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Niche Players Nab Expansive Profit Growth, 15.09.
BY JONAH KERI
INVESTOR'S BUSINESS DAILY
Scroll through this week's Investor's Business Daily 100 and you'll find plenty of companies hailing from sexy industries. Dot-coms, upscale retailers and medical firms with breakthrough products show up throughout.
Don't forget those firms that thrive in seemingly less exciting industries. While their business may not appear thrilling at first, finding a profitable niche within such sectors can prove hugely profitable. Big profits usually beget gaudy stock gains.
Schnitzer Steel Industries (SCHN) grabs the No. 5 slot this week. The stock has nearly tripled this year, ranking among the market's biggest winners. That's Schnitzer Steel, not Schnitzer.com or SchnitzerCare.
So what makes a steel manufacturer and scrap metal player a runaway success? An uptick in the scrap metal industry helped. Schnitzer endured several quarters of poor sales and earnings, especially in 2001 and early 2002. The industry has since turned upward.
Schnitzer has also found heavy demand for scrap metal in China. Infrastructure campaigns in that country have mushroomed, thanks to China's inclusion in the World Trade Organization and its need to prepare for the 2008 Olympics. China's now willing to pay to supply its supply-starved mills with raw building materials.
The firm's metals recycling business has also become a profitable niche, providing further growth.
Starcraft's (STCR) business may seem even less glamorous. Starcraft supplies service parts and conversion kits used in larger vehicles. As a second-stage manufacturer, the company may look like a small, anonymous part of the process.
That is, until you consider its biggest growth area: Hummers. The military-style sport utility vehicle has spawned a legion of voracious consumers eager to trade up from smaller SUVs.
A new Hummer H2 costs about $50,000 with basic options. Starcraft reaps the rewards from customers willing to splurge on add-ons like grill guards, steps, roof racks and others. A fundamental and technical laggard just two years ago, the firm has notched triple-digit sales growth in five of the last seven quarters.
Tractor Supply (TSCO) plowed its own niche. Much as Home Depot made no-frills home improvement superstores a hit, Tractor Supply has opened nearly 450 stores in 30 states, selling tractor parts, animal feed and other farming necessities. Strong sales, profit and stock gains have been the firm's reward.