Streetwise for Sunday Nov 9, 2008

Streetwise

Lauren Rudd

Sunday, November 9, 2008

There Is A New Sheriff In Town

Regardless of which side of the political, economic or picket fence you are on, there is one thing on which we can all agree...a historic election is over, the country has spoken and now it is time for the winning team to see if they can put some points up on the economic scoreboard.

A recent estimate showed that the worldwide equity markets chalked up a $9.5 trillion loss during the month of October. That is a substantial, even in Wall Street parlance. To make matters worse, it is likely that we are on the cusp of a recession, the likes of which is well beyond the memory of most of those who currently work on Wall Street.

Barack Obama won the presidency on a theme of change and I wish him luck. Personally, I am not sure why anyone of sound mind would want to take the job. They say a new broom sweeps clean, but it is going to take a lot more than a new broom to straighten out this economy or the character of Wall Street. We did not get to where we are overnight and we are not going to be free of it overnight. However, there is one thing you can count on – we have a new sheriff in town and the ground rules for corporate America and Wall Street are going to change radically.

While change brings opportunity, do not become so overly enamored with trying to capitalize on new trends that you lose sight of your original investment objective, which is to find quality proven companies that have a high probability of producing capital gains and dividend growth over the next several years.

A good example of such a company is Badger Meter (BMI). No, the company does not have anything to do with that nocturnal carnivorous mammal of the same name. Rather, it provides water utilities and industrial customers with instruments that measure and control the flow of liquids.

Badger, which was established in 1905, manufactures meters, valves, flow tubes, and other measurement devices for utilities, and companies in a variety of industries. It is the leading manufacturer of drive-by utility meters that make in-person meter readings a thing of the past.

Although Badger has seen its business rise steadily since municipalities began updating their water systems, the company recently reported third-quarter earnings that although higher, did not meet Street expectations.

According to the company, sales rose 9.6 percent, to a record $68.8 million, up from $62.8 million during the same period a year ago, driven by demand for the company’s water utility products. Earnings increased 1.3 percent to $5.82 million, or 39 cents per share, up from $5.75 million or 39 cents per share a year ago.

On a more positive note, net earnings were $18,889,000 for the first nine months of 2008, a 37 percent increase over the same period in 2007. Earnings per share were $1.27 during the same period, up 33.7 percent from a year ago.

Badger has recently benefited from a substantial decline in commodity costs, especially oil and copper, and expects to see currency benefits from purchasing electronics from Europe, given the recent strength of the dollar. These positive impacts on Badger’s margins could offset the negative impact of the current economic slowdown. The company is also in the process of moving into a new factory in Nogales, Mexico, which should enable it to expand production capacity and reduce costs.