Interesting Morningstar Series

Morningstar has recenty run a few stories about a research project they're doing on growth stocks -- definitely worth a read.

The first article, How Much Should You Pay for a Growth Stock, explains what they're doing (for the full research data and articles you have to subscribe to their premium services). Basically, they went back to 1995 and looked at the growth stocks from that year that are still in existence today (and for the most part, still considered growth stocks today). They applied their "margin of safety" assumptions and determined what price you could have paid for those stocks and still had a ten year (roughly) return to date that beat the market's roughly 11% return for that time period. They're doing this for shorter time periods, too, beginning in 2000 and 2005, and I hope they publicize that information as well -- it'll be interesting to see what this means for shorter holding periods.

The results are pretty remarkable -- the chart lists a lot of companies that we've all heard of and gives their PE at the time and the PE you could have paid for them and still beat the market for your 10+ year holdling period.

A few really piqued my interest that are in my portfolio or have been in the past -- Chicos (CHS), for example, was trading at a PE of about 12 ... but you could have massively overpaid for it and got it at a PE of 491 and you would have STILL beat the market. Goes to show you how much one great stock can mean to a long term portfolio.

Of course, no need to tell that to Dell fans -- they may have felt nervous about that PE of 18 for a small computer company with lots of competition, but it turns out they would have beaten the market even if they paid up to a PE of 350.

In plainer terms, the split adjusted price of CHS was 28 cents, but even if you had paid over $11 you would have still beat the market. For Dell, it was 64 cents and you could have paid over $12 and still had better than an 11% annual return. Pretty remarkable.

Companies like Motorola, or Coca Cola, however, didn't fare so well -- anyone who has held those for ten years, or many others on the list, has failed to beat the market and maybe even lost money.

Part two of the same article gives some preliminary conclusions, and while they have the kind of stodginess that sometimes turns folks off from Morningstar, they also make a lot of sense.

What do they recommend? Well, read the article ... but, basically, we should still look for a margin of safety in the purchase price, growing future demand for the product or service and a growing competitive advantage (moat), and growth-oriented management.

I think I've gotten better and looking for some parts of that -- the growing future demand and growing moat are key considerations and they coincide with the "story" or "theme" of a stock, business or industry, the part that I find interesting to research.

The part that I have trouble with is the buying price -- since I'm usually interested in finding companies that have real potential to show dramatic growth, I have an awful time computing a margin of safety in the price I pay for a company. I often fall back on the PEG ratio, which Peter Lynch really liked (Price/Earnings/Growth -- basically, is the PE ratio higher or lower than the future growth rate), but I find myself trying to estimate future growth for a company because I don't often put a lot of stock in analyst growth predictions, especially for the very small companies that I'm most likely to get interested in and that seem to be very capable of blowing through analyst numbers (or cratering when the miss them on the flip side, of course).

I guess that's where I need to do me some more book learnin' -- I've been paying attention to the Motley Fool's great investor education materials, and they seem to follow a lot of the same strictures as Morningstar in dealing with free cash flow and discounting, and their investor education center has some good articles on cash flow-based valuation and similar topics. The discounting aspect of it is pretty simple math as long as you've got a calculator handy, so we're all capable of that.

And that, finally, is the problem with having a diversified portfolio with a large number of stocks, as I do -- I'm not going to rerun a disounted cash flow analysis for every company every quarter, or even every year, so I focus probably a little more than I should on themes, stories, and PEG ratios even though cash flow is often a much better measure for long-term growth than earnings.

Hopefully I'll get better at this ... we'll see.

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Can't resist the robot (ISRG)

Well, as we close out a very successful week in the markets, it turns out that I can no longer resist the siren song of Intuitive Surgical (ISRG). I've been researching them in some detail since buying my first two positions in recent months, and the information I find leads me to the same answer I had when it was at $70 ... then at $90. $109 is a lot of money, but it's still a reasonable price to pay for this kind of growth potential. I don't expect to keep buying it at $20 increments all the way up, though ... for me, this is a full position for now and I'll sit back and watch.

But I did buy some more today. Purchased Intuitive Surgical (ISRG) on November 18 for $109.02.

You can read my earlier writeups on Intuitive Surgical -- my first buy, and second -- if you're interested in all I've got to say. I was first turned on to them by a Fool newsletter, and I have now gotten over my initial fear of paying too much for these shares.

