Sunday, November 11, 2007

Industry Review (continued.......)

Metal Fabricating: Insteel Industries (IIIN)
This industry supplies to the construction, automotive, and manufacturing sectors. Thanks to the strength of manufacturing, companies in this industry have posted solid gains of late. Some companies are using creative ways to stay profitable, such as The Timken Co. restructuring its automotive segment to convert some of this capacity to serve the growing energy segment. Companies in this industry are obviously dependent on the health of the customer’s they serve so results will vary across the industry.

One example of a profitable company not getting positive results recently is Insteel Industries (IIIN). The stock has dropped from its 52-week high in August of above $23 per share to its current price today of $10.92. Insteel makes steel-wire reinforcing products for concrete construction. It recently reported its net income fell by 49 percent to $5.2 million, or 28 cents per share, from $10.1 million, or 55 cents per share, a year earlier. The company has no long-term debt and should survive this housing market downturn, but 2008 will probably not be anymore fun for this company than 2007.

Heathcare Information Services: National Research Corp (NRCI)
This industry seems to have solid long-term potential due to the ability of companies in this industry to provide solutions to the healthcare industry that streamlines operations and reduces errors. However, evidence that these products provide savings and increase efficiency is still mostly subjective. This is still an emerging field and time will tell if healthcare organizations will spend the money required to implement these systems. However, it looks promising which should produce some profitable companies in this industry.

National Research Corporation provides ongoing survey-based performance measurement, analysis, tracking, and improvement services to the healthcare industry in the United States and Canada. It addresses healthcare organizations' need to track their performance at the enterprise-wide, departmental, and physician/caregiver levels. The company develops tools that enable healthcare organizations to obtain performance measurement information necessary to improve their business practices. The company reported record revenues and net income in its latest quarter but was disappointed its growth wasn’t better. The stock is trading near its 52 week high but its success makes it a company to keep an eye on for the future.

Specialty Chemicals: Terra Nitrogen (TNH)
For reasons gone over already ad nausea, companies in this industry are better served offering products to a diversified base of customers since the downturns in the housing market are effecting sales of chemicals used for home construction. One segment within this industry doing well is electronic chemicals as demand from China is strong for manufacturing electronic products. Companies in this industry are facing rising input costs but have been able to pass this on to customers so far but increased competition could threaten that in the future.

Terra Nitrogen (TNH) engages in the production and distribution of nitrogen fertilizer products for use in agricultural and industrial markets. The company has benefited recently from continued strong U.S. nitrogen demand for corn and wheat plantings. The stock price has reflected this strong growth. It traded a year ago at around $28 per share and traded as high as $140 per share in August before trading today at $106 per share. The money seems to have been made for this stock but what a nice run it was.

Power: VeraSun Energy (VSE)
Alternative energy companies are looking for solutions for a non-petroleum-based world and are spending significant amounts of research and development to find it. There is little put forth so far in the way of commercial products for today’s market. It will be interesting to see if these companies can continue to find external financing to pay for this R&D if liquidity dries up further. Merchant power generation companies typically have large amounts of debts and thus face risks of meeting its obligations. This industry is very volatile and the inherent risks need to be understood before investing in one of these companies.

VeraSun Energy (VSE) is the nation's second-largest ethanol producer. Ethanol is primarily used as a blend component in the gasoline fuel market. The company's ethanol co-products include wet and dry distillers grains with solubles, which are used as animal feed; and Corn oil, which is used as an animal feed, as well as to produce biodiesel, a clean burning alternative fuel. In addition, it offers ethanol-blended VE85 fuel to gas distributors and retailers. The company is increasing its capital expenditures to increase its production and has tripled its long-term debt in the last year to over $650 million. Investors seem unimpressed as the stock has dropped from over $26 per share early in the year to just under $13 a share today.

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