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Marine Products Corp. (MPX)
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Marine is a well-known manufacturer of recreational boats marketed under the Chaparral brand name. The company's products range from modest 18-foot deck boats priced for less than $20,000 to luxurious 37-foot cabin cruisers worth nearly $300,000. Additionally, the firm sells a complete line of salt-water sport-fishing boats. Marine's boats can be found at more than 160 authorized dealerships nationwide, as well as through a network of more than 25 international boat dealers.

MPX was pummeled several months ago when the company warned that an uncertain retail environment -- particularly for its smaller model deck boats -- might leave its fourth-quarter numbers a little light. The cautious outlook weighed heavily on the shares, which have since traded within a narrow $1 range between $10 and $11 -- about half of where they were last February. Of course, after doubling for three consecutive years between 2002 and 2004, it's not surprising that the stock has stopped temporarily to catch its breath.

Even after the pullback, MPX has still delivered gains of better than +30% annually over the past three years -- about ten percentage points ahead of the average stock in the recreation industry. While the markets may have overreacted to Marine's recent setbacks, it is precisely such knee-jerk, myopic selling that allows value investors an opportunity to purchase quality stocks at discounted prices.

As the table below shows, Marine has delivered attractive top and bottom-line growth rates over the last five years. This has fueled stellar stock performance, as well as steadily rising dividend payments:

Despite a weaker fourth-quarter outlook, the company is still on track to post full-year earnings of $0.66 per share, which would represent an impressive +14% improvement over last year's total. Through the first three quarters of 2005, revenues climbed +13.4% to $215.2 million, thanks in part to higher selling prices per unit. At the same time, net income jumped more than +20% to reach $22.0 million, or $0.54 per share.

It is worth noting that management has a sizeable stake in the company, with insiders holding more than two-thirds of the firm's outstanding shares. And with management's and shareholders' interests aligned, it is not surprising to see that the company has done a remarkable job of putting its capital to work, with excellent return on equity (ROE) and return on asset (ROA) figures of 31.1% and 24.2%, respectively. Both figures handily beat industry rivals, and are also well ahead of the firm's own 5-year historical average.

In my book, any management team that can consistently generate such high returns on capital is worthy of consideration. The firm's rising free cash flows are also a major positive. After losing nearly one-third of its value over the past year, the stock now has a solid operating cash flow yield (calculated by taking operating cash flow and dividing that figure by the firm's enterprise value -- OCF/EV) of 5.8%.

In the short term, Marine may stumble slightly over the next few months as the company slows production to assess dealer inventory levels, customer demand, and the impact of rising gas prices. However, with a successful forty-year track record, an experienced management team, and a premium brand name, the company will weather this storm. In the meantime, the firm is introducing nine new models in 2006. And based on early feedback, these models have been well received by dealers and customers alike. Furthermore, replacement orders from owners whose boats were destroyed by recent hurricanes should also boost results in the coming year.

If a rising tide lifts all boats, then it should surely lift a premier boat manufacturer like Marine.

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