My latest column is up at RealMoney.

Chart Industries (GTLS) is a leading independent global manufacturer of highly engineered equipment used in the production, storage and end-use of hydrocarbon and industrial gases. As an infrastructure supplier to the energy industry, Chart lies at the intersection of two major investment themes that I think will continue to work for some time.

The advertising bombardment relating to T. Boone Pickens’ “Pickens Plan” can’t hurt Chart. A central component of the plan is to increase the use of natural gas in transportation.

For the Pickens Plan to work, money will have to be spent building out an infrastructure to transport the gas from remote areas to those where it is needed. Enter Chart, which supplies engineered equipment used throughout the global liquid-gas supply chain.

While the Pickens Plan ads may increase awareness of natural gas, Chart has been doing fine without it. Sales grew 24% in 2007, but backlog grew at twice that rate. The current backlog amounts to more than 60% of projected 2008 sales, offering high visibility.

What’s more, demand continues to rise. In a recent note, Lehman Brothers estimated that the expansion plans of a single customer (Energy World Corporation) could mean more than $250 million in additional orders for Chart.

For a company that looks like it can generate 20% annual growth, I don’t really require the free-cash-flow yield to be higher than the 3.2% return on five-year Treasury bills. The growth alone is sufficient reward for the risks involved.

Seen another way, the average free-cash-flow yield in the S&P 1500 Supercomposite is about 3.1%, and the average growth forecast is 14%. With Chart, you get higher growth at a lower valuation.

If Chart can grow its cash flow 20% over the next year and increase its valuation so that the free-cash-flow yield matches the Treasury yield, the stock could more than double in that time. That would make for a (stock) chart I could appreciate.

Disclosure: At time of publication, William Trent has no financial position in the companies mentioned in this article.

Garmin Ltd. (GRMN - Annual Report) announced a record quarter ended June 30, 2007. Total revenue was $742 million, up 72% from $433 million in second quarter 2006 and blasted past the $646 million consensus estimate. Diluted earnings per share increased 75% to $0.98 from $0.56 in second quarter 2006 and far, far ahead of the $0.73 consensus. Excluding foreign exchange, EPS increased 82% to $1.00 from $0.55 in the same quarter in 2006. It is rare to see a company hurt by exchange rates these days, but given the magnitude of the revenue and earnings surprises the exchange rate issues fall into the who-cares category.

Guidance for the full year was increased to at least $2.8 billion in revenue and $3.15 in earnings per share.  The prior consensus estimates were for $2.62 billion in sales and $2.90 in earnings per share.

Valuation-wise, Garmin is trading at approximately 30x its earnings and free cash flow. While this is a rich multiple, it is hardly outrageous given the growth they are seeing.

 This morning’s PPI report showd that the frantic price increases for industrial valves have cooled a bit. Still, price gains are well above the long-term average and the general trend still seems to be rising.

According to Alexander’s Gas & Oil Connections:

The market leader positions in the industry changed considerably with the acquisition of Invensys Flow Control by Flowserve (FLS). The combination is now the second largest supplier with a 4 % market share. This compares to a 6 % share for the leader Tyco (TYC). Emerson (EMR) with 3 % is in the third position.The industry is very splintered with more than 1,000 companies carving out niches.

Moog (MOG.A) and Curtiss Wright are others that come to mind as possible beneficiaries.

Clean water enabler Dionex (DNEX) Reported Record Net Sales and Earnings for the Third Quarter:

For the third quarter of fiscal 2007, sales were $85.0 million, an increase of 15% compared with the $73.7 million reported in the third quarter of last year. Currency fluctuations increased sales by $2.5 million, or 3%, for the third quarter compared with the same period last year. Diluted earnings per share were $0.59 for the third quarter, an increase of 18%, compared with the $0.50 reported in the third quarter of last year.

