Blount International Inc. (BLT) is a classic example of the hidden gem lurking in the shadows of the small-cap world. Headquartered in Portland, Oregon, Blount is an international industrial company with just one business segment: outdoor products.
Blount’s singular focus has served the company and investors well. Reporting earnings for the 2008 third quarter ending September 30, the company far exceeded analyst’s forecasts with record sales for the second consecutive quarter and record operating income as well.
While earnings were aided by the large number of destructive storms hitting the Gulf coast this year, Blount saw growth in all its products and markets.
Blount is an industry leader in the manufacturing and marketing of cutting chains, guide bars and sprockets for chain saws. The company also manufactures and markets concrete cutting equipment and lawnmower blades.
Blount operates manufacturing plants in the United States, Canada, Brazil and the Peoples Republic of China. The company recently announced the permanent closing of its production facility in Milan, Tennessee.
Blount currently trades at just under $9.00 per share. The low for the stock over the last 52 weeks has been $6.60; the high for the period was 14.36.
With earnings of $1.02 per share, the price/earnings multiple for the stock is under 10, well under the average for the industry. Equally impressive is the price to sales ratio of 1.15. Both are signs that the company is undervalued at the present time.
The value of this stock is even more attractive when the historical performance of small-cap stocks following a major bear market is taken into consideration. In the last six major bears, small-caps have delivered returns on average of 82% the following year.
Blount has just under $290 million in long-term debt outstanding. In the company’s third quarter report, cash flow available for debt service was about $35 million. With a current ratio of almost twice current liabilities, the company’s debt is not likely to be much of a burden.
Buy the Bonds
The company’s bonds due in 2012 carrying a coupon of 8.875% most recently traded at a price of 96, producing a yield of 10.25%. The bond traded above par as recently as June and fell to below 90 late in 2008.
The company is run by a group of senior executives who have, for the most part, been with the company for an extended period of time, starting with CEO and Chairman James Osterman, who has been on board with Blount since 1959.
The strong balance sheet, experienced leadership, excellent earnings and the historical trend for small caps after a market sell-off, these bonds represent an opportunity to gain a high rate of return with modest risk.
This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, go to: www.InvestorPlace.com. James F. Dlugosch contributed to this article.
