Mid-Cap Electronics Stock May Gain More

06/06/2007 12:00 am EST

Focus:

Charles Carlson

Editor, DRIP Investor

Charles Carlson, editor of the DRIP Investor, says Ametek is a well-run electronics company where growth is strong, margins are rising and a dividend-reinvestment plan allows easy access to shares.

One attractive mid-cap stock offering a dividend reinvestment plan (DRIP) is Ametek (NYSE: AME). The stock’s market capitalization (market cap is the number of outstanding shares multiplied by the per-share stock price) is $3.9 billion, certainly not microscopic, but still much smaller than the huge capitalizations sported by many DRIP companies. (For comparison purposes, Exxon Mobil’s market capitalization is $470 billion.)

Ametek manufactures electronic instruments and electromechanical devices. Products include monitoring, calibrating, and testing equipment, display instruments, electromechanical connectors, and motor systems. Ametek has been successful growing via acquisitions. The acquisitions, coupled with cost controls, have fueled widening profit margins: Net profit margin has jumped from 6.5% in 2001 to 10% in 2006.

Per-share profits should come in around $2.00 in 2007, up from $1.71 in 2006. Over the long term, new products, continued growth overseas and strong cost controls should help fuel healthy gains in the bottom line. The strong earnings growth should help generate ample dividend growth. The company currently pays a quarterly dividend of six cents per share. That dividend has tripled since 2003. The current yield is 0.6%.

Despite its size, Ametek has put up growth numbers that would make any company envious. The firm has posted three consecutive years of double-digit [percentage] growth in sales and per-share earnings, and that streak should continue in 2007.

Ametek also benefits from one trend that is helping big companies—large overseas exposure. Indeed, the company generates nearly 48% of its revenue overseas, thus benefiting from strong global economic growth and the weak US dollar. The stock has performed well so far in 2007, up [nearly 20%]. Still, these shares have plenty of upside potential and are a strong buy at current prices.

[At a closing price just below $38 Tuesday] Ametek trades for 19x the 2007 consensus earnings estimate of $2.01 per share—not dirt cheap, but reasonable given the company’s strong growth record and the stock’s consistent upward move. These shares have posted higher highs every year but one since 1996. The stock has excellent appreciation potential over the next 12 months and should beat the market over the next 24 to 48 months.

Ametek offers a direct-purchase plan whereby any investor may buy shares directly, the first share and every share. Minimum initial investment is $250.

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