There are a few caveats: It's still not cheap, and this is betting against the analysts to some extent -- they're predicting pretty flat sales and taxes due in 2006 for a forward PE of around 70 according to Yahoo Finance, which I think is extremely pessimistic. But they're probably smarter than I am, so buyer beware -- because as long as I maintain faith in management and the long term potential of this business, I'm not selling even if the analysts are right.

Patients are looking for this kind of minimally invasive surgery now, and we appear to be at a tipping point where it is prevalent enough (about 300 systems installed) that patients may begin to demand or expect it. And for all intents and purposes, they've got not only first-mover status in this area, but a monopoly.

Even so, Intuitive thinks they've hit less than 10% of their addressable market. And add to that the fact that those 300 or so systems are spread around about 230 hospitals in the US and maybe 30 or so elsewhere in the world (they just sold their first in China .. but even Australia only has two, and the UK one), and you can see that there's also ample room for selling multiple systems to the larger hospitals who perform the lion's share of major surgeries.

Hospital centers everywhere are releasing press releases or web pages that brag about their experience in robotic surgery ...

like Penn ...

or Shawnee Mission in Kansas ...

or the Henry Ford Health System in Michigan...

or Swedish Medical Center in Seattle ...

And it's showing up in regular advertising -- like this commercial from the DC Urology center at GWU (video).

There's even a robotic surgery blog from a doctor in New Jersey -- and he's predicting an almost exponential increase in the number of da Vinci surgeries he will perform.

If you don't know much about the field, a class at Brown University did an interesting looking report that has a lot of details -- it's slightly out of date, but well worth reviewing. Also a little out of date, a Business Week article from March provides a nice overview.

The success of the da Vinci system with prostatectomies is, I believe, just the first wave. That was the first major type of surgery for which FDA approval was granted and the first to reach a critical mass of trained surgeons and happy patients. Intuitive Surgical even has a special website just for patient information on the da Vinci prostatectomy.

But there are other types of surgeries performed every day in the US that could benefit from these minimally invasive techniques -- heck, those with strong stomachs could have watched a live heart valve surgery using the da Vinci back in January. And In March, doctors discovered that the da Vinci can be very effective in treating Oral cancer and doing other otolaryngological surgeries.

To sum up my investment philosophy for ISRG, and why I think the growth will continue (even if not at quite this same rate):

The growing BREADTH of hospitals and doctors who own and are trained on this machine is the first huge growth engine, but the growing DEPTH of procedures for which the machine is commonly used should be the second.

And don't forget, maintenance costs about $100,000 a year on these machines, and you can easily spend that much in accessories and replacement parts ... and doctor training can run a quarter of a million dollars, though I understand it's usually included in the purchase price. That $100,000 of high-margin income for ISRG will grow as each machine performs a larger number of surgeries of different types, and the overall steady income from this source will grow significantly as each new system is brought online.

I intend to hold these shares for many years and enjoy the ride, though I fully expect that this rapid growth will come with some hiccups along the way (and sometime over the next few months I'll probably regret that I didn't wait to fill out my position).

And remember -- my purchase today probably means it will drop on Monday, as I've recently seen with Shanda (SNDA) and Cryo-Cell (CCEL), so keep your eyes open for a great buying opportunity.

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New feature, and what to buy now (ISRG, IMAX)?

After yesterday's great performance, I was inspired to add to the site my full portfolio (not including the boring 'ol mutual funds that are ripening in several retirement accounts). The post below this lists all the individual stocks I own (and a couple ETFs/CEFs), along with my average cost and, in most cases, the date of my most recent purchase. I'll update it every now and again.

This week has been pretty interesting -- especially yesterday. It's very unusual for me, with a portfolio of about 40 individual stocks, to see the overall portfolio move as much in one day as it did yesterday, up 2.5%. A few real standouts in there, including Overstock with their latest response on the lawsuits, but on the whole it was just a day with a ton of solid 3-5% gainers. Very nice to see. Hopefully I won't soon see quite that much movement on the downside in the near future.

Looking at a few candidates for new money today or early next week -- at the top of my list now are ISRG and IMAX, so I guess I'm fixated on the "I"s in my portfolio. ISRG I might just be irrationally exuberant about, but I am trying to decide whether the risk of waiting until they report their next quarter (typically a soft time for them) is worth it. If they don't disappoint, I'd hate to have to pay $140 for the shares instead of the $105 or so I might get it for these days.

