Kennametal be such a great Buy?


by Dennis Biray - Date: 2006-12-11 - Word Count: 632 Share This!

From many of my previous articles I have focused more on companies I would consider buys in the short run. However, after some research, I have discovered Kennametal (KMT) to be a wonderful consideration for investors looking for long term commitments. Through its excellent fundamentals and strong technical support, Kennametal, relative to its peers, encourages the notion of being labeled as a strong buy.

As Kennametal is in the business regarding capital in assistance for certain products such as machinery and automobiles, many may argue that a foreseeable recession with leading indicators of falling commodity prices may hurt this company's chance of accruing capital gains for its shareholders. Nonetheless, I took such a thought into consideration and discovered that during similar periods of economic slowdown, Kennametal has performed at a stable and even prosperous rate. For example, to begin with a bit of technical analysis, from 2000 to about 2004, the extent of the period's recession, Kennametal actually grew at a healthy 33% during this time disregarding the unfortunate factors surrounding the economic condition in the United States. In addition, from 2000 to 2006, Kennametal has had growth, in terms of share price relative to about 100%. As the American economy will unequivocally go through strong periods of recessions and economic growth during a long term investor's duration, such growth in five years should be an excellent indicator of how strong this company is. Furthermore when looking at the 50 day average trend, it seems that Kennametal is going through a positive slope trend, and as a result of such observation, now would be the perfect chance to maximize your future gains by purchasing shares now. In addition to that, there has been a lot of volume activity related to increases in the share price which is a good indicator that investors are bullish on this company.

As the technical side proves to be encouraging, many investors may wonder about the fundamentals that Kennametal has. Looking at the numbers its true that margin growth relative to revenue and gross profit for the current fiscal year is not positively comparable to the previous fiscal year, nevertheless, there is still stable growth not only through each year but through each quarter which is a very optimistic sign. In addition to that, operating income margin growth has looked extremely bright, almost doubling figure wise each year. Cash also has growing margins for the past two years, and while I do not like how operating income profit has fallen over the past fiscal year, as long as Kennametal can sustain its strong investing activities, I will continue to support a strong buy rating. Assets to liabilities look strong as well, but the most important indicator I see is the ridiculously low P/E ratio. Compared to rivals such as Eaton's and Actuant Corporation's respective ratios, there is no competition. While the forward ratio of 12 is a tad higher than the current 10, such is number is still very supportive and indicative of a strong company which is still highly undervalued. What I also find interesting about Kennametal is the current CFO and CEO change of Frank Simpkins and Larry Yest respectively. I am always in favor of management moves as it shows that a company wants to produce to its optimal level, which, after looking at what Yest could provide, is exactly what Kennametal seems to be doing.

Thus through the strong technical and fundamental indicators, I am a strong believer that Kennametal will surprise and encourage more investors to purchase more shares of this company. It's true that the industry it's in may not the most optimal one to purchase during this time of year, because of the tenacious manner I see with this company, I would strongly urge investors to purchase shares, especially for the long term.


Related Tags: dennis biray, kennametal, kmt, eaton, actuant

Dennis Biray presents advice on all kinds of topics ranging from finance and investing to fitness to sports. For more information email him at dbiray@gmail.com, or to view other articles written by him visit http://www.biraynetworks.co.nr

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