Big Profits Push These Stocks Up

04/03/2013 9:45 am EST

Focus: STOCKS

Richard Moroney

Editor, Dow Theory Forecasts

Despite being in three diverse industries, these companies are following similar paths that are earning money for their shareholders, says Richard Moroney of Upside.

Bally Technologies (BYI) grew per-share profits 48% on 13% higher revenue in the December quarter, marking the sixth straight quarter of double-digit growth for both metrics.

Although sales will likely slow, with the consensus projecting growth of 7% in the March quarter and 2% in the June quarter, Bally’s fatter profit margins should keep per-share profits rising at a double-digit clip. At 16 times trailing profits, shares trade 13% below their five-year average.

Bally provides gaming equipment, systems, and services to casinos. The company stands to benefit as revenue-hungry states legalize online and casino gambling. On February 26, New Jersey Governor Chris Christie signed legislation legalizing online gambling in the state. Bally, with an Overall score of 98, is a Best Buy.

BofI (BOFI) operates a federal savings bank with $2.9 billion in assets, up 20% from a year ago. Unlike many banks, BofI expanded its net interest margin in the second half of 2012.

The loan portfolio, up 26% to $2.19 billion, is primarily comprised of single-family mortgages (56% of all loans) and multi-family loans (35%). In fiscal 2011 ended June, the bank shifted its focus toward originating mortgages rather than purchasing loans. That move positioned BofI to benefit from robust refinancing activity, resulting in double-digit growth for both sales and profits in seven straight quarters.

BofI shares have doubled in the past 12 months, including a 19% surge in 2013 alone. That rally has pushed the P/E ratio to 12.4, a 13% premium to its five-year average, but still 25% below the median for its S&P 1500 peer group of thrifts and mortgage-finance stocks.

With five of six Quadrix categories scoring above 90, BofI earns an Overall rank of 95. The stock is rated Best Buy.

Monotype Imaging (TYPE), a leading provider of fonts and typeface solutions, grew per-share earnings from operations 33% to 28 cents in the December quarter, on a 23% jump in revenue.

For 2013, management expects per-share profits to advance 7% to 11% on a sales gain of 10% to 13%. With its big base of recurring revenue, Monotype enjoys fairly predictable revenue streams.

In Quadrix, Monotype scores at least 90 for five of six categories, the exception being its Value rank of just 33. Shares are not cheap at 20 times trailing earnings, though the P/E ratio is 16% below its five-year average and 9% below the median for software companies in the S&P 1500.

Monotype, which hiked its dividend by 50% in February, is a Best Buy.

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