IMAX is a bit of a risk for waiting, too -- they're still down a little bit after their somewhat soft earnings release, but future growth looks great with the growing installed base of theaters and their backlog. The short term question is, will Harry Potter get investors excited again and should I buy before we see those box office numbers? Or, as is so often the case with the entertainment producers, will we see a selloff on the news (see DWA, MVL and how their stocks have reacted to recent film openings). IMAX is a different kind of company, to be sure, but with the CEO on CNBC this morning talking up the sellouts I'm tempted to wait and see if I can get a better price after the Potter news is out.

As usual, I'll let you know what I decide to do. Happy investing.

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Current Portfolio -- Nov. 17, 2005

Ticker	Trade Date (most recent)	Average cost	Last price (as of 11/17	Gain (as of 11/17)
AKAM	24-Jun-05	14.26	17.02	18.17%
BRK-B	7-Mar-05	3,005.00	2,950.10	-2.64%
CCEL.OB	16-Nov-05	3.89	3.85	-2.81%
CHS	26-Aug-05	35.05	45.33	24.40%
CKCM	-	16.06	26.7	59.80%
CVTX	19-May-05	21.01	25.88	22.02%
DWA	28-Mar-05	35.49	25.98	-27.25%
DWRI	7-Jul-05	18.02	5.4	-70.66%
EWY	7-Jul-05	31.90	40.82	24.70%
EXEL	-	8.13	8.32	0.37%
FARO	21-Jan-05	27.29	18.83	-31.00%
FORM	20-Jan-05	22.81	25.5	11.79%
GOOG	26-Jan-05	193.93	402.41	105.86%
IFN	7-Jul-05	30.15	39.68	28.07%
IMAX	18-Aug-05	9.90	8.85	-12.31%
ISRG	-	78.19	106.87	34.23%
LGF	20-Jun-05	10.47	9.73	-9.28%
MIDD	24-Jan-05	47.74	78.4	64.22%
MVL	20-Jan-05	18.12	14.48	-20.09%
MYGN	21-Jul-05	19.33	19.12	-2.06%
NHC	25-Feb-05	34.20	37.84	6.08%
NTES	6-May-05	50.45	60.41	14.09%
NTO	20-May-05	2.14	2.63	14.99%
OSTK	28-Jan-05	53.15	36.7	-32.54%
PANL	6-Jun-05	9.97	12.17	20.90%
PDLI	4-Apr-05	18.49	26	39.67%
PRVD	27-Jan-05	22.51	24.89	10.57%
RADN	7-Jan-05	7.86	13.44	65.72%
RSTI	2-Mar-05	34.31	41.17	19.57%
RYN	7-Jan-05	28.67	39.19	34.15%
SNDA	-	31.03	18.98	-40.52%
SPDV.OB	-	1.71	1.6	-11.11%
TASR	31-Jan-05	17.69	7.41	-60.00%
TINY	7-Jan-05	10.50	13.18	22.60%
VRTX	20-Jan-05	12.06	26.11	115.63%
WFR	10-Jun-05	16.25	21.44	28.00%

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Broke the rule again (CCEL and SPDV)

I have a personal rule, borne of bad experiences with companies like Mooney Aerospace, and of reading of the bad experiences of others with penny stocks, OTC Chinese shell companies, and the other scams of the pink sheets and over the counter market.

The rule is: Don't buy companies that aren't on the major exchanges (NYSE, NASDAQ, AMEX).

But sometimes we all break the rules, and I am no exception. I now own two companies that are traded over the counter, SpaceDev (SPDV-full writeup here), and Cryo-Cell (CCEL-full writeup here) . Both have been making waves lately, but I've held SpaceDev for while -- it's Cryo-Cell that's the new rule breaker here.

I bought CCEL yesterday at what turned out to be the closing price, $3.89. It has actually already dropped a hair below that, which is neither unusual for my investment choices nor a problem for my long-term outlook.

Just to quickly update you on SpaceDev, which I still consider to be a great investment for the long term:

They are planning a merger with Starsys, which I already wrote about.

They have now launched a genuine microsat product, available for sale to anyone who needs to get a little dishwasher-sized presence in space. Could be communications companies, or researchers in Universities ... anyone. Microsats are now for sale on the open market, and I'm sure the price is negotiable.

