Note that I said investing, and that the title of this article is “The Best Investment Advice” not “The Best Trading Advice.” If you don’t know the difference between the two, you’d do well to research it. Investing is exactly what we do in our Small Cap Momentum model portfolio, and it’s outperformed the market by nearly 18% since inception three months ago. Why? In this article, we’ll answer that question by showing you how to invest properly.

Warren Buffett, Benjamin Graham, Bill Miller, and Peter Lynch are arguably the best investors of all time. I have researched their methodologies extensively. When you combine the best methodologies of the best investors, you will come up with the best investing strategies. I will list a few of them below. These should be the foundation for EVERY single investor who wishes to reduce risk and maximize return.

1.) Understand how the company makes money. If you can’t verbally explain to someone how they make money, you certainly shouldn’t own stock in that company.

2.) If you understand how the company works, and you wish to purchase stock in it, imagine this scenario: As soon as you purchase the stock, the stock market closes for 5 years. This means that you will not be able to sell the stock for 5 years. If you are still comfortable with the purchase, then it is a good investment. If not, don’t buy it.

3.) It is always a good thing when management owns a significant portion of the company’s outstanding shares. This doesn’t mean that a company whose management does not own a significant portion of the outstanding shares is a bad choice, though.

4.) The company should get a return on equity of over 15%. This is a Warren Buffett staple. A company that cannot generate 15% returns on their equity is not a very good company. There are exceptions to this, however. Growth companies who are still trying to make it off the ground generally don’t have this high ROE and oftentimes they have negative ROE. Successful investing in growth companies is not impossible, but it requires a bit more luck.

5.) If a company has been beaten down for a reason that is NOT related to their performance, such as analyst downgrades, a buy opportunity is created. Warren Buffett has a famous quote that goes: “Buy when there is blood in the streets.” Learn it, live it.

6.) It is a fact that the stock price of a company fluctuates up and down faster than the actual performance of the company. This means that the VAST majority of stocks at their 52-week high are actually overvalued. This also means that the VAST majority of stocks below their 52-week low are very undervalued. All the best investors would rather buy stock in a company near its 52-week low than near its 52-week high.

7.) Choose stocks with high cash and little debt. Hard times aren’t quite so hard when you have lots of cash on hand.

8.) If you are a growth investor, Peter Lynch suggests that you buy stocks with a P/E ratio less than the estimated growth rate. This results in a PEG of less than 1. Of course this uses analyst estimates, so it’s never a sure thing.

It is also important to note that the average investor should not invest in stocks that Warren Buffett, Peter Lynch, and Bill Miller invest in. Even though they are some of the worlds greatest investors, the investments they choose are not optimal for you, they are optimal for them.

How can something be optimal for one investor and not for the other? Aren’t we all in it just to make money? The answer to that question is yes, we are all in it to make money. But there is a huge difference between you and Warren Buffett. He has billions of dollars to invest. If he invests 1 million in a small company and earns 10 times his investment, his total portfolio moves up about .001%. For you and I, the average investor, that would be 1000% gain, assuming we only had 1 million invested overall. Thus, poor Warren and company cannot invest in small companies. They literally have to invest in large companies that historically offer lower returns. Warren himself said that if he didn’t have as much money as he does, he could make 50% per year. That means that you, the average investor, can easily make more than Warren Buffett, the worlds greatest investor, can make (in terms of % gain).

Along these same lines, it is also important to note that the companies which Warren and company must invest in are large, well followed (especially after he buys) companies. This puts them in the spotlight and raises the demand for stock in the company. Always true to form, the law of supply and demand forces the price up when the demand goes up and supply remains the same (for arguments sake, the supply would actually be less now that Warren bought a significant amount, which he has no choice but doing).

It is my suggestion that investors use a blend of value and growth in their investment decisions and never to invest in companies that are in the spotlight.

For in-depth analysis on great value stock plays that use this methodology, give our Small Cap Momentum model portfolio. We’re beating the market by nearly 18% in the 3 months we’ve been at it. Sign-up now and follow our trading for less than $1 per day.