Analysts were expecting $0.55 on $80 million in sales.  For next quarter, the expectations of $0.56 on $82 million in sales were within the guidance range issued:

We believe that our strong performance in the third quarter leaves us well positioned for good sales and earnings growth in the fourth quarter. We estimate that net sales will be in the range of $79-$83 million in the fourth quarter and that diluted earnings per share will be in the range of $0.54-$0.58 per share. We are increasing our sales and EPS guidance for the full year. For the full year, we estimate that sales will be in the range of $320-$324 million and diluted earnings per share will be $2.24-$2.28.

Shares traded off somewhat after market hours, as it is probably due for a breather after its 40% run since September 2006.  Longer term, the increasing concern over rocket fuel in the water supply presents an opportunity.

Our earnings preview for Garmin (GRMN - Annual Report) said it “shouldn’t need a big surprise to move the stock from this level.” Today the company reported earnings:

First Quarter 2007 Financial highlights:

– Total revenue of $492 million, up 53% from $322 million in first quarter 2006

– Earnings per share increased 60% to $0.64 from $0.40 in first quarter 2006; excluding foreign exchange, EPS increased 37% to $0.59 from $0.43 in the same quarter in 2006.

These results compared to consensus expectations of $0.59 on $499 million in sales. So the stock did indeed move on a not-big surprise, albeit one in the opposite direction from which we implied. The company did not change its prior guidance, saying:

We remain optimistic about the future success of our business and our ability to serve customers and distributors around the world. We anticipate overall revenue to exceed $2.5 billion in 2007, and earnings per share to exceed $2.70 assuming an effective tax rate of approximately 13 percent. We anticipate automotive/mobile revenues to grow faster in 2007 than we earlier anticipated, and continue to expect declining operating margins due to product mix and a continued transition toward mass market levels. We intend to provide a formal update to our fiscal 2007 financial expectations during the Q2 2007 earnings conference call.

Unfortunately, analysts were already ahead of those expectations, calling for $2.81 in EPS on $2.54 billion in sales. Without a significant surprise in Q1 or a significant surprise forecast for Q2, the estimates are starting to look a bit out on a limb.

Add this data point to the ones provided by Royal Caribbean (RCL), Plantronics (PLT), Radio Shack (RSH) and Circuit City (CC) that consumer spending may be slowing.

The Economic Calendar has three potentially important events this week:

• Personal Income and Outlays on Monday (consensus 0.6% income, 0.5% spending)
• ISM Manufacturing on Tuesday (consensus 51)
• The Employment Situation on Friday (consensus 100,000 jobs added, 4.5% unemployment)

Earnings season continues in full force.

Monday

• Verizon (VZ - Annual Report) - possible upside to sales

Tuesday

• Plantronics (PLT) - anyone’s guess, though our long position gives away our own guess

Wednesday

• Cognizant (CTSH) - one of these days the growth will hit a wall, but probably not this day
• Garmin (GRMN - Annual Report) - shouldn’t need a big surprise to move the stock from this level
• Itron (ITRI) - risk to estimates in both directions due to Actaris acquisition
• Sprint (S - Annual Report) - the worst may be over here
• Symantec (SYMC) - Based on MFE and VDSL should have a big quarter

Thursday

• Ansys (ANSS) - Dassault beat big, and we like Ansys better
• QLogic (QLGC) - too risky for our tastes
• Starbucks (SBUX) - probably no surprise, but risk probably to the downside when they are making this kind of move

Disclosure: Long PLT and ITRI

Disclosure: Author is long Starbucks (SBUX) at time of publication.

With the end of the first quarter approaching, it is time to adjust the names in our Watch Lists. We will price all the new lists as of the close on Friday, March 30. Today we present our planned updates to the Small Cap Watch List (Track at Marketocracy).

Frankly, we were surprised at the amount of turnover in our screens. Only 9 of the original 29 names made the cut for the new list (which comes in at only 24 names.) Still, given the level of outperformance we saw in the first quarter (actually just two months) and the fact that much of those gains were achieved early, perhaps the turnover is warranted.