And perhaps more importantly, they have firmed up their plans to develop what is in effect a private space shuttle replacement in the SpaceDev Dream Chaser that's based on an old NASA design (recycling -- another way to be the low cost provider!). They have been awarded a pretty big contract from the Air Force to work at upsizing their hybrid rockets, and they are aggressively pursuing work under NASA's new plan to develop viable commercial projects that can run supply flights to the International Space Station. There's no guarantee that the Streaker will get those contracts, but I think there's a good chance given SpaceDev and Starsys' track record and great pricing.

This is all big money stuff if they can get it working, and it's all on top of what is currently their biggest project, the Missile Defense Agency microsatellite array which is in the middle stages of development. SpaceDev's plan to use government contracts to research and develop commercial space products and services that they can then sell more widely is working, and what's more, the government wants it to work -- still lots of possible bumps in the road, but I'll be enjoying watching these folks reach for the stars.

And if this growth continues apace, I think we can expect SpaceDev to list on one of the major markets in the next year or two.

But the new news is that I did indeed decide to buy Cryo-Cell, despite the fact that they're not only on the OTC market but have already been delisted from the big exchange once. That was quite a while ago, and they really seem to have their act together now and are fully planning to apply for relisting with the big boys next year.

Like SpaceDev, CCEL is profitable -- the current PE is high at around 40 or so, but with the growth potential they have I think that's pretty fair. I wrote such a long bit about them the other day that I can't imagine anyone actually read the whole thing, but suffice to say that they have the largest customer base in what might be a really huge market. Right now they are the largest cord blood bank in the US with about 100,000 customers (almost twice as big as their biggest competitor), but they believe that their addressable market is 25% of US births -- that would be one million possible customers every year. To my ears that's a pie in the sky ambition, but I'm happy to see them aiming high and who knows, maybe they'll reach it.

I listened to several CCEL presentations and executive interviews yesterday as I was making my final decision to purchase -- links are here, here and here if you'd like to hear them, management sounds aggressive, sober and capable, which can always be an act but is still nice to hear.

The company has ambitious goals, a great balance sheet and growing and predictable recurring revenue stream, and is the low cost provider as well as being the largest and the provider of the (arguably) highest quality service. Add that to a new placental stem cell preservation service that they're launching in 2006 to distinguish them further from their competitors, and I really like what I see.

If you think stem cells will be important and that medical discoveries will make people start to realize their value (they've already shown that placental stem cells may cure diabetes in mice, which is huge), then you'd have to believe that parents will begin to think it's irresponsible not to preserve the stem cells that might help their family. Add that to increased marketing, and I think we have a winner in CCEL for the decade to come.

Of course, I didn't get the price I would have gotten had I jumped aboard CCEL at my first impulse, or even as I finished my earlier writeup -- but that's OK, I think a few cents here or there will be immaterial by the time I want to sell, which hopefully will not be for a very long time.

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Stop me before I buy OTC! (CCEL)

I've been thinking about opening a position in Cryo-Cell (CCEL), which is primarily engaged in processing and cryogenically storing umbilical cord blood and the stem cells therein -- and which has recently started expanding it's offerings to include a similar service for placental stem cells. The company, unlike most others that are in any way related to stem cells, is profitable but not cheap, and while it has a good track record of steady growth it has not yet shown the really significant growth of which I think it's capable.

Now, if you've read many of my postings you'll know that I'm not crazy about buying "penny stocks" or OTC companies. I have made exceptions, and SpaceDev, for one, is a company that I'm happy to own and that I think has great prospects, including the potential for listing on one of the major exchanges in the next year or so. CCEL, by my initial judgement, falls in this same camp. They do file with the SEC and their filings are quite complete, and they are profitable and growing -- and are right now roughly the same size as SpaceDev, fighting to make it up to that magical $50 million market cap that makes the exchanges start to take you seriously. Truth be told, their growth and income are much more predictable and stable than SPDV -- and certainly worlds better than many of the fly-by-night operations and shell companies you see lurking around the OTC and pink sheets markets. But still, buying these less liquid OTC companies is a risk that I'm definitely aware of.

Cryo-Cell operates what is at it's heart a pretty simple business that comprises two core services -- they provide the materials and instructions to families for collecting and shipping their infants' cord blood (the messy work is done by the doctors and nurses in the delivery room) and they process it for an up-front fee, then they store it in appropriate cryogenic fashion according to FDA standards and charge an annual storage fee. The key things to keep an eye on are the number of new customers added to their "installed base" and a steady percentage of those customers who continue paying their annual bills.