More Investing Commentary

• We’re Crushing the S&P 500. Are You?
• The Financial Crisis Ain’t Over Yet
• Warren Buffett Would Love This Company
• Attention Shoppers: Garmin - Now 21% Off!

The author holds no position in any of the companies mentioned in this article. Freund Investing has a solid Disclosure Policy.

For less than a dollar per day - one fourth the cost of a gallon of gas - you could be seeing green in your stock portfolio. The economy is in the dumps, foreclosures are at an all-time high, the price of gasoline is going through the roof, and, perhaps worst of all, there is no sign of a turn-around anytime soon.

Why FIPortfolios.com continues to outperform

When we select stocks for the FIPortfolios.com “Small Cap Momentum” portfolio, we select them specifically using our time-tested methodologies, which are proven to get returns - regardless of the economy’s direction. Using a mixture of fundamental analysis, momentum, and overseas exposure, our picks weather any market: up, down, or sideways.

In fact, more than 70% of our picks are outperforming the S&P 500, with some even exceeding 30% gains in three months. Standard Pacific (NYSE: SPF), chosen because of it’s momentum, gained nearly 35% before we locked in the gains. Hardinge (Nasdaq: HDNG), another high-flyer, has amassed nearly 30% and is poised to go much higher. Moody’s (NYSE: MCO) has gained nearly 15%.

But don’t expect the gains to end there

Many of the picks for this portfolio are chosen because of heavy insider purchasing on the open market. Other factors include, but are not limited to, favorable industry events, valuations, and/or growth projections for the company. This portfolio is actively managed and will see considerable turn-over as momentum changes.

When you become a subscriber to the FIPortfolios.com “Small Cap Momentum” service, you gain:

• Complete listing of all holdings in the portfolio
• The % weighting for each stock in the portfolio
• Access to past and present research reports for each pick
• Customized reporting for the number of shares to own in order to model our portfolio
  
• Immediate e-mail alerts when we:
  • Buy or sell a position in the portfolio
  • Change a positions weighting in the portfolio
  • Update new research to current or new positions in the portfolio

Because this is a momentum portfolio, it is vitally important to get in - and out - precisely when the market momentum changes favorably or unfavorably. With the instant e-mail alerts, you know exactly when we trade, every single time. Having access to a professional investors trading patterns means that all you have to do is check your email. We have our ear to the ground on Wall Street, and many of our subscribers are far too busy to check and double check when momentum changes.

So why are you waiting?

If your portfolio is suffering, as most are, give the FIPortfolios.com “Small Cap Momentum” service a try. If you try it for a month and it isn’t performing the way you’d hoped, or if our advanced notification system isn’t useful to you, cancel your subscription with 1 easy click. It’s less than 70 cents per day, but it has already made our subscribers incredibly happy, turning their portfolios into money machines, rather than money sinks.

Why we can make you money

My name is Ryan Freund, and I’m the Chief Analyst for the FIPortfolios.com “Small Cap Momentum” service and I have over 10 years of experience researching investments and many of my analyses have been featured on Seeking Alpha, Yahoo! Finance, CBS Marketwatch, Business Week, The Motley Fool, as well as a host of other financial blogs and sites.

Want proof of the FIPortfolios.com methodology’s effectiveness? Freund Investing, using this methodology, is ranked #49 out of more than 57,000 independent, professional, and institutional investors, with an accuracy of more than 80% (as of May 21, 2008) in the Motley Fool CAPS stock simulation game. We are beating all professional and institutional analysts (also as of May 21, 2008). If you’d like to track us, see our portfolio here.

Watch the video, make a decision for yourself

We have created a video to guide you through what the service offers and how it works. It’s simple, it’s straightforward, and there are no gimmicks. Check it out for yourself at FIPortfolios.com. Simply click on the “Video Tour” button at the top.

You won’t be disappointed.

Revenues at Zhongpin, which is both an Investment Advisor pick and a Small Cap Momentum Model Portfolio pick, climbed nearly 120% year-over-year to a record $137.5 million, while gross profit and net income each surged over 100% to $17.1 and $8.5 million, respectively. Each of these numbers is the highest Zhongpin has ever achieved.

