STOCK WATCH


Cashing in on Made in America

Bob Frick

U.S. manufacturer Idex is profiting as demand for its products grows overseas.



It's a great time to invest in U.S. manufacturers -- if they do business overseas. Consider Idex, a diversified manufacturer that is unlikely to have popped up on your radar screen.

You actually may have heard of one of Idex's products, the Jaws of Life rescue tool. But mostly the Illinois-based company produces equipment for manufacturing, pharmaceutical and food-services industries. For example, Idex makes pumps that move liquids, gases and solids in places as diverse as chemical plants, mines and school cafeterias.

While the U.S. economy is growing sluggishly (if at all), says Morningstar analyst Tom D'Amore, some businesses that Idex supplies are growing exponentially overseas. That's especially true in the energy industry, as well as in the water-treatment business. Because of the weak dollar, foreigners can snap up Idex products at favorable prices, D'Amore says.

That trend began bearing fruit for Idex this year. For example, sales to U.S. customers by Idex's Health & Science Technologies Group dropped 5% in the third quarter from the same period a year earlier. But the unit's sales to overseas customers jumped 13%.

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Similarly, domestic sales by Idex's Fire & Safety Group dropped 1% in the third quarter, but rose 11% internationally. Overseas sales account for 46% of Idex's total revenues.

Although domestic sales have dipped, Idex's earnings are not likely to collapse. This is because, as D'Amore says, Idex makes "very highly engineered and unique products" that serve relatively small, specialized markets. "Customers rely on them," he adds.

Idex is also known as a high-tech, low-cost, manufacturer. At 15%, Idex's return on equity (a measure of profitability) is excellent for its industry.

Plus, the company is benefiting from a strong balance sheet and low interest rates, which enable it to grow through acquisitions. For example, Idex just bought Nova Technologies, an Alabama company in the metering and flow-monitoring business, for about $158 million. Idex can use the proceeds from debt that costs 6% to buy manufacturing companies that generate operating profit margins of 10%.

Analysts predict that earnings per share will rise from $1.92 in 2007 to $2.19 next year, a 14% increase. The stock (symbol IEX), which closed November 27 at $33.49, trades at 15 times next year's estimate. With several more quarters of solid profit growth in the offing, look for Idex to break the $40 barrier over the next 12 months.




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