My wife and I are Cryo Cell customers, which is why I know about this company, and I think the next generations of relatively well-off parents will continue to want to make the small investment to preserve their cord cell blood and, hopefully, placental stem cells in ever greater numbers. And once that investment is made, it seems silly not to keep paying the $100 or so a year for storage -- who knows if you might need it someday?

Although CCEL is quite a small company, they are by far the dominant company in this particular niche of the blood bank/stem cell business. They have a chart on their website that compares the services and costs of its competitors, and as of a couple years ago when I registered for this service and researched all the providers, I can vouch for the accuracy of their representations of their competitors. Cryo-Cell really does offer the most advanced storage facility (they're the only ones with a facility that fully meets FDA's new standards), the feeling of stability that comes with having the largest bank, and somewhat better pricing than their competitors. That's why we chose them as customers.

So I'm fairly certain that as this trend of cord-blood storage and stem cell awareness moves forward, Cryo-Cell should benefit significantly more than it's competitors if they're able to maintain their competitive position.

What will move this trend along are a few things:

1. News spreading about successful use of cord blood stem cells. Cryo Cell has only had about a dozen people withdraw their cells for use so far and I don't think they have reported any overall results, but they do have some success stories that they share -- example here. It's important that that continues, whether it's evidence of those cord cells curing a child or helping a family member. Their investment in Saneron is a clear demonstration of interest in moving this science along to show efficacy. Once efficacy is shown, it will only be a matter of time before storage becomes commonplace.
   
2. Stem cell advancements in general. Cryo Cell thinks they may be up for some big government grants for setting up a national stem cell registry -- that's still very unclear, but certainly possible. Many people already believe that stem cells will be the answer to many chronic diseases, but the more science and successful trials are released, the more stem cells will seem like a viable treatment option for all kinds of diseases, from diabetes to cancer. Scientists working with animals have already shown great results in treating diabetes and heart attack patients. When that happens, it really enters the public consciousness and the stem cells that are normally discarded upon birth will begin to seem more and more like a valuable commodity that families will want to protect.
   
3. Marketing and physician acceptance. This is already changing in my experience -- when we brought the kit in from Cryo-Cell to the delivery room the nurses were not at all surprised. They said that not many people do this, but it is happening more and more lately. This was almost two years ago, and at a pretty ritzy hospital that is well known as a great maternity center in the wealthiest part of Washington, D.C., and it's with these folks who can afford a one-time $1000 fee that Cryo Cell is making an impact at first. Cryo-Cell has been spending more on marketing of late, and they do primarily web, print, and referral marketing -- anyone who has children has probably seen their flyers at the hospital or doctor's office and ads in pregancy and parenthood publications, and they give incentives to current customers to refer their friends and family.
   
   We had mixed impressions of doctors and their experience with the service -- they all knew what it was and were perfectly willing to charge a small extra fee to process the cord blood, but some thought it was a more valuable enterprise than others. That's probably inevitable for a service that is by it's nature at this point forward-looking -- unless you have someone in your family who might immediately benefit, you're thinking about how this might help with a disease or condition in the years to come. Physician education and marketing will continue to be critical as well, and evidence of the efficacy of stem cells and of cord blood stem cells will help to bring more physicians on board to help parents in making this decision (or even in learning of this service).

We chose Cryo Cell because it had the most advanced facility and a good track record and guarantee of security, but also because it was cheaper than it's competitors by a significant amount while offering the same service and reliability. They still have that price advantage over many of their competitors, but they may be able to use that to actually increase sales significantly as they roll their new placental stem cell service into the package ("for only a little more than our competitors charge for just cord blood processing, you can process and store both the placental stem cells and the cord blood for even more peace of mind").

In the end, Americans are spending more and more money on their kids' safety, entertainment and education. I think the number of people who will be interested in taking out what is essentially a $1000 one-time insurance policy with a $100 annual payment (the numbers are rough -- you lock in an annual payment when you sign up for the service, or you can prepay for an entire childhood) on the possibility of treating some scary diseases will continue to grow dramatically -- especially if research shows in the coming years that this can help bodies recover from strokes, or help to treat diabetes or other significant diseases that people are afraid of. After all, one of the most popular new strollers among the urban chic costs more than $700, and even first time parents may be already well accustomed to $500 vet bills. In comparison, cord blood banking seems like just another good thing you can do for your child's future.

