I spent a lot of time over the weekend looking at various companies in the UK and the US and eventually, having ruled out various new longs or shorts for various reasons, I started to look into the momentum in the share price of Barnes Group (NYSE: B).
Barnes Group is an international aerospace and industrial precision component manufacturer with an equally important logistics and services division. Their business is split roughly 50/50 US and international.
While looking at Barnes, I printed out their 4th quarter results from MarketWatch.com. And I hope it’s going to repay many times my investment of seven pages of A4 and the ink.
It was the chart that first gained my attention, reproduced here from the really nice guys at ProRealTime.com.
You’ll notice the gap up on February 17 when they announced results.
When I first started betting and trading financials, I used to hold on to the losers in the hope they would get back into profit and cut the winners, to spend the profits on wine, women and song.
Of course, that was precisely the opposite of what I should have been doing, which is to run the winners and cut the losers. My guess is that those who have been winning heavily on Barnes since last October’s low will see their profits continue to grow if they stay aboard.
When I used to stick with the losers it was often that bad news from the company would eventually be followed by more bad news. It was rare that a company would announce some bad news and a couple of months later announce good news.
The same was true with companies which announced good news. Good news was usually followed by more good news.
It was certainly good news from Barnes Group on Feb 17. Fourth-quarter earnings from continuing operations were up 87% and up 71% on the year.
Guidance for 2012 was between $1.78 and $1.93, giving the company a forward PE of between 14.1 and 15.3, not demanding for an earnings increase that, according to the company, could be as high as 17.6% this year.
My guess is that the company is being conservative with its guidance.
They currently have a healthy $582 million worth of work in hand, which is 20% higher than in 2010. And, with signs that the US economy is reviving, the downside looks limited, with $27 likely to act as support according to the chart.
I don’t think this is going to be a massive winner. But I bought on the weak opening at $27.29 and I think I could see $29 in a month or so. It could go a lot higher if there is good news in the meantime.