04/14/2006 12:00 am EST


Dennis Slothower

Chairman and CIO, Alpine Capital Management

The latest "Stock of the Month" from Dennis Slothower provides its customers with "nose-to-tail support". Here, the editor of  Stealth Stocks looks at a leading player in the aviation industry serving both commercial airlines and government defense departments.

"I remember back in 1999 the Fed warned that the stock market was sucking out too much money from the banking system, making it difficult for banks to have the money to lend. That forced the Fed to provide more capital than they felt comfortable with providing. Fast forward seven years and we have the opposite extreme. The low interest rates of 2000-2004 pushed capital into real estate and out of stocks.

"As rates rise it appears capital is about to flow in the opposite direction, which of course benefits the stock market. That is why I reason that the stock market is actually welcoming the news from the Fed that higher interest rates are coming. With more capital now being freed out of real estate, the next ‘home’ it will find will be the stock market.

"Meanwhile, my latest ‘Stock of the Month’ is AAR Corp. ( AIR NYSE), which provides a wide range of products and value-added services for the aviation/aerospace industry. The firm supports a broad range of commercial and military customers with high-quality aircraft and engine parts as well as a full range of related parts services, including just-in-time delivery, parts exchange, inventory management programs, component repair services, parts supply, and proprietary systems.

"Overall, AIR provides complete nose-to-tail support for its customers’ aircraft maintenance, repair and overhaul needs, as well as aircraft storage and teardown services. AIR is a cost-effective, single-source solution for customers. The company also mak a wide variety of customized in-aircraft cargo loading systems and composite structures. It also makes specialized mobility products that include custom pallets, containers, and shelters used by the US government and its allies for tactical deployment activities.

"AIR employs about 3,500 people at more than 40 locations around the world. The company has more than half a century of experience of experience helping commercial and government customers achieve their goals while controlling costs. The company’s commitment to quality, safety, customer satisfaction and airworthiness serves as the cornerstone of its business.

"AIR has $104 million in cash on its balance sheet, or about 10% of the price of the stock. It is trading at only 1.2 times sales and a little more than 2.50 times book value. I believe these valuations should be higher considering the market niche and growth that AIR has. According to my numbers, this is a stock that should be selling in the high $60s to low $70s over the next three to five years. Currently trading in the high $20s, AIR has a large upside potential. Place a sell stop at 25% below your entry price. As the stock rises, continue to raise your stop."

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