Zhongpin also reported record earnings-per-share of $0.29 per fully diluted share, despite earthquake damage at one of their facilities causing production to shut down for a full month.

On the business development front, Zhongpin completed construction of a new processing facility during the quarter, as well as increased the number of retail outlets at which their products are sold. Gross margin was slightly lower, as raw materials continued to climb, though this was mostly passed on to consumers in the form of higher prices.

We will continue to monitor Zhongpin closely as the company executes brilliantly on its expansion goals, and highly suggest you do the same.

More Investing Commentary

• We’re Crushing the S&P 500. Are You?
• The Financial Crisis Ain’t Over Yet
• Warren Buffett Would Love This Company
• Attention Shoppers: Garmin - Now 21% Off!

Zhongpin is an Investment Advisor recommendation and one of the stocks within our Small Cap Momentum model portfolio. Freund Investing has a solid Disclosure Policy.

Merrill Lynch

Though we are loathe to even discuss Merrill Lynch (NYSE: MER), we find ourselves curious as to why insiders have purchased so much stock in the past few days. 8 insiders, including Chairman and Chief Executive Officer John Thain, have purchased more than $17.5 million in Merrill stock between July 29th and 30th, 2008.

Perhaps this is simply a ploy by insiders to soothe investors, but who knows. Either way, we won’t be touching this stock for a long, long time. We won’t be buying for either my Investment Advisor Newsletter or our Small Cap Momentum model portfolio, either.

XL Capital

Four XL Capital (NYSE: XL) insiders (CEO, two directors, and an Executive Vice President) purchased nearly $2.6 million worth of stock in the past few days. This certainly intrigues us because we know there are some financials (excluding investment banks) out there that are undervalued. Many, in fact. XL Capital appears to be one of them and I will certainly research the company more.  If you want to know when we think it’s finally time to buy severely undervalued companies, consider the Small Cap Momentum model portfolio service. You get email alerts whenever we buy, sell, or change research. It’s less than $1 per day and is outperforming the S&P 500 by 16%

Affymetrix

One of our favorite biotechs, Affymetrix (NasdaqGS: AFFX), pleasantly surprised us this past week with an FDA Approval and a moderate amount of insider buying.

The Chairman and CEO of Affymetrix purchased $150,000 worth of stock on July 30th, just a few days after the FDA approval. Since Affymetrix is trading near it’s all time low, now might be the perfect time to begin picking up shares.

More Investing Commentary

• We’re Crushing the S&P 500. Are You?
• The Financial Crisis Ain’t Over Yet
• Warren Buffett Would Love This Company
• Attention Shoppers: Garmin - Now 21% Off! 

The author does not own any shares of any companies listed in this article. Freund Investing has a solid Disclosure Policy.

Since inception two month ago, the FIPortfolios.com “Small Cap Momentum” model portfolio has outperformed the S&P 500 by nearly 16%, well on track to beat the S&P 500 by more than 96% this year. If you’re wondering why you aren’t doing as well as our subscribers, you might want to consider joining us.

For less than a dollar per day, you could be seeing green in your portfolio.

Subscription Benefits
When you become a subscriber to the FIPortfolios.com “Small Cap Momentum” service, you gain:

• Complete listing of all holdings in the portfolio
• The % weighting for each holding in the portfolio
• Access to past and present research reports for each holding
• Customized reporting - specifically designed for each client - that shows the number of shares to own in order to model our portfolio
• Immediate e-mail alerts when we:
  • Buy or sell a position in the portfolio
  • Change a positions weighting in the portfolio
  • Update new research to current or new positions in the portfolio

Because this is a momentum portfolio, it is vitally important to get in - and out - precisely when the market momentum changes favorably or unfavorably. With the instant e-mail alerts, you know exactly when we trade, every single time. Having access to a professional investors trading patterns means that all you have to do is check your email. We have our ear to the ground on Wall Street, and many of our subscribers are far too busy to check and double check when momentum changes.

