The short term investing stock picks blog

This wasn’t a user request, but I am categorizing it as such.  Just one I wanted to share with you all, especially those of you who read this blog for fun but really stick with longer term investments.  For the record, I think this is a play for short and long term.

So, I’ve taken to reading annual reports on the toilet.  Yes, I know, perhaps that’s a little crass for you — but its true.  I just got a rather large shipment in (I still like the hard copies) and have been pawing through them to find some hidden gems - or at least gems I do not know.

Yesterday it was Kaman Corporation (NASDAQ: KAMN).  I took the 2006 report apart and what I read impressed me.  The company runs in three segments: Aerospace, Industrial distribution, and Music.  It’s Aerospace division, in the company’s own words, "was on the outside looking in," prior to 2005.  At this point management stepped in and took a real strategic approach to this segment, potential contracts, and costs.  The results have been remarkable.  This division has gone from stagnate to growing at a clip of around 13.5% per year since 2004.  The company stand to benefit heavily from the success of Boeing with subcontracts for its 777 and 787.  The growth is not limited to North America, either.  Kaman also has a multi-year contract with Shenyang Aircraft in China.  I believe this will eventually be Kaman’s largest division.  The only laggard in this division is a pesky contract with Australia which is already operating at a loss, with more helicopters to fill in that 11 unit order.

Its two other main divisions, Industrial distribution and Music are less impressive to me.  I’m going to just toss out Music.  If you care, Kaman is the largest independent distributor of musical instruments and accessories.  The brand is very solid, but the industry sucks.  Kaman could get a pretty penny for this segment, which makes up 18% of revenues.  Until they do this, it will continue to drag on margins and growth rates. 

As for Industrial distribution, this is still a work in progress.  This division’s growth slowed in 2005 and remained the steady in 2006.  I have faith that the management team is diligently implementing systems that are improving margins and will offer scalable opportunities.  The reality is that its growth is tied directly to the economic strength of this country, in ways that the Aerospace division is not.  Side note: if you like SSYS after my post on it, this stock will expose you to similar risks, for better or worse, you decide.

Ok, so stuck in my fantasy Annual Report world within the confines of my bathroom, I had no clue until this morning that Kaman was reporting today.  After some more due diligence, I promised myself that I would share this with you all if the company reported something I liked after the bell.

Here’s the news: Aerospace growth is strong and will remain so, Industrial distribution may be in for a flat year, and music is down (surprise, surprise).  However, we should see strong growth, maybe even 10% from industrial distribution, as the company announced two new National contracts coming online.

The truth is that I love the management at Kaman and I love Boeing in 2007.  As long as this remains constant, I love the stock.

Disclaimer: I have no current or past position in Kaman Corporation.  User Request post stocks are selected from a handful of questions that come to my inbox based on what peaks my own interest.  All recommendations, commentaries and information provided by FivePercentStocks.com, should be researched before making any investment decisions. I am not a professional analyst and do not expect people to make investment decisions based on my postings.  Investing in the stock market involves risk and you are the sole bearer of that risk.

This entry was posted on Thursday, May 3rd, 2007 at 7:17 pm and is filed under User Request. You can subscribe via RSS 2.0 feed to this post's comments. Responses are currently closed, but you can trackback from your own site.