Flowserve Corp. (FLS)

It is a cyclical industry. 40% of sales are aftermarket. It probably tends to go up and down with the price of oil. He does not like companies like this very much because they depend on a cyclical market. FLS-N is trading at over 20 times earnings, yet they have declining sales and earnings. The new CEO may help, but the guest would want it to go down to 15 times earnings before he would be interested.

Had owned this several years ago, and it was a Top Pick on many occasions. When the economy started to slow, more particularly the oil/gas industry, he sold his holdings. They produce valves, pumps and seals for a variety of different products for the chemical and oil industries. Trading at 17.1X this year’s earnings, and 15.1X next year’s. He is really focusing more on the companies that may use their products.

Oil and gas exposed, but much of the cash flow is recurring and very predictable. Mid stream and downstream cap-x are not at risk these days. The valuation is compelling, but he is waiting to see how oil shakes out. It gets 25% return on invested capital. He is going to take a hard look at it when oil stabilizes.

This is one of the stocks that has come down quite a bit since the end of the year. He would like to get this one at $64-$70. They control the flow of liquids and things through the use of valves, pumps and other sealants, which is a very key part for American industry.

(Top Pick Sep 24/12, Up 42.57%) He sold too early. He thinks he could look at it again.

(Market Call Minute.) Sold her holdings in the early part of the year when it reached her target price. Would consider buying on a pull back.

Sold his holdings at $152-$153 so obviously missed out on 3 or 4 points. Street target was $158 and if looking out a year or 18 months, he was looking at $170. Looking at other things now that he thinks has greater potential. Great company and great cyclical play.

(Market Call Minute.) Sees 15%-20% upside in the next 12 months.

For any company involved in the critical flow of fluids or materials such as petrochemical plants, plain chemical plants, oil refineries, etc. they will be using some of this company’s products. 10,000 customers globally and have a pretty good growth rate ahead of them. Looking at $150 within 12 months and $175-$200 in 24 months.