The Little Stock That Could

Good investments are hard to find. Once you do locate one, you want to be the first to establish a meaningful stake, before the crowd rushes in and disrupts your idea.

When Warren Buffett first began managing money in his limited partnerships in 1956, he had one unwavering condition: He would not disclose what investments he was currently making or closely investigating until he was done buying. By keeping things secret, Buffett hoped that his chosen stock's price would stay the same, or better yet, drop, until he was finished accumulating his position.

So don't be too disappointed, the title of this article notwithstanding, if I don't simply hand you the next 10-bagger. I could -- but then I'd have to kill you. Even worse, my limited partners would probably want to kill me. Instead, I'd rather give you a good idea to investigate on your own -- the old "teach someone to fish ..." principle.

This particular possibility's got very little debt, an easily understood model, and long-term profit potential. Fools, meet Ameron International (NYSE: AMN  ) .

Enamored with Ameron
Ameron is a multinational manufacturer of highly engineered products and materials for the petroleum, marine, infrastructure, and industrial markets. It operates three principal business segments: water transmission, fiberglass-composite, and infrastructure products. The company also holds ownership stakes in four joint ventures operating in Asia and the Middle East.

Ameron is a wonderful collection of sound, growing businesses. Its water transmission group is a leading manufacturer of large concrete pipes used in wastewater systems, highway drainage projects, power plant construction, and storm drains, to name a few.

Ameron's also a leading producer of fiberglass piping used in water transmission, chemical processing, fuel handling, and power generation projects throughout the world. Fiberglass pipes are a cost-effective, durable alternative to traditional corrosive metal piping. In response to more stringent regulation, more and more municipalities are using fiberglass pipes in their sewage systems, eliminating the environmental hazards metal pipes pose. Ameron's pipes have been part of recent projects as widespread as Texas, South Korea, Denmark, and Australia.

If that's not enough, Ameron's infrastructure products group is also a leading processor of concrete, concrete pipes, and other related products, primarily in Maui and Oahu. It also manufactures decorative streetlight poles.

Solid performance, sizable valuation
Ameron's business interests make me think of larger, better-known industrial infrastructure businesses like USG (NYSE: USG  ) , Mexico's Cemex (NYSE: CX  ) , France's LaFarge (NYSE: LR  ) , and steel titan IPSCO (NYSE: IPS  ) , all of which fetch valuations in the billions.

In contrast, Ameron's market cap is just less than $800 million. The company earned nearly $6 per share in fiscal 2006 and posted a strong first quarter in 2007.

I checked all the way back to 1991 and found only one unprofitable year (1993) in that time frame. Earnings were choppy over the years, but that's natural in a cyclical business like industrial goods.

Alas, the market's caught on to this particular good idea. At roughly $86 a share, you'll pay more than 13 times earnings for Ameron today, versus 10 times just a few months ago. Still, 13 times earnings and two times book value doesn't sound too expensive, given Ameron's wonderful variety of businesses. Furthermore, its key strategic joint ventures in Asia and the Middle East are capitalizing on the explosive growth those regions now enjoy. The company's Asia segment increased revenue by 30% in 2006 alone.

Water, nectar of the earth
The water infrastructure market may currently be slowing down, but I don't expect this to last long. Ameron's main business takes place in California, one of the nation's fastest-growing states. A larger population means more demand for water transmission infrastructure. In addition, the United States' overall water infrastructure is in dire need of improvement.

So there you have it: a good business with seemingly able and honest management. I can't say that this stock is a bargain, based on the sound principles laid out by Ben Graham, but it does appear to be a quality business in a fair value range. Either, way Ameron bears a closer look. Happy fishing, Fools.

USG is a Motley Fool Inside Value pick. Discover more of Philip Durell's brilliant bargain stocks with a free 30-day trial.

Fool contributor Sham Gad has just launched Gad Partners Fund, a value-centric investment partnership. He owns shares of USG. You can reach him at Cemex got the nod from Stock Advisor and Global Gains alike. The Fool's disclosure policy is ironclad, but it may soon switch to fiberglass.

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