How to Find a Solid Stock Investment in a Market Lacking Value

Two Solid Stock Investments Market Lacking ValueThere’s not a lot of value around in this stock market, and it’s difficult to be a buyer when a lot of stocks have already done extremely well the last few years. However, this isn’t the case for all stocks.

One company I’ve looked at before in this column is Chart Industries, Inc. (GTLS) out of Garfield Heights, Ohio.

This stock has come way off its high on slower-than-expected business growth. But this is still a very good business with barriers to entry and good long-term fundamentals.

The company, which manufactures storage solutions for hydrocarbons and industrial gases, just got another contract with a Chinese energy customer. The company will build and commission 50 permanent liquefied natural gas (LNG) fuel stations within the next 30 months. Management estimates the sales will be worth upwards of $35.0 million.

Chart Industries was doing extremely well on the stock market up until last October. The position hit $130.00 a share, but is now trading around $75.00.

Even if recent results didn’t quite live up to expectations, this is still a growth business and the company has a very bright future in its specific industry.

Another enterprise that’s come off its high and is still a growing company is A. O. Smith Corporation (AOS), which is based in Milwaukee.

This business manufactures water heaters. On the surface, that might not seem like the greatest of enterprises, but it actually is. The company’s business strategy was founded in the domestic water heater market, but it now has a growing presence in China and sales are gaining at a very good clip.

The first quarter of 2014 produced record sales. U.S. and Canadian sales grew slightly to $389 million, up from $379 million comparatively, but the rest of the world’s sales, including those in China, India, and Europe, grew almost 25% to $173 million. Chinese sales growth was robust due to higher volumes and higher prices.

The company has lots of cash in the bank, it’s buying back its own shares while paying a dividend, and management just increased its full-year 2014 adjusted earnings-per-share guidance.

A. O. Smith is a proven wealth creator with a business and share price that have taken off in recent years. Most of the earnings growth is due to tight expense control in manufacturing and the company’s international expansion.

Management recently described the U.S. residential construction market as modestly improving. The company is currently dealing with higher steel prices, and it recently effected a mid-single-digit price increase for the North American market.

The stock slumped significantly at the beginning of the year, but it found a base approximately 10 points below its all-time record-high and has now resumed a small uptrend.

Valuations and share price action can always get ahead of operational success, but good businesses are just that—good businesses. These two fall into that category. (See “Are Good Business Always Good Investments?”)

As mentioned before, I’m not a big fan of being a buyer in this market—a market at an all-time record-high.

But I do think that investors who want to be buying will be better served considering existing winners—the stocks that have already done well, which is representative of a good underlying business.