“Newport Corp. (NEWP)—This provider of laser systems is seeing strong profit growth, which has helped the stock price rebound in recent months. Still, these shares have shown the propensity to trade at significantly higher levels—the stock traded above $100 per share in 2000 and 2001. While these shares are likely to show price volatility well above that of the usual DRIP stock, investors looking for growth and willing to accept volatility should consider these shares.
“Newport supplies technology products for the Scientific Research, Life & Health Science, Aerospace & Defense, Photovoltaics, Industrial Manufacturing, Semiconductors and Microelectronics markets. Products, such as lasers and photonics instrumentation, enhance the capabilities of its customers’ manufacturing, engineering, and research applications. Demand for Newport’s products tends to be sensitive to macro economic conditions. Thus, given the depths of the recent recession, it is little wonder that the company suffered through two extremely tough years in 2008 and 2009. The good news is that an economic rebound has rejuvenated the top and bottom lines. March-quarter sales and orders were records for a first quarter. Life and health sciences was especially strong, with revenue rising nearly 27% and orders increasing nearly 10%. Per-share profits for the quarter more than doubled to $0.35, or $0.07 better than the consensus estimate.
“In the second quarter, the company anticipates increasing its sales 12% to 15% and operating income more than 50% over the year-earlier period. For 2011 overall, the firm expects per-share profits to rise by more than 35%. The consensus earnings estimate for 2011 is $1.49 per share. Newport provides an interesting way to play strength in technology and life-sciences markets. The stock trades at 12 times the 2011 earnings estimate, not a big valuation given its expected growth. To be sure, an unexpected slowdown in the economy would likely have an oversized impact on the company’s results. Still, the company has solid operating momentum, and the stock has been behaving quite well of late.”
Charles B. Carlson, CFA, DRIP Investor, 6/11
