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A Great Hidden Growth Stock

Few investors even have Valmont Industries on their radar screens.
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You would think that a stock that turned $10,000 into $64,415 over the most recent decade would get a lot of ink. In reality, very few investors even have Valmont Industries (VMI) on their radar screens.

The $3.3 billion (2013 revenues) company had less than 27 million shares outstanding at the end of last year, giving it a market cap of about $4 billion. Average trading volume is only about 270,000 a day. Yahoo Finance shows only five analysts with current year estimates and just four willing to venture guesses for 2015. Value Line's latest issue calls for $10.50 in earnings per share this year rising to $11.40 next year. VMI's 10-year median multiple has been 17x.

Valmont is too small and illiquid to interest many mutual fund managers. It is not held widely enough for many financial journalists to waste time on. Most readers click only on stories concerning stocks they already own.

Valmont gave shareholders a volatile ride over the decade but performed well in everything that counted in terms of value creation. Earnings per share swelled by almost 900%. Dividends more than tripled and could easily have shown even gaudier growth. Valmont's payout ratio (the dividends paid to net profits ratio) fell from 29.2% to 9.5% over the past decade as management reinvested more of the company's profits into internal investments that paid off brilliantly.

Money not paid out in cash was not subject to taxation along the way. Capital gains from reinvestment will only be subject to lower LTCG rates, and then only when sold.

Those who say that 'buy and hold' no longer makes sense might get an argument from long-term owners of Valmont.

Valmont's holders earned almost five times the total return of the better-known and much revered Berkshire Hathaway's class B (BRK.B) shares over the same period. Both stocks showed remarkably similar patterns in terms of market action over the years.

Timid souls who are not still convinced enough to buy VMI outright at $149.50 might consider selling Sep. $150 puts at $8.50 per share. The worst case scenario will have you buying 100 shares per contract at a net cost of $141.50 ($150 strike less the $8.50 put premium), lower than any Valmont shares have traded so far in 2014.

If VMI merely rises 50-cents or more by Sep. 19, 2014, sellers of those puts will pocket $850 per contract for not buying anything.

At the time of publication Price was long VMI shares, short VMI options