Streetwise

Lauren Rudd

Sunday, October 20, 2013

Eve of Destruction

“I'm sittin' here just contemplatin'...when human respect is disintegratin’, this whole crazy world is just too frustratin', and you tell me over and over and over again my friend, you don't believe we're on the eve of destruction.”

Taken from, "Eve of Destruction," written by P. F. Sloan in 1965.

As I write this, it is Wednesday, October 16, and Congress appears to be in the final throes of both ending the government shutdown and increasing the debt limit just hours before the Treasury bumps up against its borrowing authority, which in turn would send the nation to the brink of default.

Celebrating early, the equity markets closed up more than one percent, bringing the S&P 500 index to within a few points of its all-time closing high of 1,725. Nonetheless, volume has been below average with many investors remaining on the sidelines until a resolution of the fiscal issues is declared official. Moreover, the CBOE Volatility Index is up about 12 percent over the past four weeks.

Even those undaunted by the Street’s volatility found the investment world to be a bit like swimming in rough waters. You glance up and suddenly the granddaddy of all waves towers over you. At that point it is much too late to run for the beach. The best you can do is to hunker down and let it pass with the hope and belief that calmer waters will return.

A degree of uncertainty and market volatility are part and parcel of investing in the equity markets. It is up to you to take advantage of the situation. Remember what Warren Buffett recently reiterated, “Buy when others are panicking.”

In other words you should always have a list of companies available that meet your investment criteria, along with a predetermined bargain price. Stocks you would act on when market, rather than company specific, events drive a company’s share price into bargain territory.

One possible candidate might be Toro (TTC). If you are not familiar with the name you probably never had maintain a lawn or remove snow from your driveway or leaves from a yard. Toro is a leading provider of innovative turf, landscape, irrigation and outdoor lighting solutions.

Since 1914, Toro has built up a tradition of excellence around a number of strong brands used in the care of golf courses, sports fields, public green spaces, commercial and residential properties, and agricultural fields in more than 90 countries.

When I last talked about Toro a year ago, my 12-month target price on the shares was $46. The shares recently closed at $56.38. My 2012 earnings estimate was $2.10 and the company chalked up earnings of $2.14.

Fiscal third quarter ended August 2 earnings fell slightly as the Company dealt with higher expenses. Nonetheless, the results exceeded market expectations. Toro reported net income of $0.67 per share, down from $0.68 per share a year ago. Revenue increased to $509.9 million from $504.1 million.

However, there were about two percent fewer shares outstanding in the latest quarter, which raised the earnings per share number. Also assisting was a summer growing season with favorable temperatures and precipitation levels.

For the first nine months of its current fiscal year, Toro reported net earnings of $2.53 per share, on a net sales increase of 2.4 percent to $1.66 billion. During the comparable fiscal 2012 period, Toro posted net earnings of $2.13 per share on net sales of $1.62 billion.

In its 2013 forward looking guidance, Toro remains cautiously optimistic, expecting 4 percent revenue growth with net earnings of about $2.55 per share, or an increase of about 19 percent over fiscal 2012.