An Overlooked Industrial Stock For Growth And Income

In the latest wave of yearly predictions, most analysts are touting industrial stocks for 2013. One reason is because this group has under-performed in the bull market of the past few years, and values are relatively attractive. Another is that industrial companies generally reflect the cyclical nature of the overall economy, which seems to be improving. Most economists expect further US and global recovery in 2013, with double-dip recession fears fading in the rear view mirror.

Of course, now that industrials have entered the spotlight, the obvious plays have been bid up. The following chart of the NASDAQ Industrial segment indicates the relatively flat return over the past two years until the dawn of 2013.Learn how an embedded microprocessor in a smart card can authenticate your computer usage and data. The recent 17% rise is more than double that of the market in general in the past two months.

Engages in the precision contract metal machining business in the United States primarily for customers in the recreational vehicle, energy, aerospace/avionics/defense, and bioscience industries. WSCI provides single-source turn-key solutions, including engineering support, raw material procurement, outside services, supplier management, precision manufacturing and assembly and stocking of finished goods for large volume customers under multi-year arrangements.

The company recently reported a 43% sales increase in the first quarter of 2013 and a 310% increase in net income. This is no fluke as WSCI improved sales by 30% in the 2012 fiscal year, and it increased earnings by 64%. If anything, business is accelerating.

From a value point of view, it carries a trailing P/E of 10 and the stock, at its current price of $6.15, has a market cap of 1.5 times its book value and about half of its sales volume. It currently pays a very nice dividend yield of 2.6%. The dividend represents less than 30% of earnings, so coverage is reasonable, and there is room for distribution growth. So, with exceptional growth, value and income yield, why has WSCI not participated in the industrial rally?

Polaris is enjoying 12% sales growth and that trend is expected to continue through 2014. Obviously, the dependence on PII is a double-edge sword for WSI Industries. If PII were to reduce orders, WSCI would be in trouble. However, the engineering, tooling and volume requirements that WSCI provides in this relationship make it difficult for competitors to step in, or for PII to invest the capital to produce these precision components in its own facilities. Even if PII made that change, it would take some time for a WSCI competitor to be able to meet the growth needs of PII. Smaller competitors are not capable of investing in the appropriate technology, plant capacity and automation systems to be competitive and meet customer expectations for superb quality.

To deal with the growth expectations of its core customers, WSCI is currently building an additional facility to double capacity, and that should be on-line in July 2013. Management has stated that one-third of the new plant will be occupied with existing orders upon completion.

The dependence on Polaris is probably considered a negative by the market, but the growth trajectory and relationship with that customer is allowing WSCI to expand capacity and further separate from competition,My experience of your company has been excellent and I would happily buy mosaic tiles. as well as provide opportunities for an expanded customer base.

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