Critiquing Smart Money's "Ten Stocks for the Next Ten Years"


The new cover story for the May 2007 Smart Money Magazine is an interesting one as "The Ten Stocks For The Next Ten Years" and is one that will carry some interest from small cap and growth-oriented investors for those seeking secular trends.  This was posted online earlier this week, but this is the sort of issue that you usually want to look at a few days after the dust settles and over the first weekend that the magazine is actually on the stands.  Many will have seen this online or will have seen some of it this morning on CNBC or elsewhere, but most readers of the hard copy will probably be reviewing this 10/10 list over this weekend.

The screening criteria used by Smart Money was not a focus on the classic P/E ratios or book value, and the names are an interesting mix of companies.  Many of these are well known and have been around for some time, and some are rather obscure names that the public doesn’t follow that closely. The screen put a greater emphasis on price/sales ratios; its looked for a classic small-cap range from $300 million to $2 billion in market value; a history of rising sales of at least 10% a year over the past five years. That screen produced 150 names that they chose 10 stocks from.

We wanted to see how these have fared recently since the list is a veryinteresting mix of small-cap companies.  Some of these have made itonto our own buyout screens at some point and some only appear ingrowth screening, although most are really growth companies that may beexperiencing secular trends as far as the research points.  Oddlyenough, none of these are in sectors that are mindblowing or true futurist-tech. Maybe the K-I-S-S rule applies: "Keep It Simple, Stupid."  None of these are related to computers per se (and only one is anInternet play), none are energy companies, none are pure-plays onalternative energy, and most are in areas that do appear to have growth(otherwise they wouldn’t be on the list).  None of these are upcoming brand retail plays so to speak.  Some of these have only comepublic recently, so trying to use a longer-term trading trend analysisisn’t possible on some.

OK, so here is there list:

Atlas Air Worldwide (AAWW-NASDAQ):long-haul air freight; stock close to all-time highs since being publicover the last 18 months; company has a growth plan in place and hasorders for more Boeing jumbo jets in the hopper.

Brightpoint (CELL-NASDAQ):cell phone distributor that installs proper software to make phonescompatible with each provider; stock has been around forever andtrading toward lower-end of a one-year trading range, but upconsiderably over the last 5-years.

Harris Interactive (HPOL-NASDAQ):interactive research and polling; uses more than 6 million participantsonline; stock has been in $5.00 to $6.50 trading band over the lastyear.

OSI Systems (OSIS-NASDAQ):medical scanning and a homeland defense play for cargo screening;trading above what was the highest points of a 5-year trading range of$15.00 to $24.00.

Powerwave Tech (PWAV-NASDAQ):makes the amplifiers, antennas and other equipment that enable wirelessphones and handheld devices to transmit and receive voice and data;over the last year this one fell from $15.00 to $5.00 beforestabilizing; very sporadic earnings history expected to lose money thisyear and not make money annually until 2008.

Sirona Dental Systems (SIRO-NASDAQ):designs, manufactures and sells dental chairs, treatment workstationsand instruments; public less than one-year.  Caring for teeth probablyisn’t a fad, even if there is no sex appeal to the story.

Tetra Tech (TTEK-NASDAQ):consulting firm specializing in water-resource management andenvironmental cleanups; stock is at the higher-end of a $15.00 to$20.00 trading range seen over the last 20 months.  Classic water stock.

United Natural Foods (UNFI-NASDAQ):largest national distributor of organic and natural foods in the US;stock is toward the lower-end of a 2-year trading range because ofconsolidation of Whole Foods and Wild Oats into one company.

Viasys Healthcare (VAS-NYSE):a cluster of high-technology medical-equipment and diagnostic companiesthat focus on respiratory care and neuro diagnostics that came publicin 2001; very close to all-time highs.

Watts Water Tech (WTS-NYSE):supplies water-control, purification, safety and flow devices; stockhas been around for more than 15-years, traded up significantly byalmost 300% in the last 5+ years.  Classic water stock.

No matter how you cut it, this is a pretty interesting mix.  It is oddthat none of these are in alternative energy and none of them are in"care for the aging" per se.  Any list of this magnitude is going to behighly subjective, so this critique is not meant as any criticism.  Itactually points out some great names that would have otherwise fallenthrough the cracks.

Jon C. Ogg
April 13, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.

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