The hunt for quality small cap stocks can lead investors to some
unusual places. Often, to stay on track I'll consider one of Warren
Buffett's guiding philosophies.
Buffett likes to put his money into the companies that make the
items that he's familiar with; hence his acquisition of railroads,
Dairy Queen and stakes in
Coca-Cola Corp. (
Republic Services (
I recently came across a product that always sits on a shelf in
my basement, packaged in dynamic blue and bright yellow colors. I
found the can while I was focusing on a home repair, not looking
for a potential investment.
No, this wasn't some old stock certificate that had been left
there for decades, but it was an old name that is found in many
homes across America. In fact, it was a company that I had
forgotten was publicly traded. One that makes an easily
identifiable product -- as well as some others that you might not
associate with it.
***I'm talking about
WD-40 Company (Nasdaq: WDFC),
the namesake company of that little blue and yellow can that's in
everyone's garage. You might not realize, but WD-40 was initially
produced as a lubricant for the aerospace industry back in the
As the legend goes, WD-40 is the result of 40 attempts to come
up with an effective lubricant for use in aerospace equipment, both
on earth, during launch and in orbit. For the company that created
the lubricant it has worked beyond the founders' wildest
And with a market cap in excess of $660 million and a
multi-product lineup, San Diego-based WD-40 isn't the one-trick
pony you might assume from the name.
WD-40 actually has an impressive lineup of many common products
found both around the home and in the workplace including Lava hand
cleaner, X-14 bathroom products, 3-in-One oil and 2000 Flushes
toilet bowl cleaner. Its Australian counterpart to Lava is called
Solvol, while in the U.K. its 1001 brand has a complete lineup of
home carpet cleaning products.
Earlier this year, WD-40 introduced Blue Works, industrial-grade
products that might reposition its namesake lubricant closed to the
consumer market while the new line is headed for heavy-duty
For fiscal 2010 (ended August 31), the company reported a 10
percent increase in sales to $321.5 million, a 37 percent increase
in net income to $36.1 million and a 36 percent increase in
earnings per share, to $2.15 per diluted share.
Analyst guidance for the current year calls for slightly slower
growth. The consensus is for sales to grow around 8 percent, to
$345 million, and for net income to rise 9 percent, to $2.35 per
share. But this still represents compelling growth for value
investors, and with a solid operating history and a clean balance
sheet I believe WD-40's steady growth is likely to continue into
2011 and beyond.
***WD-40 just celebrated 20 years as a publicly traded company,
and its stock has held up well over the past two decades. The
stock currently has a forward PE of 15.6 and a PEG ratio of 1.4.
Both of these metrics indicate that the stock is reasonably valued
at current levels, but I'd recommend investors keep an eye on the
stock and accumulate shares when it pulls back.
One final consideration for value investors - WD-40 does pay a
dividend, currently yielding 2.73%.
If you're interested in dividend-paying stocks like WD-40, I've
recently prepared a special report that includes two value stocks
that are currently yielding 8.8 percent and 8 percent.
You can access this special income investing report