Posts Tagged ‘DCI’

  • Be Wary of Top-Down Investing
    , January 8th, 2013 at 12:28 pm

    Investors often ask me a question that follows this pattern: “I think X industry is going to be very big in the future, so I want to invest in Y stock. What do you think?”

    The X industry is usually something like biotech or green energy or perhaps biotech using green energy. In any event, this thought process towards investing is a mistake. First, X industry may in fact turn out to be a big winner in the future, but that doesn’t mean Y will follow. .

    Embryonic industries are notoriously difficult sectors to invest in. There’s a great deal of innovation, prices are plunging and anyone not in first is quickly left behind.

    A century ago, if you thought automobiles were the wave of the future, you would have been correct. But, as Wikipedia notes, “there were over 1,800 automobile manufacturers in the United States from 1896 to 1930. Very few survived and only a few new ones were started after that period.” Think on that.

    The problem with top-down investing is that it misses that point that profits can be found anywhere. Profits are made wherever a good or service intersects with a need. It’s just that simple; there’s no magic formula. The trick isn’t finding that special industry. Rather, it’s finding that special stock.

    Consider the stock of Donaldson ($DCI). What does Donaldson do? I’ll let Hoovers explain:

    Grime fighter Donaldson is cleaning up the industrial world. The company makes filtration systems designed to remove contaminants from air and liquids. Donaldson’s engine products business makes air intake and exhaust systems, liquid-filtration systems, and replacement parts; products are sold to manufacturers of construction, mining, and transportation equipment, as well as parts distributors and fleet operators. The company’s industrial products include dust, fume, and mist collectors and air filtration systems used in industrial gas turbines, computer disk drives, and manufacturers’ clean rooms. Founded in 1915, Donaldson now operates in 43 countries worldwide and has 39 manufacturing plants.

    My apologies to anyone in the filtration biz but I have to confess that it sounds rather dull. Now imagine that it’s 1989 and you’re trying to think of companies that would be the “wave of the future.” I doubt filtration systems would have been at the top of your list. Yet, Donaldson’s stock is up 50-fold since then and that doesn’t include a dividend that’s risen every year since 1996.

    The reason Donaldson has done well is that it’s a very good company. But you only could have known that through analysis that’s bottom-up. For the most part, don’t worry so much about the industry. First, find a very good company.

  • Donaldson’s Amazing (But Dull) Run
    , March 20th, 2012 at 11:19 am

    As long-time readers know, I love finding dull stocks that have done extremely well over the years. If you take a step back, it’s kind of amazing that Wall Street focuses so heavily on high-glamour businesses while there are lots of great companies that get almost no attention.

    Just think: How many stocks do you recognize from the Top 10 performers of the last 20 years?

    One such outstanding dull stock is Donaldson ($DCI) who’s in the exciting business of…filtration systems! Check out the graph below. The stock was on my Buy List up through 2009 when I stupidly kicked it off. Over the last 27 years, Donaldson is up 9,700% to the S&P 500’s 695%. That doesn’t include the dividend which has been increased every year since 1996.

    Over the last three years, Donaldson’s earnings-per-share have grown from $1.67 to $2.19 to $2.87. Note the nice steady upward trend. That’s what we like to see.

    Their fiscal year ends in July so we already have two quarters under our belt. Donaldson’s public EPS forecast for this year is $3.25 to $3.45. Using my trusty abacus, I think they should be able to earn $3.40 per share this year and $3.72 per share next year. Give or take. Donaldson’s CEO recently said that their earnings for this fiscal year would constitute the 21st record year in the last 23 years.

    As much as I like Donaldson, the shares seem very pricey here. Of course, that’s what I thought in late 2009 when I decided to take it off the Buy List.

    One final note: Donaldson’s stock will split 2-for-1 next week.

  • Donaldson Earns 84 Cents Per share
    , August 30th, 2011 at 2:41 pm

    I often tell investors not to worry about a stock once they’ve sold it, especially if they sell it for a profit. Of course, this is the advice that I most often don’t follow myself.

    At the end of 2009, I decided to drop Donaldson ($DCI) from my 2010 Buy List. I only switch five stocks each year. Donaldson is in the filtration biz. Exciting, I know, but it’s a wonderful company and I’m kicking myself for culling it from the Buy List.

    In 2010, DCI rallied for 38.5% (including dividends) and it’s up another 1.5% this year, which is still better than the overall market. Yesterday, the company reported Q4 earnings of 84 cents per share which was five cents better than estimates.

    For the year just ended, Donaldson earned $2.87 per share which was a nice jump over the $2.10 per share they made the year before. Donaldson also gave full-year 2012 guidance of $3.15 to $3.45 per share. That’s very wide but I expect it to be narrowed as the year goes on. I always prefer to have companies that provide guidance even if it’s far from exact.

    If we take the midpoint of the range ($3.30), DCI is going for 17.8 times earnings which is a bit rich for this market. Still, that’s what I thought in late 2009 and the stock has continued to outperform. If they keep beating expectations like they have been doing, Donaldson’s stock should see brighter days.