Wednesday, July 7, 2010

Thomas and Betts (TNB): Buy on Valuation, Technicals, and Seasonality

Thomas and Betts (TNB) is trading 10.75X earnings, 0.95X sales, 3.88X cash value, and 8.6X free cash flow with a $1.8B market cap. Shares were raised to Outperform at Wells Fargo on June 1st and are down around 12% since then, likely on concerns over residential construction.

However, shares have become a value play and the chart sets up well here as shares re-test a prior bottom and breakout level around $33, setting up for a bounce with shares extremely oversold, and the CCI starting to trend higher with bullish divergence.

The Company manufactures heating, ventilation, and Air Conditioning systems. The firm also produces switchgears for Utility companies and other electrical components. With the recent heat wave I came across TNB as a play on the air conditioning systems, and also the Utility industry is looking to upgrade its systems.

The valuation and chart sets up for a solid reward/risk, entering a long around $34 a shares and having a $32.50 stop, with a target move to $38.