SHAWCOR LTD. $28 - Toronto symbol SCL.A

SHAWCOR LTD. $28 (Toronto symbol SCL.A; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 70.5 million; Market cap: $2.0 billion; Price-to-sales ratio: 1.6; Dividend yield: 1.0%; SI Rating: Average) gets 90% of its revenue by making sealants and coatings that protect onshore and offshore oil and natural-gas pipelines from corrosion. The remaining 10% comes from making industrial equipment, such as electrical wire and protective sheaths. Lower oil and natural-gas prices have hurt demand for ShawCor’s pipeline-coating services. The weak economy also dampened demand for its industrial products. That’s why ShawCor’s 2009 revenue fell 14.2%, to $1.2 billion from $1.4 billion in 2008. Despite the lower revenue, ShawCor’s 2009 earnings fell just 2.7%, to $131.1 million from $134.7 million. Earnings per share fell 1.6%, to $1.85 from $1.88, on fewer shares outstanding. ShawCor has upgraded its plants over the past few years. That has helped cut its operating costs. Lower prices for raw materials, such as steel and plastics, have also helped its earnings. ShawCor’s customers operate in cyclical businesses, but the company’s strong balance sheet helps it weather swings in demand for its products and services. Its long-term debt of $26.5 million is just 1% of its market cap. ShawCor also holds cash of $250.0 million, or $3.54 a share. The company feels that demand for its products and services will remain weak in 2010. However, ShawCor is a leader in its niche field, so it should continue to win new contracts as the economy improves. The stock trades at a reasonable 15.3 times its likely 2010 earnings of $1.83 a share. ShawCor is a buy.

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