Our latest value stock idea is an industrial tech company producing niche products for a variety of industries including healthcare, aerospace, energy and natural resources. Explains money manager Peter Mantas of Logos LP.

Teledyne Technologies (TDY) has seen its shares drop more than 14% over the past year, but I believe this creates an interesting opportunity to get into a quality small cap name.

The company has a stable portfolio of diverse clients, as over a quarter of the company's revenue comes from the US government.

Moreover, the company operates in industrial technology markets going through complete refresh cycles, as instrumentation and emission monitoring systems markets are expected to show a compound annual growth rate of 10.4% over the next 5 years.

Meanwhile, the portable analytic instrumentation market is expected to grow by over 17% through 2020.

On current conservative estimates, the company is expected to grow at high single digits and has an excellent track record of providing significant returns on invested capital.

Over the past decade, gross margins have grown from 28% to over 37%, book value per share has tripled, while free cash flow has more than tripled.

Return on equity and return on invested capital are at a healthy 14.13% and 9.02%, respectively, while cash flow as a percentage of sales is over 7%.

What is interesting though is that the company is going through a transformation as it has seen an increase in its retained earnings over the last 5 quarters by 12.8% while cash and equivalents have been increasing over the last 3 quarters by 50%.

There are some headwinds for the company including the drag on energy and oil and gas markets which have destabilized energy spending.

Energy infrastructure has typically accounted for a quarter of TDY's revenues and the company understands it is a key vertical in its instrumentation segment. 

It is unclear when the price of oil will continue to rally or drop below $40 a barrel, but uncertainty in the energy markets may distort short term earnings for the company leading to further downside.

However, for the patient and long-term investor, TDY's long-term stewardship and timely acquisitions will allow it to hit double digit growth rates for years to come. 

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By Peter Mantas of Logos LP

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