Watch the video, make a decision for yourself
We have created a video to guide you through what the service offers and how it works. It’s simple, it’s straightforward, and there are no gimmicks. Check it out for yourself at FIPortfolios.com. Simply click on the “Video Tour” button at the top. You won’t be disappointed. 

So why are you waiting?
If your portfolio is suffering, as most are, give the FIPortfolios.com “Small Cap Momentum” service a try. If you try it for a month and it isn’t performing the way you’d hoped, or if our advanced notification system isn’t useful to you, cancel your subscription with 1 easy click.

More Investing Commentary

• The Financial Crisis Ain’t Over Yet
• Warren Buffett Would Love This Company
• Attention Shoppers: Garmin - Now 21% Off!

OAO Gazprom (ADR: OGZPY.PK) is a sleeping giant in the world economy that very few people seem to know about. It’s a $250 billion dollar company that is likely to be valued in the trillions in just 10 years. It’s exactly the kind (although it’s a quite large) of company that I love finding for both my Momentum Model Stock Portfolio and my Investment Advisor Newsletter. Of course there are risks involved with this company, especially since it’s deeply connected to the Russian government, but I believe the risk/reward ratio is too good to pass up. Here are the top reasons I believe this company will reward investors handsomely.

1. Gazprom is the largest Russian company and the biggest producer of natural gas in the world accounting for 90% of Russian natural gas production and 20% of world production. Gazprom has reserves of 1,000 trillion cubic feet or 30 trillion cubic meters, equating to control of 17% of the world’s gas reserves
2. Natural gas demand in Europe is projected to increase by 4% annually between 2007 and 2030, a total increase of more than 72% which is more than five times the 0.7 percent annualized growth in US demand
3. Exxon market capitalization $500 billion while Gazprom is $225 billion. Guess who has substantially more reserves, superior distribution pipeline capacity and government monopoly protection (Gazprom by Russia law is only company that can export natural gas outside Russia and since there are price controls for domestic gas they don’t have much competition domesticallyGazprom says they lose money on domestic natural gas so export is where the profit comes from)
4. “Natural Gas will replace oil as the lifeblood of the world economy” - Elliot Gue, editor The Energy Strategist
5. Gazprom owns 60% of Gazprom Neft, a siberian based oil producer & refiner which exports oil & diesel fuel to Europe & China. Oil exported is subject to a $25/barrel tax. Owning Gazprom lets you own 60% of the 2nd largest oil exporter in Russia that is building a huge pipeline and rail line from Siberia into China
6. Gazprom owns stakes in Gazprom bank (2nd largest bank, retail banking services in Russia), Gazprom telecom company providing cell phone service, ISP service and broadcast cable TV network channels. This mega conglomerate also owns majority stakes in construction companies, metal fabricators, cement companies, and agriculture companies
7. Gazprom makes money providing electricity to a modernizing Russian population in metro areas, producing their own electricity for their businesses and if more coal gets burned, not natural gas, in power plants than that means they have more natural gas to export at higher prices and more profits. If they reduce domestic, price-controlled natural gas consumption in Russia replacing it with cheap coal (as they control major cities power now), they export more natural gas at higher profit margins
8. As if Gazprom is not ruthless enough as it is, after jacking up prices to captivate European customers they have been accepting in lieu of payment minority stakes in major company and/or state-owned oil/gas/electric utility companies. Gazprom owns a sizable piece of a Hungarian oil company, a Polish gas company, and a Belgian electric utility
9. Former Gazprom chairman (and Russian President) Dmitry Medvedev says the company’s market capitalization should quadruple to reach one trillion dollars by 2017, which would make it the world’s biggest corporation. Gazprom’s accounting is audited by American accounting firm PriceWaterhouse Coopers and is 50.01% owned by the Russian government

I believe that Gazprom is certainly worth a look for intelligent investors. I’d love to see the government open up a bit about the dealings of the Company, but I can’t help but salivate when I think about their long-term prospects.

