Thursday, April 24, 2008

Bad News Can't Hold Market Down

Poor outlooks by US companies, combined with weakness from consumer related stocks can't pull the market down. A couple of thoughts:

Noble Drilling(NE) beat estimates and continues to provide a strong outlook. They also announced a .75/share special dividend. Their prospects are very strong with dayrates rising, as well as their potential partnership with Petrobras for drilling their new massive offshore finds. Competitor Diamond Offshore(DO) missed on earnings. Diamond has been given a better multiple based on their policy of returning more cash to shareholders. Noble is actively looking for mergers to grow their business, and prefers to buyback their own stock. This policy returns less cash to shareholders through dividends, but creates long-term value for their shares. Plus I think Noble has a better fleet and is positioned better in highly profitable international markets, with high barriers to entry.

Manitowoc(MTW) continues to get beaten up in the media and by investors for agreeing to purchase food service company Enodis. Sure, they are losing confidence from the momentum players trying to capture their strong crane business. But Manitowoc management isn't catering to those people. They, like Noble, are trying to build long term value for shareholders. This is why. Cranes are a cyclical business. They are hot right now, and will be for a few more years, but it will ease off. Food service is a business that may not look great right now, but will in the future. All these emerging economies that need cranes to be built will develop businesses that will need things like food services. Look at McDonald's. They are thriving in international markets, supplying demand for drink dispensers, coolers, ice machines, and fryers. Manitowoc and Enodis supply these items.

These short-term runs in stocks that aren't performing will not hold. I'm not interested in catching any run off the bottom with a false move. I've got a couple of names I'm adding and will post those soon.

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