenue in the last twelve months. That's more than $43 dollars per share.
Also in its second-quarter earnings report Todd announced a jump to $7.8 million in earnings from $2.1 million a year ago. That is a year-over-year gain of about 277%. Those kinds of earnings will quickly catch the attention of fund managers and analysts that are looking for a little growth in their portfolio.
Todd currently pays a dividend of 40 cents per share, giving the stock a 2.1% yield. And if cash keeps coming in like it is, the company will either need to raise the common dividend or pay a special dividend of a couple of dollars per share.
In technical terms, the stock is trading near its 52-week high of $18.80. The 50-day moving average is at $17 dollars and the 200-day moving average is currently around $15.50.
The accompanying chart shows the performance of TOD stock this year through Dec. 3. I believe someone is building a real position in this stock, and whoever it is appears to still be buying. In fact, if you look at a five-year chart, you can see the start of a major cup and handle formation, which means there's a potential break out looming.
So let's do a quick review of why Todd Shipyards is a buy here:
- It has no corporate debt.
- The company's unleveraged cash equates to 38% of its market cap.
- Revenue has risen 68% over last year.
- The stock sports a 2.1% dividend yield.
- And Todd is one of the few companies hiring in this economy.
I love to find profitable companies that have no debt, lots of cash, and are growing earnings and revenue. It's even better when they have a long history of paying dividends.
Todd Shipyards has all of the hallmarks of a growth company about to be discovered by the street. Let's try to get there first.
(**) Special Note of Disclosure: Jack Barnes holds no interest in Todd Shipyards.
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News and Related Story Links:
- Money Morning News Archive:
Buy, Sell or Hold Series Stories
- Business Wire:
Todd Shipyards Corporation Announces U.S. Navy Exercise of Option on Overhaul of USS NIMITZ
- Business Wire:
Todd Shipyards Corporation Announces Quarterly Financial Results for October 3, 2010
- Money Morning:
Buy, Sell or Hold Pairs Trade: Why it's Time to Sell Fiat SpA (Pink ADR: FIATY) and Buy Ford Motor Co. (NYSE: F)
- Todd Shipyards Corp.:
TODD SHIPYARDS CORPORATION ANNOUNCES QUARTERLY FINANCIAL RESULTS FOR