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Weighing a Trade in Mettler-Toledo

Take advantage of a pullback to pick up a high-quality stock at a great price.
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When you get a 265-point down day on the DJIA, it's time to refresh the lineup of stocks you'd like to own at better values. Weighing-instrument maker Mettler-Toledo (MTD) is a great company that rarely gets cheap. Its consistent long-term earnings growth means most holders are unwilling to part with their shares.

MTD's earnings between 2003 and 2012 were spectacular. Year-over-year, earnings per share declined just once during those 10 years. That happened during the 2008-09 recession and the temporary dip was only by 4.5%. Here's a look at MTD's decade-long improvement.

The company has a decent balance sheet. It rates in the top 1% to 5% of Value Line's 1,700-stock research universe in price growth persistence and earnings predictability.

Mettler-Toledo ran as high as $222.48 on Feb. 8, 2013. It touched $222.26 intraday on March 20. Monday's nasty market action took the stock to $197.91, wiping out the year-to-date gain. Further negative action might finally bring MTD back down to a good buying zone.

Mettler's 10-year median multiple has been 18. Consensus current year estimates of $10.53 to $10.55 support a target price of about $189. Next year's estimate of $12 could easily push MTD back to $216 at that typical price-to-earnings ratio.

I tried without success Monday to get filled on the sale of an October $195 put for $11 per share. The ask before I first placed my sell order had been $13.60. That's why the $190 ask looks similar to that of the $195 strike. Another day or two of drops might help get the trade done at that price or an even better one.

No one wants to see a current holding lose paper value, but taking advantage of pullbacks on high-quality stocks is the silver lining. Selling puts to achieve lower-than-market entry points is a good technique. It avoids the need to call an exact bottom. It also imposes the discipline to pull the trigger by forcing you to buy if and when the stock gets low.

At the time of publication, Price had no positions in the stocks mentioned.