More Investing Commentary

• The Financial Crisis Ain’t Over Yet
• Warren Buffett Would Love This Company
• Attention Shoppers: Garmin - Now 21% Off!
• Want to Beat the S&P 500 by 60% Per Year?

Disclaimer: The author does not own any shares of any of the companies mentioned in this article.

“DUBAI (Zawya Dow Jones)–A senior Mideast executive at U.S. investment bank JPMorgan Chase & Co (JPM), is being detained in Dubai as part of a widening fraud investigation at Dubai Islamic Bank (DIB.AI), a police official said Sunday.

Omair Mooraj, who joined JP Morgan last year as managing director and head of Islamic banking for the region, is one of several people being held by Dubai police in the investigation, the official, who declined to be identified told Zawya Dow Jones. A spokesperson for JP Morgan in London declined to comment on the matter when called, as did JP Morgan officials in Dubai, United Arab Emirates.

Before joining JP Morgan, Mooraj was head of global project finance at Dubai Islamic, or DIB, the emirate’s largest Shariah-compliant lender. His departure from the Dubai bank was followed a month later by the replacement of then chief executive Saad Abdul Razak. The detainment is the latest in a string of arrests in this Middle East boom town, which is enjoying an oil-fueled spending and investment binge.”

I’m extremely perplexed that more media sources haven’t picked this up. Oh and by the way, it happened more than a month ago. I wonder how this will affect JP Morgan here? Perhaps it’s a glimpse of what’s to come for all investment banks?

More Commentary

• The Financial Crisis Ain’t Over Yet
• Warren Buffett Would Love This Company
• Attention Shoppers: Garmin - Now 21% Off!
• Want to Beat the S&P 500 by 60% Per Year?

Dislosure: The author does not hold any positions in any of the companies listed in this article.

Yes it was. Keep in mind that the price of a stock always (and I do mean always) both rises and falls faster than the intrinsic value of the company. I don’t really care much for the rises (because I’m not a trader), but the falls - if unnecessarily harsh - present an extraordinary opportunity for long-term value investors to get in with new money, either initiating a position or averaging down. I employ the same strategy for my Marketocracy.com portfolio (outperforming by 35% annually, ticker FVF), my Small Cap Momentum model portfolio (outperforming by roughly 60% annually), and my Investment Advisor Newsletter (outperforming by 5% annually); and each has outperformed the S&P 500 by quite a bit.

So why Garmin, and why now?

To begin with, Garmin is quite undervalued if you step back and take a look at the whole world’s appetite for GPS equipment. With a forward price-to-earnings, using their 2008 guidance, of just above 8, investors seem to think that Garmin will no longer grow their earnings. I understand their arguments that margins are being pressured by competitors, and that the stalling of the American economy will hurt sales. I both understand and agree with those statements.

But saying Garmin won’t grow earnings in the next 2 years (which is the timeframe I like to look at stocks for) is just insane. Is the market that short-sighted? Apparently, the answer is yes. Sure, they’re taking a gamble on their new smart phones, but what about their tried and true business of selling the very best GPS systems for a growing market of GPS users? Nearly all car manufacturers are now building their cars with room for an in-dash GPS. Out of everyone I know, less than half have a GPS in their car.

Yes, but what about competition?

Competition is certainly part of the equation. There is no doubt that competition is heating up, including pure-play GPS competition like TomTom and non pure-play GPS competition like Apple’s (Nasdaq: AAPL) iPhone. I’m not entirely sure about TomTom’s numbers, but I do know that everyone I know who owns a GPS, owns a Garmin. Not surprisingly, Garmin has overtaken TomTom in global sales, after two years of solid market domination by TomTom.

As for Apple, and other non-pure play GPS manufacturers, they are newcomers. Garmin has been doing this for almost 20 years and knows their market extremely well. Apple’s iPhone GPS is great if you’re walking around, but in a car it’s clumsy and doesn’t offer nearly as many extras as stand-alone GPS systems do. Besides, Garmin is synonymous with GPS. When I ask people if they have a GPS, I don’t say GPS, I say Garmin. It’s subconscious, and it’s possible that I’m just strange, but I’ve heard others do the same. That’s pretty solid brand recognition. And I tell everyone to buy a Garmin, not because I have any incentive to (I don’t own any stock in them), but because they create a fantastic suite of products.

