Goodbye to Middleby and Rofin Sinar (MIDD, RSTI)

In the course of making decisions about which shares to release in order to reduce my margin exposure, I found myself thinking carefully about clearing out two small positions that have perfomed well for me over the past year or so -- Middleby and Rofin Sinar.

These two companies don't have that much in common -- they both actually create things, but for very different markets. Middleby is a commercial oven maker, and Rofin-Sinar a small diversified laser company. And while I like both companies, I don't like them enough.

I had earlier sold some of my Middleby shares when they reached a 100% profit, since I thought the unfettered optimism about the company was unlikely to last forever, and I had planned on holding these remaining shares indefinitely.

But I don't intend to add more to my MIDD position, and while I think they have a chance for steady long term growth I think there is certainly some execution risk as they continue to seek out more takeover candidates (even though their offer for Enodis was pulled). So it hardly seems worth holding on to what is now a very small position for me, on margin, in a company that I think is solid but unlikely to again exhibit the extraordinary growth that allowed it to advance by more than 400% in the last few years.

So with some regrets, I'm taking profits in Middleby and clearing the slate -- selling the balance of my Middleby shares today at $79 for a gain of about 70%.

Rofin Sinar is a company I've held for quite some time and am selling today at a decent profit -- earlier this year when I pared back my portfolio because it was simply too diversified, RSTI was one of the candidates I thought about selling. It made the cut then, but not this time.

I can't come up with anything terribly negative to say about the company -- in this case, it's really a matter of selling a company that is fairly difficult for me to analyze, and locking in a profit. I bought these shares after reading a compelling argument in an investment newsletter, but never got a good understanding of how they compare to their competitors in the marketplace, and never was tempted to build this holding into a full position.

It may be a mistake, but I'm just not that interested in RSTI anymore and, while not overpriced, it doesn't seem to be a tiny undiscovered value anymore -- so I'm selling my margined shares and taking a nice profit of a bit over 50%.

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Rofin-Sinar's bumpy morning

Rofin-Sinar Technologies (RSTI -- click to register for free RT streaming quote) hasn't seen anything like today since back in November when Jim Cramer brought them to the attention of the Mad Money crowd and kicked off a more volatilie period for this laser manufacturer.

I wrote about RSTI back then following Cramer's attention, and not a lot has changed about the company in the intervening months ... except for the fact that they released market-beating earnings this morning and, in an 11am conference call, brougth the initial excitement back down to earth (up about 8% as earnings came out, moderated to about a 2% rise following the call).

I'm pretty pleased with how things are going for RSTI -- I still have them pegged as a relatively slow grower compared to many of my holdings, but I am very pleased about their ability to work through the problems in european and US manufacturing by relying more heavily for growth on their micro-lasers (used in chip manufacture, etc.) and their asian sales. For a relatively small company with a market cap well below $1 billion, they've got a very solidly diversified customer base around the world and a very broad offering of products for non-correlating industries (like semiconductors and auto manufacturing, which don't move in tandem). In the words of CEO Gunther Braun from today's release, "With positive developments in our Micro and Marking businesses, we were able to compensate for the softness in our Macro business." Having those three very different businesses under one roof gives us some significant protection from business cycles in any one industry.

So what do we hear from earnings? Well, the headline number this morning, and the one that got the market moving up so fast, was that they beat the 62 cent earnings estimate handily with a nice 73 cent quarter -- as we saw from Formfactor last night, beating earnings estimates is always good for the stock price.

They also had great margins last quarter -- 43% gross margins, higher than they've hit in years. Operating and net margins were also slightly better than recent quarters ... nothing to dance about, but encouraging. The Fool published a brief take on their margins history before earnings, and I see continued slow improvement -- just what the doctor ordered.

Their two main segments, micro and macro lasers, were near mirror images -- macro lasers, used for welding in manufacturing and heavily used in auto manufacturing, saw a sales decline of about 7% ... but micro lasers, used in semiconductors and similar applications, were up 18%. No surprises, and they are focused on improving sales of their macro welding lasers this year.

I haven't yet listened to the call, but I assume they tempered their forecasts for this year due to the softness in european and US auto manufacturing. Regardless, I think this is a fine company to hold for great diversification across some important industries, and I like the fact that their relatively small size makes it a little easier for them to go unnoticed while they grow (assuming Jim Cramer doesn't bring them up again).

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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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