This company is making money, and has over the past two years refocused on it's core business of processing and storing stem cells -- they also have some overseas licensees who perform the same business and bring in some income, but the US is their core market and will remain so.

My main concern about buying right now is that CCEL is on a bit of an upswing thanks to some recent news. They released their quarterly report last month, which didn't have a lot of news and led me to think they're still trucking along with sales growth a little under 20% -- not bad, but not nearly as good as I think they can do in a few years. More importantly, It was also about a month ago that they licensed the exclusive right to the placental stem cells retrieval and storage technology and started planning to offer that service, and just a few days ago they had a long and very favorable article in Smart Money.

So, do I buy in now with a partial position, or do I wait and see if the price dies down a bit when news dries up?

This company to some degree seems to trade on general stem cell news as well -- for example, it tumbled a little when the Motley Fool Article about ViaCell'sdisappointing phase one study of stem cells in cancer treatment came out, even though the association was a bit of a stretch. Is the risk that there will be good news soon, or bad news soon? It's very hard to say, but the company is gearing up it's PR machine to spread the news and they're making the rounds of the investment conferences, so I'll probably continue researching and, if I remain comfortable with management and their plan, make an initial purchase sometime in the next couple of days.

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Mad Money joins Rofin-Sinar Bandwagon (RSTI)

I bought some shares of Rofin-Sinar Technologies (RSTI), a diversified laser company, early this year and I've considered them to be a lot like my FARO holdings -- they're maybe a little bit too dependent on the capital spending cycle, but both are well-managed small companies that have a great niche and solid management (there's beginning to be some question about that "solid management" for FARO, but that's a topic for another day).

For the record, I made RSTI purchases in February and March and am holding them at an average cost of $34.31. I have not done any selling of this one.

I thought this would be a boring long-term hold for me that might grow steadily at 10-15% or so in most years, with possibly some more cyclical upside and not too much downside -- and I was fine with that. I haven't even every writtein about RSTI before, for the most part they've just been too slow, steady and boring to pay too much attention to, excepting a few points in the year when management had to quell analysts' high expectations.

But now the madman of Mad Money has got his wild screaming tongue wrapped around Rofin-Sinar, and I'm wondering whether the volatility will take a leap.

I happened to have CNBC on in the background on Friday evening when I heard RSTI mentioned at high volume, so I got curious about what that might mean and popped over to the computer to check the after hours trading. I think it hit about 5% on the upside, which is pretty wild for a $600 million company that is heavily owned by institutions, rarely trades after hours, and has a very low profile on the Street. Quite a powerful show, though I can't believe people actually sit at their computers with the trading ticker open ready to buy on Jim Cramer's mention of a stock -- that reminds me a little too much of the CNBC influence in the late 90s and makes me a bit nervous.

Jim Cramer actually credited the Motley Fool for turning him on to RSTI, which surprised me a little -- I didn't expect that to be a source he would follow. I think RSTI was a newsletter pick of theirs last year, and they do follow the company pretty well -- a few days ago there was a good Fool article following the last earnings release.

I expect the Mad Money crowd will have drifted back out of this stock within a few weeks, and I hope they don't end up exerting much influence on the shares -- RSTI had an odd year, with some earnings disappointment early on, but it has been a relatively slow and steady climb since then. It looks like the after-hours froth of Friday evening has already cleared up for the most part -- maybe this one just wasn't sexy enough for most of the viewers to buy in today.

For a small company, Rofin-Sinar has a very diverse product offering and a huge number of customers, which should bode well for the continued steady growth that management is predicting. But I don't expect them to blow out the lights, and I definitely didn't expect them to get Jim Cramer excited.

The fact that they are quite unique among the laser manufacturers in their ability to serve all of the major industrial laser segments -- complementary acquistions have given them a good slate of laser products in machine tools and autos, medical, and semiconductor and electronic manufacturing, should mean that they're not beholden to any one product cycle, which should help to smooth the curve of what for many of their competitors is a highly cyclical business.

The tiny number of analysts who follow RSTI predict something on the order of 10% sales and earnings growth, which makes their valuation here at a PE of around 16 seem perfectly fine but not necessarily a screaming bargain. I see limited downside for this very conservatively managed company, and some significant chance for growth if their machine tools, auto, and semiconductor clients are ever able to hit on all cylinders at the same time. I have no plans to sell this one or to buy any more at this point, but I am keeping an eye on the Mad Money folks to see if the character of the stock changes in their wake.

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