Additionally, I seriously doubt that Apple - or any other non-pure GPS company, will develop an in-dashboard unit for sale with new cars. It might happen eventually, sure, but I think it would be a flop for the first few years, simply because Garmin and TomTom are so deeply entrenched.

Last, but certainly not least, is the fact that Garmin has great operating cash flow, heavy insider ownership (40%), $600 million in cash (more share buybacks or increased dividend, perhaps?) and solid margins. There’s also heavy short-interest in this company which could lead to an impressive short squeeze, as shorts take their newfound gains of today.

More fun on Wall Street:

• The Financial Crisis Ain’t Over Yet
• Warren Buffett Would Love This Company
• Want to Beat the S&P 500 by 60% Per Year?

Disclosure: The author of this article does not own any shares in any of the companies listed, but might soon.

Out of the three pieces of “good news” that sparked today’s rally, only one can actually be considered good news, and that one isn’t even close to a tell-tale sign of a bottom.

Drop in Oil

As you might have expected, the drop in oil prices was the sole piece of “good news” that was actually good news. As oil prices go down, gas prices go down, and thus consumers send less money overseas to oil producers. But until we actually solve the real reasons behind the spike in oil, a continual and gradual decline back to the $80-$100 per barrel will not occur.

What real reasons am I talking about? Well, this is a classic case of supply and demand. Not simply “speculation” as many would like to believe. The world produces around 85 million barrels of oil per day, and consumes roughly 87 million. That’s an incredibly small amount of leeway to account for any demand growth or supply decline. And demand is certainly growing. Consider this:

• 750 out of every 1000 people in the US has a car
• 44 out of every 1000 people in China has a car

Scary right? As Chinese (not to mention individuals in all the other rapidly growing countries) continue to break out of poverty and into the middle class, those numbers shown above will grow, and the demand will naturally follow suit.

Furthermore, all the above is assuming no major catastrophes/attacks/wars/terrorism disrupts the supply of oil. That’s a silly assumption, as far as I’m concerned. Why? Here’s why:

• We are in two separate wars with Iraq and Afghanistan
• We are on the verge of war with Iran
• Venezuela is close friends with Iran
• Russia has been increasingly friendly towards Iran
• Iran is strategically located to disrupt oil shipments from Saudi Arabia and other Arab nations

So a war with Iran could (and likely will) lead to massive oil disruptions from Iran, Venezuela, Russia, Saudi Arabia, Kuwait, Iraq, just to name a few.

While it was good that the price of a barrel of oil dropped a few bucks, there is absolutely no reason to believe that the trend will continue. Oh and if you think drilling offshore will help, think again. That extra 200,000 barrels per day will be available for use in 6-8 years MINIMUM. By then, demand will have grown by millions per day. If you think a speculation bill will help, as some democrats do, it might. But to think it might drop the price of a barrel of oil by 30-60 dollars per barrel? That’s just silly.

Consumer Confidence Index boost

The second glorious piece of news was a surprise boost in the Consumer Confidence Index for this month. It unexpectedly came in at 51.9 from 51 in June, and an expectation of 50. I’m not sure why this was such a big deal, I guess bulls are constantly on the lookout for information that supports their case. From CNNMoney:

“While the consumer confidence number increased in a month-over-month comparison, the reading was still much lower than it was even in May, when the reading stood at 58.1.

‘In arithmetic terms, yes it is higher, but in economic terms this is still bad, severely depressed,’ said Robert Brusca, chief economist at Fact and Opinion Economics. ‘This is certainly not a rebound in economic terms,’ added Brusca.

‘We are kind of focused on month-to-month changes,’ said Brusca. ‘That is a relative standard.’

In order to really understand how the reading fits into a bigger picture, however, Brusca said that the Consumer Confidence measure for July needs to be considered ‘in absolute terms.’

Consumer confidence in July 2007 stood at 111.9. ‘Up and down the line, these are extraordinarily weak numbers,’ said Brusca.”

