The Highs and Lows of Life and Stocks

After much prodding, I am going to give in and talk a little about myself.  I hope this won’t be viewed as self-serving, but rather as an opportunity for you get to know me better. 

For instance, you may want to know that I generally hold my emotions in check, so if it seems that there isn’t a lot of hype when I write about a stock, it isn’t that I’m neutral in my opinion.  It’s just that I don’t want to become overly exuberant and then fall flat.  I prefer to under-promise and then over-deliver when it comes to predicting winning stocks.

I graduated from Babson College, a small school outside Boston, and began my career at a major brokerage firm in the city.  After a few years, I was ready to become director of research at a small advisory company in Boston.  Things were looking good.  My salary was adequate; I had stock options, a title and two or three assistants. 

But along came the early 1970s and the big bear market that produced a slide of 50% in the Dow Jones Industrial Average.

The small advisory company soon folded, and I found myself without a job in a profession with an unemployment rate of 30%!

I tried jobs in the real estate industry, but they just didn’t inspire the passion in me that I had for stocks and I became dissatisfied with my lack of career direction.

I moved to Florida took a job as a tax preparer in an investment advisory company.  My boss soon figured out that I was more qualified to manage portfolios and to conduct the necessary research and analysis.

I was finally back where I wanted to be-analyzing and investing in stocks.

Striking Out

In 2000, I recommended selling the technology stocks that we had purchased for clients.  My boss wanted to stay the course, so I left to strike out on my own.

I decided to start my own investment letter based on the research I had developed during the last several years and earlier.  I sent sample copies of my new investment letter to the leading companies in the industry. 

Timothy Lutts, Cabot’s publisher, read my letter and called immediately.  I soon visited with Tim and Cabot’s founder, Carlton Lutts, in Salem, Massachusetts. I was impressed by the 30-plus years of the company’s success, the lack of personnel turnover and the company’s genuine interest in me.

Five years have passed, and I enjoy writing the Cabot Benjamin Graham Value Letter more and more because of the opportunity I get to converse with my subscribers.  I learn from their questions and comments, and they learn from my answers.  This creates a nice conservation between the readers and myself.

So I have gone from great success to less success and back to great success (relatively speaking-I’m not able to compare myself to Warren Buffett-yet). 

The up, down, up cycle can be compared to many of the stocks that pop up as undervalued opportunities in my research analyses. 

When a company falls out of favor, and its stock price plummets, I immediately react and begin looking for the reasons why a stock has fallen.  I set aside companies that have developed long-term problems.  I don’t want to wait forever for a positive turnaround that may never happen.  Instead, I concentrate on companies with temporary setbacks, where management is taking action to correct the problem and get the company back on track. 

As an example, last month in this column, I recommended buying Garmin (NSDQ: GRMN).  The stock had hit a high of 125 six months ago, but then fell to 40.  At this point, I recommended the stock.  Since then, the stock has increased to 46, and I now believe GRMN will climb to 89 within the next year or two.  There you go-from high to low to high.

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A Buy Recommendation

National Presto Industries (NYSE: NPK) is a small company with sales of $400 million and a market capitalization of $450 million.  National Presto, founded in 1905 in Eau Claire, Wisconsin, manufactures a wide range of household cooking appliances including pressure cookers, deep fryers and roasting pots. 

In addition, National Presto produces fondue pots, woks and hamburger cookers-all with NPK’s removable heat control devices.  The company also sells ammunition and cartridge cases to the U.S. military and sells disposable diapers for babies and adults.  The ammunition and diaper businesses are ancillary but quite profitable.

National Presto’s sales and earnings increased dramatically in 2007, buoyed by higher sales and profits from its ammunition business.  Sales in the first quarter of 2008 slowed because of delayed payments from the military, a temporary setback.  But EPS jumped 25% thanks to a highly successful cost reduction program.  We forecast 15% EPS growth for 2008 as defense payments normalize and new appliances are introduced.  The balance sheet is very strong with no debt and a whopping $21 per share cash balance.

National Presto’s price has increased noticeably during the past few weeks, and I believe the price will rise further as more investors discover this little-known company.  The dividend yield is an extraordinary 6.4%.  NPK shares will likely climb to my minimum sell target price within one to two years.  I strongly recommend buying National Presto Industries at its current price.


J. Royden Ward
Analyst and Editor of Cabot Benjamin Graham Value Letter

Editor’s Note: National Presto is featured in the latest issue of the Cabot Benjamin Graham Value Letter, and updates on it (and other value stocks) will be provided in the newsletter until the stock reaches its Minimum Sell Price.  In the newsletter, you will find my Maximum Buy and Minimum Sell prices for National Presto plus 250 well-known companies. Click the link below to find out how you can safely build wealth in any market.

NPK’s Dividend Yield

A note about NPK’s 6.4% dividend yield from editor J. Royden Ward: The current dividend yield for NPK is 6.4%, although some financial Web sites list the dividend yield as 1.5%.  The company paid a regular dividend of $1.00 per share in March 2008 and, in addition, paid a special dividend of $3.25 per share in March.  I do not expect NPK to pay another dividend until March 2009.  If the company continues to do well, I expect an increase in the regular and special dividends to $4.50 to $5.00 in 2009.  Therefore, if you buy NPK now and hold the stock for a year, I believe the dividends paid to you will total between $4.50 to $5.00 per share–a dividend yield of more than 6.4%. My rationale: NPK has been paying special dividends for the past several years and has increased the dividend in each of the past five years.  The dividend yield listed by Schwab and MoneyCentral is based upon the $1.00 per share regular dividend and excludes the $3.25 special dividend.  I believe special dividends will continue to be paid by the company during the next several years, whereas some computerized information does not recognize that probability.


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