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Looking For Gains in All Kinds of Places

02/16/2007 12:00 am EST


Jon Markman

Editor, Tech Trend Trader, The Power Elite, and Strategic Advantage

Jon Markman identifies a heavy truck maker and an enabler of global electronic funds transfers as likely big winners in 2007...

Jon Markman's 2007 Predictions:

2007 High 2007 Low 2007 Close
Dow Jones Industrial Average 14,260 11,600 14,260
Standard & Poor's 500 1,602 1,340 1,602


Favorite Stocks for 2007:
Oshkosh Truck Corp. (OSK)
Fundtech (FNDT )

Oshkosh Truck Corp. designs and manufactures a wide range of trucks and truck bodies, [including] the Heavy Expanded Mobility Tactical Truck, or HEMTT, [which transports] food, fuel, and ammunition [and is] renowned for its awesome off-road mobility.

Oshkosh has a history of beating earnings guidance handily: Over the past eight quarters on average, results have beaten guidance by 27%. The one miss this quarter was a result of four cents in one-time charge-offs.

Also, I really like the [recent acquisition of major aerial work platform manufacturer JLG Industries (JLG). Oshkosh's current business model is heavily military-centric, [so it] has been making efforts to diversify. The $3.2-billion acquisition of JLG is all-cash, and [its products] fit with Oshkosh's strategy of being on the top of small markets that are ignored by larger players.

Growth opportunities for JLG's products look healthy, and the deal should be integrated quickly. By 2008, the JLG division should be the largest segment in the company with 40% of revenue, and adding $1.00 to earnings per share.

I think OSK can grow earnings 17% annually over the next few years. My 2007 earnings estimate is $3.35, and I am looking for $3.95 in 2008. If these are right, then current earnings multiples are 13.5x and 11x, respectively, which are very low; a 16x P/E is more reasonable. Buy OSK for a late-2007 target of $64 and an $88 target for 2009.

Fundtech (FNDT) is an Israel-based small-cap provider of financial transaction processing software and services to banks around the world.

Fundtech takes advantage of major shifts in the global economy--in this case, the rapid increase in international transactions driven by the growth in global trade.

Bankers have sought out a preventive solution to manage so-called "settlement risk," or the danger that a counterparty will fail to deliver goods or money when due. Chief financial officers at multinational corporations, eager to cut operating costs, are also pushing to integrate their financial systems with their banks.

Given all this, it shouldn't be surprising that electronic financial transactions are expected to see a compounded annual growth rate of between 15% and 20% at least through the end of the decade.

Overall, Fundtech's customers include over 600 financial institutions [which] it provides with payment processing, cash management, foreign exchange settlement and securities processing.

I am looking for organic revenue growth of at least 12% next year as the company leverages its R&D from large customization projects, such as those for Citigroup and HSBC, and trickles down the best features to its smaller customers who are struggling to remain competitive in a more automated financial world. Thanks to margin improvements, earnings growth should be in the neighborhood of 20% or more. My target for late 2007 is $16 and my target for mid- 2009 is $24.

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