So without further ado, the names on the chopping block from the previous list are:

Silgan Holdings (SLGN - Annual Report); Steel Dynamics (STLD - Annual Report); NVR (NVR - Annual report); Middleby (MIDD); Vector Group (VCG); Sanderson Farms (SAFM); Downey Financial (DSL); Waddell & Reed (WDR); Wilshire Bancorp (WIBC); Harrington West (HWFG); Gamco Investors (GBL); Apria Healthcare (AHG); Papa John’s (PZZA); Cato Corporation (CTR); Meredith Corporation (MDP); CSG Systems (CSGS); Energy East (EAS); Dynamics Research (DRCO); Ingram Micro (IM); and Dade Behring (DADE).

The new watch list will be:

Every portfolio is going to have some winners and losers, and the Watch List we created in June, 2006 is no different. The all-cap watch list proved more cumbersome and difficult to measure than we had expected, so we switched to three separate, smaller watch lists that will be updated more regularly, but we still keep track of what is going on in the original list.

On the loser side, the Watch List had more than its share of homebuilders and subprime lenders. However, the overall portfolio has fared well due to an offsetting number of takeovers at premium prices. Beckman Coulter’s (BEC - Annual Report) buyout of Biosite (BSTE) today is an example.

M&A Monday: Beckman Coulter Buys Biosite: Financial News - Yahoo! Finance

Beckman Coulter Inc., which makes biomedical laboratory instruments, said Sunday it will buy diagnostic product maker Biosite Inc. for $1.55 billion.

Beckman Coulter’s offer comes to $85 per share. The price is a 53.5 percent premium on Biosite’s Friday closing price of $55.38 on the New York Stock Exchange. The deal is expected to close in the second quarter of this year.

That’s how we want to see our stocks go out.

We asked, but no one answered. So we are taking our own counsel and breaking our Watch List into three portfolios: Small Cap, Mid Cap and Large Cap. Each will be tracked against the relevant S&P index going forward from their collective inception date of January 31 (priced at the close of market trading that day.)

For your viewing pleasure, the Small Cap Watch List (Track at Marketocracy) (to be measured against the S&P 600) follows.

In addition, we will provide a “quick and dirty” analysis of each name, with a goal of one such analysis per day. As the name implies, the quick and dirty analysis will be incomplete. We are hoping you will join in the debate and fill the gaps in our analysis.

We have been writing for several months that the success Garmin (GRMN - Annual Report) has had in the niche market of navigation devices is now attracting competition just as the market growth is really taking off. Judging by the reaction to their latest earnings report, investors are suddenly taking notice.

Garmin 3Q Profit Up 20 Pct, Stock Down: Financial News - Yahoo! Finance

While revenue rose 62 percent to $408 million from $251.3 million in the year-ago period, it missed analysts’ prediction of $423.4 million.

With most tech companies not posting anywhere near 62% revenue growth, one might think Garmin shares would be bouyed by the news. Instead, the shares plummeted 16%. Which illustrates a funny thing about Wall Street - sometimes it’s better for a company to post 8% growth when the consensus expects 9% than to post 62% when the consensus expects 63%, especially if rising competition results in both slower-than-expected sales and lower-than-expected margins. On the conference call, management had some discouraging words about margin:

Looking next at our margins by the virtue of four segments, our Q3 aviation gross margins declined from 66 to 64% as expected and our aviation operating margins declined 39 to 32% due to larger R&D costs as a percentage of sales. Our third quarter outdoor fitness gross margins declined from 60% to 56% due to unfavorable product mix and lower component costs reductions during the quarter….
Q3 marine gross margins declined from 60% to 53% due to unfavorable product mix and certain price changes as we anticipate new marine prices reduction in the upcoming months.

Our third quarter automobile gross margins remained flat at 42% for the third consecutive quarter beating our expectations….We do however expect that our automobile segment will experience declining operating margins due to reduced pricing and a continued transition toward mass-market level.

Clearly that wasn’t what investors wanted to hear.