Industrial Distribution Group (IDG) offers stuff like cutting tools, sanding belts, grinding wheels, paint, screwdrivers, drills, impact wrenches, socket sets, gaskets, fuses, pipes, valves - over 300,000 items in all-to more than 20,000 customers, ranging from one-man machine shops to the likes of Boeing, Borg-Warner, Duracell, General Electric and Ford.
Last Friday, the stock closed at $6.19-just a shade above tangible book. Monday closed at $7.15.
Industrial Distribution Group, began life as a "roll-up" of a bunch of relatively small distributors, came public in 1997 at $17 a share, soon topped $23-its all-time high-and then headed south with a vengeance, weighed down by faltering operations and a mountain of debt. Three years ago, its shares could be had for $1 and change.
IDG's chief exec, Andrew Shearer, who took the helm of the troubled enterprise in August 2001, did pretty much all the right things. In the ensuing three years, he cut long-term debt in half and transformed IDG into a distributor that was also a niche operator of customer storerooms, one of the top five in the country.
In this part of the business, IDG uses proprietary software and works in-house with customers to reduce inventory and procurement costs. The beauty of these arrangements - which last year chipped in 51.8% of sales, up from 44.6% in 2002-is that even as they slash expenses for customers, they expand IDG's own operating margins because IDG uses customer facilities rather than its own warehouses.
IDG netted 28 cents a share last year and management is upbeat about 2004, forecasting at least a 5% rise in revenues, the first gain in three years.
Rising sales, more higher-margin contracts and lower interes expense will push net to 70-75 cents this year. And a couple of years out, if the economy cooperates, IDG could be earning $1.50 or so a share.
The stock is at least a double from here.
Napco (NSSC) specializez in security - things like access-control systems, card readers, hand scanners, control panels, electronic door-locking devices, alarm systems and other protective paraphernalia that have become an all-too-familiar part of everday life?
A company, moreover, that has been around for more than 30 years, spends heavily on R%D, has been profitable every year for at least the past decade, boasts a highly promising new contract and whose shares sell below book value.
Napco is poised to profit mightily from a multi-year pact it recently inked with ADT Security, the nation's largest installer of security systems. ADT installs an estimated 600,000 systems a year and currently protects nearly 6 million homes.
Napco will custom-manufacture ADT's new Safewatch EZ System a simple-to-use device that allows homeowners to arm and disarm their home alarms by turning a deadbolt key - no codes are required. A big selling point, besides being easier to use and cheaper to install, is that the system dramatically cuts false alarms.
Safewatch EZ is ADT's brand name, but the process itself is Napco's patented design, and Napco has an exclusive agreement to make the devices for ADT. This could be a big deal for Napco, a company with sales of less than $60 million.
The company's fiscal second quarter, ended December, may be a happy harbinger of things to come. On 6% higher sales, earnings jumped five-fold, to 21 cents a share, versus 4 cents in the year-ago span.
The stock closed Friday at 10,26, below book value (and about 1.4 times tangible book).
Napco can earn 70 cents a share this fiscal year, ending June, and $1.25 - $1.50 in June 2005.
No reason this stock can't hit $25 in a year.