Ok, so it increased slightly over last month. Not a big deal. My guess is they revise it downwards later in August anyways.

Merrill Lynch offering

This little piece of “good news” I understand even less than the previous. Merrill Lynch is basically screwing over all of their shareholders by selling more stock at prices below the open market, diluting every single shareholder. Someone please explain to me how this makes a stock go up.

Merrill Lynch is in its death throes, as Bear Stearns was, and as Lehman Brothers (NYSE: LEH) is. Perhaps investors were cheering because they think Merrill isn’t going to go down? I don’t know. I’ll never know. What I do know is that they’re wrong. Are they also wrong about Citigroup (NYSE: C), JP Morgan (NYSE: JPM), and Morgan Stanley (NYSE: MS)? I think we will see a lot of hurt for these companies in the next few quarters.

So how do you profit from all this?

As I wrote in a November, 2007 piece entitled: Profiting from the Housing Bubble, purchasing Ultra Short Financials Proshares (AMEX: SKF), an exchange traded fund (ETF) that goes up 2% for every 1% the financial sector falls, is a great idea. Since that piece, it has done almost exactly what I said it would do. Score one for the home team!

Of course, you could always stay away from the entire financial sector altogether. There are many great businesses out there that are undervalued. We highlight many of them in both our Investment Advisor Newsletter and our Small Cap Momentum model portfolio.

Disclosure: The author of this article holds no positions in any of the companies mentioned.

About Hardinge
Hardinge engages in the design, manufacture, distribution, and marketing of computer controlled metal-cutting lathes, machining centers, grinding machines, collets, chucks, indexing fixtures, and other industrial products. Hardinge provides its services to aerospace, automotive, construction equipment, defense, energy, farm equipment, medical equipment, recreational equipment, telecommunications, and transportation industries, as well as to small and medium-sized independent job shops.

Hardinge currently sells its products in the United States, Canada, China, Germany, and the United Kingdom, through distributors, independent agents, manufacturer’s representatives and through its direct sales force (only in U.S.). Hardinge was founded in 1890.

Competition
Hardinge has several competitors, but the most prominent competitor is Hurco Companies (NasdaqGS: HURC). Hurco has a slight advantage over its user interface to the machining tools, but its product line is far less diversified that that of Hardinge. In addition, Hardinge pays a dividend and has been around for nearly 70 years longer than Hurco, which was founded in 1968.

Valuation
Hardinge is fairly valued with a price-to-earnings ratio of around 20 (ttm), which is average for the industry. What I really like about Hardinge, though, is their price-to-earnings growth ratio, which is just under 0.5. With their global sales channels, Hardinge has the potential for growing significantly and meeting the global demand for heavy machinery

Why a devalued dollar will help Hardinge
Imagine you were a country flush with dollars from the high-flying days of exports to the US. Now imagine those dollars are declining rapidly with no end in sight. What do you do with those dollars? You could trade them to other countries for goods, but they don’t want a rapidly depreciating asset. So that’s off the table. What else could you do with those dollars? Aha! You could buy American products, because they will readily accept those dollars. And you might as well buy products that increase the productivity of your country. Enter Hardinge. You will almost certainly see sales ramping up in the next few quarters (and years) for Hardinge; especially since products can be manufactured locally in your home country, thanks to their global manufacturing and sales channels.

Add this to the fact that Hardinge is trading at an incredibly low price as compared to its stock value in the past 5 years, and you have a winning combination.

Dividend Record and Rate
As if that wasn’t enough, Hardinge also provides a dividend to its shareholders. This dividend has been paid out every quarter since 1995. In 2005, the dividend was increased 300% and in 2006 it was increased again by nearly 70%. Sitting at $0.20 per share right now, the yield is a respectable 1.2%. With increasing revenue and earnings-per-share expected in the future, this dividend will likely increase again in 2009.

Disclosure: The author of this article owns shares of Hardinge in the Small Cap Momentum model portfolio and in the Investment Advisor Newsletter Service, published by Freund Investing.