Friday, January 13, 2006

Quiet But Potent: Middleby's Ascent

The way Middleby (MIDD) has been moving lately, you would've thought they found the cure for cancer.

For the second time in 8 days, we are pounding the table on this stock.

The oven maker is up 16% since we brought it to you a month ago (and we're sorry we didn't tout it long before then).

Partly as result of 2 smart acquisitons, Middleby's ovens can be found in kitchens spanning 100 plus countries. A recent upswing in the restaurant sector generated a massive ordering spree for new cooking equipment. This year, MIDD will begin shipping a new oven that'll reduce energy costs by 30% or more while cutting cooking time by 25%.

MIDD's margins are stable - for a company that's steel-dependent, that's worth noting -- and the stock trades at just 19 X next year's projected earnings.

MIDD sports a $700 million market cap, seasoned managment with its feet on the ground, great product and adoption potential, and lastly, visibility within a booming industry (The nation's 900,000 restaurants hit close to $500 billion in sales last year).

The only chink in Middleby's armor would be its balance sheet -- the debt levels we found surpass those of Middleby's peers. Nevertheless, Middleby's track record speaks for itself; in addition, this company is efficient, with 40% return on assets.

You want to know what we really think? Middleby is on its way to $100. When it gets there, it'll split its stock. Stock splits -- which increase the number of shares, lead to greater liquidity, and boost a stock price -- make a company more accessible to smaller investors.

Not enough to wet your appetite? You should buy Middleby because it's a manipulatable stock.

There are only 7.8M shares outstanding, 80% of them held by institutions or insiders. That leaves about 1.5M on the market, at least some of which are held by long-term investors who subscribe to The Motley Fool, which has recommended the stock profusely. With so little supply, any demand is going to force the price up.

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